The Four Essential Stages of a Closing
When it comes to reaching a successful closing, there are four important stages to keep in mind. In this article, we will take a look at the process and what sellers can expect. If you are planning to sell a business, it is also helpful to understand in depth what the stages are from a buyer’s perspective.
The Letter of Intent (LOI)
The letter of intent is one of the responsibilities that your business broker or M&A advisor will take on to assist you. Your letter of intent should include the price, terms, time frame anticipated as well as other factors, such as the seller’s transition and training. Details such as what is included and what is not included in the deal should always be addressed in this agreement.
Due Diligence
The due diligence process is also an essential step. Your business broker or M&A advisor will guide you during due diligence. All important facts and documentation should be evaluated, ranging from tax returns and internal P&Ls to leases, bank statements, and customer/employee lists. Buyers who do not invest enough time and energy into due diligence can often have serious regrets after the deal has closed. Be sure to take your time with this stage.
There are other areas of due diligence that should not be overlooked including the very important NDA, financial statements, credit reports and other factors. If you want to have a smooth closing (which clearly you do!), you will want to wisely invest your time in due diligence.
Financing Approval
Financing approval is considered your lender’s responsibility. However, if you need advice and insights, your business broker or M&A advisor should be able to assist you. You may want to look into local SBA lenders or seller financing.
Agreement Drafting
The final agreement drafting period must be taken seriously. This is a step where your attorney will be of tremendous assistance. Your written agreement should cover a wide range of aspects including everything from payment terms to assets and liabilities. Both the buyer and seller should know exactly what the arrangement will be.
When these four stages are followed properly, your deal should close in a timely and effective manner. If you have any concerns or uncertainties about these parts of a closing, be sure to always ask the necessary questions.
Copyright: Business Brokerage Press, Inc.
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Exit Planning: How to Create a Checklist for Your Business Sale
Did you know that of the businesses that are up for sale, only an estimated 20-30% actually sell? Despite the fact that most business owners know that they’ll eventually want to sell their business in order to retire or explore new opportunities, few are preparing an exit plan.
Exit planning isn’t just about making sure that you can sell when you want to. It’s also about selling your business at the highest value possible.
Today, we’re going to talk about preparing your St. Louis or Metro East business for sale, no matter how soon you intend to sell.
Read on to learn what to include on your business exit checklist.
Assessing Value
All exit strategies should begin with a business valuation. To do so, you will want to partner with a business brokerage that has experience in your region and with businesses in your niche. Keep in mind that while a business appraiser may seem like the right choice, appraisers typically value businesses for legal purposes like divorce or tax preparation, not for sale.
Verbal opinions of value may be enough if you are the sole owner of your business and do not need anyone else to review your business valuation. However, it is often preferable to receive a written report that breaks down the calculation of value so that you and your partners can understand how your broker arrived at the range of values they’re reporting.
Preserving Value
Once you’ve received a range of values, it’s time to consider value preservation. Your business is unlikely to sell immediately, and you do not want to experience any value loss in the coming months or years.
To preserve value, consider hiring a lawyer to perform a legal audit to identify legal concerns that you need to address to avoid litigation. Review your business insurance policy to ensure that it will mitigate losses if necessary. You should also ask your lawyer and financial advisor about any tax liabilities that need to be mitigated, as well.
Increasing Value
One reason to begin thinking about your exit strategy before you’re actively looking to sell your business is that an early start gives you time to increase the value of your business. This will take a varied approach and will include steps such as:
- investing in updated marketing strategies with a high ROI to increase your customer base
- reducing excess employee dependency
- reducing employee turnover
- streamlining operations
- replacing old or worn equipment and prioritizing preventative maintenance
- expanding your product or service lines
- creating a strong and incentivized management team
Discuss the best strategies with your financial advisor or business consultant, as not all of these strategies are suitable for every business. It is often better to put your resources toward two to three of these strategies, rather than loosely trying to use all of them.
Considering Exit Options
Often, you will need to consider your exit options at the same time that you are determining the value of your business. An experienced business brokerage can advise you on the steps to take and in what order.
There are two primary exit options to consider. The first is an inside exit option, in which the buyer comes from your family or from within the business, itself. The second is an outside exit option, in which the buyer comes from outside of your family or business.
Keep in mind that while inside exit options may seem simpler on the surface, they can lead to disputes and emotional elements. They also tend to yield a much lower value than an outside exit option. That said, many people wish to keep a business in the family, and an experienced business brokerage can provide the objectivity needed to do so in the smartest and most beneficial way.
Accounting for Involuntary Exit Options
There is a third exit option that many business owners fail to account for. This is the involuntary exit option, which occurs when a business owner has no choice but to sell the business to someone else.
Involuntary exit options most typically occur in the event of the death, disability, or divorce of an owner. While these events are considered unforeseeable, you can still prepare for them in advance. Work with your advisors and lawyers to create legally binding contracts that will determine ownership and mitigate losses in the event of an involuntary exit.
Preparing Your Exit Strategy Team
In order to create and execute an exit strategy, you will need to develop an exit strategy team. Many businesses choose this step as a starting place, but the team can shift or evolve as you complete the steps we’ve mentioned above. If you do create your team before getting a valuation or considering your exit options, prepare to be flexible in adding or removing team members.
Your team should include:
- your business brokerage
- an attorney with experience in estate, tax, and financial planning as well as businesses within your niche and model (i.e. franchised businesses versus family-owned businesses)
- an accountant or CPA with similar experience as your attorney as well as retirement planning or business acquisition experience, depending on what you intend to do after selling your business
- a financial or insurance advisor
If you intend to increase the value of your business before selling, you may also want to work with a business consultant.
Include Fusion in Your Exit Planning Process
All exit planning requires a valuation of your business. While you might not secure a sale at that full value, you should still know how much your business is worth and how much value you might stand to lose or gain.
Fusion is one of the top business brokerages in the St. Louis area, specializing in the sale of small to medium-sized businesses. To find out how we can help you develop your exit plan, contact us today.
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How to Sell a Small Business, Step-By-Step
America has around 33.2 million small businesses, according to Zippia statistics. Unfortunately, only about 55% of said businesses may last more than a few years.
Whatever the reasoning, as a small business owner, you may reach a point where you want to sell. This can be a complicated process, but by following a few key steps, you can successfully sell your small business.
In this straightforward guide, we’ll set your mind straight on how to sell your small business the right way. Keep on reading in you want to remove all the worry and hassle from the process.
Determine Your Asking Price
Before you can start the process of selling your small business, you need to determine how much you want to ask for it. This is known as your asking price.
There are a few different factors that can influence your asking prices, such as the size of your business, its location, the industry it’s in, and its financial performance.
One way to determine your asking price is to use a business valuation method. There are several different methods you can use, such as the income approach, the market approach, and the asset approach. Each method looks at different factors to determine the value of your business.
It’s also a good idea to get an assessment from a professional business appraiser when you want to sell a business. A business appraiser can give you a more accurate estimate of your business’s value based on a thorough analysis of your financial records and other relevant information.
Prepare Your Business for Sale
Once you have an idea of your asking price, the next step is to prepare to sell your business. This involves getting your financial records in order, creating a list of your business’s assets, and making any necessary repairs or improvements.
First, it’s important to gather all of your financial records, including profit and loss statements, balance sheets, and tax returns. These documents will provide potential buyers with an idea of your business’s financial performance. You should also create a list of your business’s assets, including any equipment, inventory, and real estate.
It’s also a good idea to make any necessary repairs or improvements to your business before putting it on the market. This can help make it more appealing to potential buyers and increase its value.
Find a Broker or Agent
Once you have determined your asking price and prepared your business for sale, the next step is to find a broker or agent to help you sell your business. A broker or agent can help you find potential buyers, negotiate the sale, and handle the legal aspects of the transaction.
When choosing a broker or agent, it’s important to find someone who has experience selling businesses in your industry. You should also look for someone who has a track record of success and is well-respected in the business community.
Market Your Business
Once you have a broker or agent, the next step is to market your business to potential buyers. There are several different ways you can do this, including:
- Advertising in business publications or online
- Networking with other business owners and professionals in your industry
- Using social media to promote your business sale
Your broker or agent can help you come up with a marketing plan that will reach potential buyers and showcase the strengths of your business.
Review Offers and Negotiate the Sale
Once you start receiving offers for your business, it’s important to review them carefully and negotiate the best deal possible. Your broker or agent can help you with this process.
When reviewing offers, you should consider the price being offered, as well as any other terms and conditions that are included. You should also consider the buyer’s ability to finance the purchase and their plans for the business after the sale.
Once you have negotiated the terms of the sale, you will need to create a purchase agreement that outlines the terms of the sale and any contingencies. Your broker or agent can help you with this process.
Close the Sale
The final step in the process of selling your small business is closing the sale. This involves transferring ownership of the business to the buyer and completing any necessary paperwork.
To close the sale, you will need to sign a bill of sale, which is a legal document that outlines the terms and conditions of the sale. This includes the price, any financing arrangements, and any warranties or guarantees. You will also need to transfer any assets, such as equipment and inventory, to the buyer, as well as any leases or contracts that are associated with the business.
It’s important to work with a lawyer or other legal professionals to ensure that the sale is completed correctly and that all necessary documents are properly executed.
They can help you navigate the legal aspects of the sale, such as tax implications and intellectual property rights, and ensure that your interests are protected. They can also help you handle any disputes or issues that may arise during the closing process.
Sell a Small Business the Right Way
Selling a small business can be a complex process, but by following these steps, you can successfully sell your business and move on to your next venture.
By determining your asking price, preparing your business for sale, finding a broker or agent, marketing your business, reviewing offers, and closing the sale, you can navigate the process of selling a small business and achieving your goals.
We are Fusion Business Services and we understand that selling your business is a major decision. It may even be that your company represents something of your life’s work.
Whatever your situation, we’re ready to listen. Read here to learn more about selling your business with us.
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Take Inventory of Your Company
Most business owners don’t give a second thought to the idea of going to the doctor for an annual physical. So why do they not give the same level of care and consideration to their company? The fact of the matter is that many executives literally go decades without giving their companies a “physical.” They only stop to truly evaluate their business when required by regulations or another matter forcing them to do so.
Consider an Annual Valuation
Let’s take a look at some of the reasons why business owners should get an annual valuation. The first issue concerns the curveballs life often throws at us. At any given time, you and your business could be unexpectedly hit with everything from partnership issues or life changes like a divorce to changes in bank relationships. When you keep careful track of the value of your business, you will know in advance how potential changes would affect you. Perhaps even more importantly, you will gain an understanding of the health of your business.
Monitor Business Growth
It’s critical to be aware of how your business compares from one year to the next. Are values definitely increasing? If not, you would surely want to know immediately and start making necessary adjustments. If a major problem were to surface, you would want to know about it right away so that you can take action. Otherwise, you might just let the years pass you by while this issue goes unchecked. This is the kind of data you will gain when you commit to regular valuations.
Be Prepared for the Unknown
You might feel far from ready to sell. However, you should always be ready if the situation does present itself. What if an amazing opportunity showed up on your doorstep? On the flip side of the coin, what if a life issue like illness put you in a situation where a sale was suddenly necessary? If you are not ready both mentally and with the necessary paperwork for your business prepared, you might miss out on a legitimate opportunity.
Statistics gathered from a prominent accounting firm showed that 65% of business owners do not know what their company is worth. However, at the same time 75% of the net worth of these business owners is tied up in their business. The problem with these statistics is quickly evident. Be sure to take as good of care of your business as you would take of yourself.
Copyright: Business Brokerage Press, Inc.
The post Take Inventory of Your Company appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
8 Steps to Buying a Business and How to Get Started
There are over 33 million small businesses in the United States. If you’ve ever dreamed of being a small business owner, why not join them?
You don’t have to start your own business to be a business owner. Buying a business that already exists is a valid (and sometimes easier) option. You’ll already have a clear framework to work with and a preexisting customer base.
But how do you buy a business? We’re here to talk about it. Read on to learn all about how to buy a business.
1. Do Your Research
When you’re making the decision to buy a business, it’s important that you do your research ahead of time. Buying a small business is no small deal. This is a major investment that will lead to a significant life change.
You want to make sure you’re buying a business in an area in which it can thrive. Make sure the niche isn’t oversaturated and that the business has a relatively high potential for success.
If this is your first time buying or owning a business, you should also take time to understand what that entails. Owning a business isn’t easy, and while buying a preexisting business comes with its benefits, you still need to understand the basics.
2. Determine Your Budget
How much money are you able to spend on this business?
Most businesses are financed. You’ll likely be paying for part of the business in cash and the rest through a loan. Obtaining financing can be challenging, so it’s something you want to think about as early as possible.
The current business owner may offer seller financing, which may be easier than getting a loan from the bank, so keep this in mind when you’re finding a business to purchase.
Even if you get a loan, you don’t want to financially overextend yourself. Determine how much money you’re able to put into the business, and don’t forget that the cost of the business itself is not the only cost you have to think about.
You’ll have to consider the costs associated with running a business.
3. Find a Business to Buy
Now it’s time to find the right business. When you’re choosing a business, look for things like:
- An industry you understand
- Positive cashflow
- A decent reputation
- A long-term growth plan
- Something you think you’d enjoy
Not all businesses will be a good fit for you. This is a long-term commitment, so you want to find something perfect. Don’t be afraid to shop around.
You can work with online business brokers to find your new business. It can also be helpful to network with other local business owners who may have some leads or insider information about the businesses that are currently for sale.
4. Value the Business
So you’ve found a business that seems right. Now it’s time to value it. Business owners do not always accurately value their businesses, so to make sure you’re making the right choice, you’re going to have to do that on your own.
You can try to value the business on your own, but if this is your first time buying a business, it’s best to hire a professional. This can be expensive, but the cost is more than worthwhile so you know you’re not overpaying or buying a business that’s doomed to fail.
5. Negotiate
Now it’s the negotiation phase. Business owners already have prices in mind, but those prices may go up or down depending on the circumstances.
If other people want to buy that business, you may end up paying over the asking price. If you’re the only potential buyer and you think the business is overvalued, you may be able to get a lower price.
Make a written or verbal offer on the business. As long as the offer is close to what the business owner wants, they’ll respond.
When you’re done negotiating the purchase price and terms of the agreement, nothing will be official. You’ll be able to return to the negotiation if necessary after you do your due diligence.
6. Write a Letter of Intent
Your letter of intent is just a written notice that you plan on purchasing the business. Write the tentative purchase price, the terms of the agreement, and your intent to buy.
The letter of intent gives you the sole right to purchase the business for about 90 days, so you have that long to confirm without losing it.
7. Do Your Due Diligence
Once you submit the letter of intent, you’ll have access to more information about the business. You’ll get financial records, organizational documents, legal information, contract information, and more.
You want to take your time looking through all of this information before making your final decision. Something you find could lower the value of the property or turn it into a bad purchase altogether.
8. Complete the Transaction
If all is well after doing your due diligence, you’ve successfully obtained money for the business, and you agree with the terms, you can now close the transaction.
You’ll draft a purchase agreement and set a closing date. It’s helpful to have a lawyer help you with this process to make sure everything is fair.
Depending on the situation, you may need to apply for new business licenses before you’re able to start running the business on your own. It’s possible for the old licenses to carry over temporarily, but this isn’t always the case.
Congratulations on Buying a Business
Buying a business can be stressful, but once the process is over, you’ll have a whole new life path ahead of you. You’re now a business owner! That’s something to be excited about.
The process won’t be quick or easy, but it will be worthwhile.
Are you getting ready to buy a business in the St. Louis area? We want to help you. Contact us to learn more about buying (or selling) a business today.
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