BayState Business Brokers Blog

How to Choose an SBA Lender to Buy a Business

Posted by Marc Gudema on Tue, Aug 19, 2014 @ 02:56 PM

Getting the financing to buy a business is a contingency in most business sales.  Choosing the right SBA lender can make the difference between getting that financing or not.  Many buyers believe that all SBA lenders are about the same.  They choose an SBA lender that is located near them or at the bank where they have been banking.   This can be a big mistake.  There are big differences in SBA lenders.  Here are the attributes that you should look for in an SBA lender.

SBA Preferred LenderThe most important attribute that you should look for is that the lender is an SBA Preferred Lender (PLP) in your state.  The local SBA website lists the SBA lenders and shows which are preferred lenders. A PLP can approve your loan without needing to submit it to the SBA.  This speeds up the process.  A bank needs to be have done a sufficient number of SBA loans and done it well enough to get this status from the SBA.  This shows you that you are working with a bank that is a more experienced SBA lender.

In addition to PLP status, you should look into other attributes of the SBA lender.  Find out how many SBA loans the lender has done recently and whether they are lending to your type of business.  This shows you two things – how experienced they are at doing SBA loans and whether they lend for your type of business. The local SBA office regularly publishes a list of the largest SBA lenders.  Keep in mind that SBA lenders are loaning money for more than just business purchases. 

You should also keep in mind that while all SBA lenders have to meet the SBA requirements, each one has their own requirements to obtain a loan.  Lenders differ in the down payments they require, what types of businesses they will lend to, whether they require collateral and how much, the borrower’s credit score, and other factors.  In your initial investigation you should contact more than one SBA lender to see which one is best for your situation.

Another question to ask the lender is where the loan is underwritten.  Jennifer Mason, of FTUB, states that this is important “especially if there is real estate.  In the Northeast, we have a lot of property that is high priced. . . a lender from a newer area of the country is going to have a tough time with the real estate valuation. . . all of our SBA loans are underwritten at our headquarters in Boston”

In addition to choosing the best SBA lender for you and your situation, you should choose a good SBA loan officer.  This is likely to be someone that specializes in SBA loans and has several years of experience in SBA lending.  There are a number of benefits to working with an experienced SBA loan officer:

  • The SBA rules change frequently, typically a couple times a year.  A loan officer that specializes in SBA loans should be aware of these rule changes and be sure you and your loan meet them.  This is one area in which an experienced SBA lender can assist to make sure the transaction is being structured in a way that meets SBA requirements.

  • Michelle Orr of Wells Fargo  recommends choosing an SBA loan officer “that is responsive to your questions and provides answers in a timely manner. . . a loan officer that goes above and beyond to make the process simpler for you. ie…pre-fill applications and provides a complete list of what is needed for approval.”

Most of our business sales are financed by SBA loans.  We know several good SBA lenders.  If you are buying one of the businesses we have for sale, ask us for a list of SBA lenders that we have worked with.  They meet the criteria in this blog.

Tags: how to get a loan to buy a business, sba loan, sba lender

How to Buy A Business - Be Prepared for the Competition

Posted by Marc Gudema on Wed, May 28, 2014 @ 02:32 PM

When you are making an offer on a business, don’t be surprised to find that there are other bidders.  In many of our business sales, we are receiving multiple offers.    This is a common occurrence in sales of larger businesses by investment bankers and the buyers are familiar with how to handle the situation.  Many individual buyers that we deal with are not. 

First of all, don’t drop out.  If you drop out, you won’t buy the business.  Competition is a fact of life.  When a buyer complains about the competition, I ask them if they would rather buy a business that no one else wants.  Ask yourself what bothers you about the process so you can better handle it.  Are you concerned about being used to get a better offer from another buyer?  Is the loss of control of the process bothering you?  As the only buyer, you have more control.  The power shifts to the seller when there are multiple bidders.  If this is a good business that you would like to buy, learn how to navigate this different terrain.  Here are some tips on how to do so.

  • Find out the process that the seller and business broker are using.  Is this a formal auction where all “best and final” offers are submitted at the same time? Will an LOI be negotiated with the one, “best” offer?   Or, is the seller acting on each offer as it is received and accepting the first offer that is acceptable?   Or, are they negotiating with several buyers who made the best offers?  Or, is some other process being used?  You need to know as much as you can about the rules of the game.

  • Find out what is important to the seller.  The decision about which offer to accept is how to buy a businessrarely only about who offers the best price.  What other terms are important to the seller?  Third party financing?  How long the seller will have to stay on after the closing?  Speed and certainty of closing?  Keeping the employees?  Find out what is important to the seller and create your offer with these in mind.

  • Stick to the terms of the offer you present.  Nothing kills a deal faster than asking for a lower price or other revised terms.  Unless you find clear reasons to do so in your due diligence, and this information was not disclosed earlier, stick to the deal you negotiate.

  • Be a reasonable, personable, person.  Nice guys don’t finish last; jerks do in this process.  All things being equal, it’s more likely a seller will sell to someone they like rather than someone they dislike.  They are also more likely to be helpful to them after the closing to be successful with the business.

  • Move quickly.  In most deals, speed and certainty of closing is important to a seller.  By moving quickly, you show a seller that you are more likely to move quickly to close the deal.  Accordingly, have the deadlines in your offer, such as for due diligence or obtaining financing, be as short as you can work with.  The best way to move quickly is to be prepared by the time you make the offer.  Line up your attorney and accountant.  Know the financing sources you will go to.  Have other needed services lined up.

As you can see, dealing with a situation where there are multiple buyers is more complicated for a buyer.  Understand that the seller’s business broker represents the seller.  In this situation, you may wish to use an experienced buyer’s broker to handle the process for you.

Tags: buy a business, business broker, how to buy a business

Should your business broker use an auction to sell your business?

Posted by Marc Gudema on Wed, Apr 23, 2014 @ 11:42 AM

An auction process is frequently used to sell middle market businesses (those with sales of $5,000,000 to $1,000,000,000).  The primary reason for using an auction is to raise the selling price of the business.  An auction is rarely used in the sale of smaller businesses.  Would it be a good practice to use the auction process to auction a smaller business for sale?


The auction process I’m discussing is a private auction process.  In the sale of some large,
well-known businesses – such as professional sports teams – the auction is made public.  The auction is publicized to reach as many potential buyers as possible.  In these sales, the public disclosure will not hurt the value of the business.  In the sale of most privately owned businesses, the owner does not want public disclosure of a potential sale because it would hurt the business.


A private auction can be conducted in many different ways.  Here are the usual steps in the process when used to sell middle market businesses:

  1. Identifying potential buyers.  Because of the likely selling price of the business, the buyer is more likely to be a business entity than an individual buyer.  The M&A advisor identifies all the potential buyers for the business.

  2. After identifying the buyers, contact will be made with all of the ones that might haveauction business for sale an interest in buying the business.  The identity of the business will be kept confidential.  The buyers will be informed that an auction process is being used, the steps in the process, and when bids will be due.

  3. After executing confidentiality agreements and showing financial qualifications, the buyers are given another report about the business, disclosing its identity and giving more details about its business and finances.  The buyer will then be asked to present an “indication of interest”.  This is a range of the price that this buyer would pay.

  4. The buyers willing to offer the highest price range, and who are likely to present a final offer, will be given the opportunity to meet with the owners, see the business, and given additional information about the business.

  5. The chosen buyers present their final offer and the sellers negotiate with the best one to reach a final deal.

Note that this covers the basics and other steps, or processes, may be included.


There are several reasons that the auction process is used to sell larger businesses:

  • By not putting a price on the business, you don’t put a cap on the price.

  • There may be strategic buyers who are willing to pay much more than the financial value of the business.

  • Buyers are knowledgeable and don’t need a selling price to develop their offer.

  • There are many potential buyers so an auction process, which creates competition between them, can be used.

  • It gives all buyers time to present an indication of interest and final bid which should result in a higher sale price.

Here are some reasons why the auction process isn’t used often to sell smaller businesses: 

  • Many buyers make offers based on the asking price and are not familiar with, or comfortable with, developing a price. They are worried about overpaying.

  • Buyers are not used to an auction process, are not comfortable with it, and would not participate.

  • Many businesses don’t have a strategic value, or have a small one, so attaining a much higher price by using an auction is limited.

  • There are few buyers for the business.  A successful auction needs to have several buyers participating.

Nonetheless, there are some small business sales that would meet the criteria.  Here are a few,
            Liquor Stores – there are typically many buyers, who may already have bought another store, and are familiar with the sale prices.
            Printers – there are many potential buyers for a printer’s book of business and they will develop an offer.
            Security Alarm Companies – Are highly sought after because of their recurring revenues and long-term contracts.


Although the auction process may not be appropriate for most small business sales, it can be an effective way to sell some businesses.  It can be a good way to handle a high level of buyer interest and get the best price for the seller.

Tags: sell a business, business broker, auction a business for sale

Exit Planning? Update Your Marketing

Posted by Marc Gudema on Thu, Apr 17, 2014 @ 03:11 PM

When I meet with business owners who are preparing to sell their businesses, it is not uncommon to find that their marketing hasn’t changed much for several years.  They still pay for the yellow pages.  They may not have a website – or, if they do, they don’t know how to use it. They don’t use Google Adwords.   They are probably not using social media. 

It is easy to be overwhelmed by the marketing choices today and not do anything different.  But, reaching customers has changed tremendously over the past 20 years and any business that hasn’t changed its marketing is losing out on many potential customers.  It isn’t as difficult as you may think.  Here are some easy ideas for updating your marketing.

For starters, you must have a website.  The first thing a potential customer will do to check you out is look at your website.  The website should have an up-to-date appearance.  It should be “responsive”.  What that means is that it automatically looks good on whatever device – computer, tablet, or smartphone – someone is using to view the website.  Be sure your website has your contact information and contact forms on most pages so it is easy for a potential customer to contact you. 

Your website should be optimized for search engines.   Try to use a URL that relates to the products or services you sell – not just for the home page, but for internal pages.  Focusing each page on a term or topic that people will be searching for will help that page to be ranked higher on the search engines. 

When people do searches on the Internet, there are two types of results that appear.  At the top and side of the page are “Sponsored Links”.  These are “pay per click” ads; about 30% of people click on these.  The rest of the results, which 70% of people click on, are “natural” results.  These are chosen by the search engine’s software as the website pages that are most relevant to the search terms entered.  Although it doesn’t cost anything to appear in the natural results, it can be difficult to be listed on the first page of the search results.  That is as much as most people look at.

Google Adwords, and BingAds, serve up the “Sponsored Links” that you see at the top and exit planningside of search results.  This is a very good way to market your website and, consequently, your business.  Although it costs money to advertise this way, you have more ability to be seen on the first page of the search results.  One of the best features of this advertising is the ability to target your advertising.  The most basic targeting is by geography.  Your ads are not shown outside of the area you specify.  You can also adjust your advertising over time as you see what works, and what doesn’t.  I’ve found that it makes sense to pay more to be listed in the search results at the top of the page rather than the side.  I would also suggest that, rather than sending everyone to your homepage, you create landing pages tailored to the ads you are running.

What about social media?  If you are a retail business, it probably makes sense to have a Facebook page.  Be sure to keep it up.  If you are doing business to business sales, LinkedIn may be better for you.  Some people find that participating in groups on LinkedIn can be an effective way to attract customers.

How do you find someone to create the website and Adwords marketing?  You can search for them using the search engines.  You can also go to websites where free-lancers are offering their services.  Some popular websites are www.elance.com, www.guru.com, or www.mosaichub.com.

If you are preparing to sell your business, don’t forget to have an up-to-date marketing program.  Of course, the other benefit is that while you own the business, you should get more leads, more sales, and more income.  If you need to update your marketing, start with the basics.  Create, or update, your website and do some Adwords marketing.  These are likely to get you the most “bang for the buck” and the best results for the efforts.

Tags: sell a business, exit planning

Do you have the skills to become a business broker?

Posted by Marc Gudema on Tue, Apr 01, 2014 @ 11:07 AM

The outlook for business brokerage is very good and a successful business broker can make a very good income.  According to IBISWorld, the business brokerage industry – revenues earned on the sale of businesses at a price of $2,000,000 and under -- should surpass $1 billion in revenue in the next few years.  The improving economy, increasing number of businesses, and more business owners reaching retirement age will drive continued growth.  According to the 2013 Business Brokerage Press survey, an industry veteran should earn over $100,000.  If you like business, being a business broker is an interesting career.  You see many different businesses and management styles.  No two days are the same.  If you are thinking of becoming a business broker, here are some skills you need.

First and foremost, you need to have excellent sales skills to be a business broker.  In the typical sale of a business, you need to convince a business owner to give you the exclusivebusiness broker   young woman   Copy right to sell their business and then you need to sell the business.  We find that good b-to-b sales experience is essential for a business broker.  But, you also need to have skills in selling to consumers.  The majority of small business sales are to an individual.  You are selling the sizzle and the steak.  The buyer needs to be excited by the business and they need to see that the numbers work – that they will make an adequate income from the business.

In addition to having excellent sales skills, you need to enjoy sales.  Selling is what you will spend most of your time doing.  If you don’t enjoy it, it will quickly burn you out.

You also need to be able to work with financial statements – primarily the income statement and balance sheet – to become a business broker.  You are not an accountant, but you need to understand financial statements and recast them to show a buyer how the numbers will look to them.  You also need to understand financial statements to prepare market value reports to show an owner what their business is likely to sell for.

There are a few personality traits that will help you to be successful as a business broker.  The ability to stay calm when dealing with a tense situation is important.  Buying or selling a business is a stressful event in someone’s life.  They will take out some of their stress on you.  They are likely to become angry at the other party at times during the process.  You are a buffer between the parties.  You need to be able to resolve the differences without taking it personally.   You also need to bring reality to the buyer and seller.  Many times, they will bring unrealistic expectations to you.  It will expedite getting a deal done if you can nip these in the bud.  You also need to be able to relate to and deal with many different types of people with various ethnic backgrounds.  Another skill that will increase your ability to close deals is “creative problem-solving”.  If you can come up with creative ways to get by differences and obstacles, you will close more sales and make more money.

You need to have good communication skills, both in your speech and in writing, to become a business broker.  You spend a lot of time talking to people.  You need to be able to communicate your ideas clearly and in a manner that is acceptable.  You will also write reports and emails.  These need to be well written.  If they are not, they may not communicate what you want to say.  If poorly written, it will reflect poorly on you.

You need to be self-motivated and self-directing as a business broker.  You need to be able to schedule your time by setting your priorities.  Even if you work for a business brokerage agency, rather than on your own, it is unlikely that the owner of that company will want to micro-manage your schedule.

The final skill that I would suggest you have to become a business broker is the ability to work with technology to stay organized and be effective.  A CRM system is essential for keeping track of clients and scheduling.  A Smartphone enables you to stay in touch better and respond faster.

If you are thinking of becoming a business broker and have these skills, please contact me.  I would be happy to talk to you more about what it takes to become a successful business broker.

Tags: business broker, become a business broker, business brokerage

5 Terms to Be Reasonable About If You Want to Sell Your Business

Posted by Marc Gudema on Fri, Mar 28, 2014 @ 10:46 AM

You may have a great business to sell, but if your selling terms are not reasonable, it may not sell.  Or, it may take a lot longer to sell the business and result in you getting a lower price.  Keep in mind that no matter how good your business is, a buyer doesn’t have to buy it.  A buyer is comparing your business to others on the market, and if any of these terms are not realistic, it may kill a buyer’s interest.

The most common term we think of when we think of being realistic is the price.  If the price is too high, it generally means that the cost of financing the purchase will take too much of the cash flow and the buyer won’t get enough income, or return on investment, for the deal to make sense.  Keep in mind also that you are competing with other businesses on the market, in your industry, and all businesses.  If your price is not in-line with what others are asking for comparable businesses, buyers will buy another business.

Another reason that a high price will kill a deal is that, in most sales, the buyer gets an independent appraisal.  They may need one for the lender, or just get one to confirm the price.  If it is much lower than the deal price, the buyer may pull out of the deal or demand a lower price.

The best way to find out what your business is likely to sell for is by getting an independent sell a businessappraisal from an accredited appraiser.  Most business brokers can give you an estimate of the selling price using your financials and information on what businesses like yours have sold for.  These valuations are based on the financial results of your business -- generally weighting heavily on the most recent results.  That’s because a buyer is paying based on how your business is doing now and the most recent year’s results are the closest to it.  Don’t expect to get paid on the tremendous growth opportunity in your business or the “goodwill” you have from being in business for many years.

Another expectation that can be unrealistic is the proposed financing.  In order to get an SBA loan, the business tax returns, with typical add-backs, needs to show enough cash flow to provide an income to the buyer, payoff the loan and have a margin of safety.  If the tax returns don’t show this, then you will probably have to provide a seller loan.

It is unrealistic to expect an all-cash buyer.  Most buyers are leveraging the money they have for a down payment with a loan to buy a business.  The buyer that has enough cash to buy your business is usually looking at a larger business to buy using his cash as a down payment.   That’s not to say it never happens, because it does, but the all-cash buyer is a small percentage of the potential buyers.

Keep in mind also that the lower the amount of the down payment a buyer needs to buy your business, the more potential buyers there are for it.  An SBA loan typically requires 20% down and a seller loan 40% to 50% down.  If the buyer can get an SBA loan, there will be more potential buyers.

If your location is important to the results of the business, then a buyer will need to get a lease for the space.  Lenders will not give a loan that is longer than the term of the lease, with buyer options to extend.

A buyer will expect you to sign a non-compete.  This will prevent you from operating a competing business that does business with the same customers, or operates in the same market area, for several years – typically 3 to 5 years.  The non-compete is also likely to prevent you from hiring away employees.

You need to be realistic about the training and transition you will be willing to give a buyer.  How much they need depends on the skills of the buyer, how complicated your business is, and what other people or resources there are for training.  If you will be staying on for an extended period, it is reasonable to be paid for the time you put in.  But, the rate of pay will usually be lower than what you’ve earned in the past.

When you are putting your business on the market, think about the price, financing, and other terms as if you were the buyer.  Would they be acceptable to you?   Talk to us about the terms you expect.  We will give you our expert opinion on whether your expectations are reasonable.

Tags: sell a business, price a business, sale terms

Should You Buy an Existing Franchise or Open a New One?

Posted by Marc Gudema on Wed, Mar 19, 2014 @ 11:55 AM

If you are thinking of buying a business, franchises have a lot of appeal.  They have a track record.  Many are household names.  Most have an operating manual that gives you the information on how to operate the business.  If you need assistance, they have people available to help you.  But, should you buy an existing franchise for sale or open a new franchise location?

The first thing you should recognize is that buying a franchise, no matter how many there are or how well known they are, is not a guarantee that you will be successful.  Just like a non-franchise business, there are successful franchises and unsuccessful franchises.  The same is true of individual locations.

As part of the process of buying a franchise, you will receive a Franchise Disclosure Document.  Franchises are required by law to give you a copy before you buy a franchise. 
This document has important information!  Read it.  It will give you information about conflicts between the franchisor and the franchisees.  It will tell you how many new franchises were sold and how many closed.  It may give you information on how much an average franchisee does in sales or earnings.  It will give you a list of the franchisees.  Contact several and ask them questions about the franchise.  Do your due diligence.

The primary reasons to buy an existing franchise are the same reasons you buy an existing business – to reduce the risk of going into business and to start out with employees, customers, and an immediate cashsell my franchise flow.  As I pointed out, buying a known franchise is no guarantee of success.  Buying one that is up and running reduces this risk since you can see how the business has been doing.  There is no waiting to ramp up and start making money.  Both of these benefits are worth something.  In many instances, you can buy an existing franchise at little more than the cost of opening a franchise.

If the franchise is doing well, it is likely that existing franchisees have bought up many of the best territories.  In the case of some franchises, when a good franchisee wants to sell, they steer the sale to a good current franchisee so they have a good operator running the business.  In this case, their interests are not to get the best deal for the franchisee.  Many franchisees recognize this and sell their business through a business broker.  Exposing it to the market will usually result in more buyer interest and a higher selling price.

I have to give you a warning.  When you talk to the franchisor, they are likely to try to convince you to open a new franchise rather than buy an existing one.  We have had this happen to buyers, who were buying an existing franchise, several times.  This is self-serving to the franchisor.  If you buy an existing franchisee, they don’t gain anything.  But, if you open a new franchise, you may be successful and increase the overall revenues of the franchisor.  If you are dealing with a local franchise representative, it is likely that they will get a commission on your purchase of a new franchise – but not on a sale of an existing franchise. 

There are many good franchises.  But, like any business that is started, there is no guarantee of success and how well a new location will do can vary significantly.  Give consideration to buying an existing franchise to reduce your risk and start out with employees, customers, and a cash flow.

Tags: buy a franchise, buy an existing franchise, sell my franchise

How to Buy or Sell a Business with Real Estate

Posted by Marc Gudema on Fri, Feb 28, 2014 @ 09:06 AM

One of the more difficult problems for business brokers is how to advertise a business with real estate.  Should we advertise the income and price of the business with, or without, including the real estate?  What adjustments need to be made in presenting the business with real estate?  What should we do if the owner of the business is not paying herself a fair market rent?  Here are some things that you, as a potential buyer or seller of a business with real estate should keep in mind.

First, you should recognize that there is no standard way that business brokers advertise asell a business and real estate business with real estate.  That means that you have to look into each one and look at how the business is being marketed.  We usually advertise the income and price of the business only -- after deducting the likely cost to a buyer of a new mortgage on the real estate.  This is because, if we advertise the price of both, the price will appear high to many buyers and we get a much lower response to our advertising.  Let me explain with an example.

Let’s say the business generates an owner’s cash flow (seller’s discretionary earnings) of $200,000.  An average multiple for a selling price of a business is 2.5X SDE, or $500,000 for this business.  Let’s say that net operating income of the real estate is $100,000.  A normal cap rate for commercial real estate is 10X which would put a price of $1,000,000 on the real estate.  If we advertise both together, we have an SDE of $300,000 and an asking price of $1,500,000, a 5X multiple.  Since we are marketing to business buyers, they think that the price, 5X cash flow, is too high since they are used to seeing multiples of 2.5X cash flow.

If you are evaluating a business for sale with real estate, you need to evaluate each separately.  First, look at the income and cost of the real estate and plug the numbers into your pro-forma for the business.  Then, see what the business generates in owner’s income and evaluate the price accordingly.

Here are some other things to look out for. 

  • If the business does not own the real estate, a separate tax return is being filed for the real estate.  You need to see that tax return and what is, or is not, on the tax return.
  • The rent that the business is paying may not be a market rent.  It may be higher or lower than a market rent.  You need to evaluate the business with the rent you will need to pay yourself to buy the real estate.
  • Watch out for the real estate taxes.  If there hasn’t been a recent sale of the property, it may be under-assessed.  When you buy the real estate, the property may be assessed higher and the real estate taxes on it will go up.
  • An SBA 504 loan is frequently used by buyers to finance the purchase of the real estate.  They typically have to put down 10% or 15% of the purchase price as a down payment.
  • Keep in mind that the real estate may be an important component for some businesses.  I sell a number of auto body shops.  Many are located in communities where it would be very difficult to get approval for a new body shop.  Many industry buyers would not buy the business unless they could buy the real estate.
  • Consider what the value or use of the real estate would be if the business was not located there.

Don’t be scared off by the cost of buying a business with real estate.  There is a difference in evaluating a business and evaluating the associated real estate.  Be sure you do both.

Tags: sell a business and real estate, sell a business with real estate, how to sell a business with real estate, how to sell a business and real estate

Be Sure to Get the Training You Need When You Buy a Business

Posted by Marc Gudema on Thu, Feb 20, 2014 @ 01:53 PM

When a person buys a business, they usually recognize that getting trained to run it is important.  But, it may not be given the attention and importance that it should.  If you are buying a business, here are some things to remember when you are working out the training with the seller.

Discuss what training you need and how it will be given during your discussions with the seller before you make an offer.  This issue is frequently given just a token discussion.  Many times, it just revolves around the amount of time the seller is willing to provide.  A meaningful discussion should include what the training should consist of.  By breaking down the training more, both parties will be able to come to a better estimate of how much time is needed and what the training should consist of.  The buyer of the business will also get a better understanding of what the seller does in the business and what the buyer needs to do to replace the seller.

Working out the training is not usually an adversarial discussion, but rather figuring out whatbusiness training works for both parties.  Both parties usually have a strong interest in the buyer succeeding in the business.  But, most sellers are selling for personal reasons and want to move on to the next phase in their life as soon as possible.  They want to give the needed training, but make it as short as possible.  For this reason, unless the training is only a week or two, the buyer should be sure the seller is compensated adequately so the seller is happy to stay on and provide the training.

The amount of time a seller should remain at the business to train the buyer, and the compensation, should be part of the offer the buyer makes.  If the parties have discussed the training before the buyer makes an offer, then agreeing to the offer should not be unduly delayed by working out the training.  And, the proposed training should be closer to what the seller will accept.  At a minimum, the Letter of Intent or Purchase Agreement should state how long the seller will remain to provide training, compensation, and during what hours.  The amount of off-site support – typically by phone or email – after the initial training should also be worked out.  It is common for sellers to provide the off-site support at no charge if the amount requested is minimal.  If the initial training is adequate, the off-site support needs should be minimal.

During the period of time between the signing of the offer and the closing, the parties should work out the details of the training.  Creating the training agenda will make it more likely that the training will cover the information that the buyer needs to learn the business.

There are some things that a seller can do which will not only make training much easier and better, but also make the business more saleable.  This is to systematize the business as much as possible, write the system procedures into a manual, and develop a formal training program for new employees.  This is typically done in franchise businesses and is a reason that buyers find these businesses attractive.

Systemized processes make finding employees easier, their training better, and provide consistency to the products and services the business provides.  McDonalds doesn’t look for people who know how to cook hamburgers, they look for people who can learn the McDonalds’ way of cooking them.  The same practice can be applied to many of the processes in any business.  Once the system is developed, it should be easy to write the steps in the process down and train people how to do them.   Even though the buyer is managing the business and may not be “cooking the hamburgers”, the buyer should know what each of the important jobs in the business entails.

Tags: buy a business, business buyer, training to run a business

When You are Looking for a Business Broker, Don’t Choose a Cowboy

Posted by Marc Gudema on Tue, Feb 11, 2014 @ 01:25 PM

When I think of a cowboy, I think of a tough individual who doesn’t need anything or anybody to do his job.  That may work on the range, but it doesn’t work well when you are buying or selling a business. 

If you have ever bought or sold a house, you probably used a real estate agent to do so.  Why?  Because if you were selling a house, you knew that they could reach many more buyers.  If you were buying a house, they had an inventory of houses to look at.  Why was that the case?  Because they were part of a group of real estate agents that co-broke the houses they sold.  Co-brokering makes for a much more efficient market and allows an agent to give better service to buyers and sellers.

If you are selling a business, you should use a business broker that co-brokes because itbusiness broker exposes your business to many more potential buyers.  Your business will be listed on all of the group members’ websites.  In addition, you have many more business brokers who may find a buyer for your business.  Your business should sell faster for more money by using a business broker who co-brokes.  If you are buying, there are a few benefits also.  The first is convenience.  By working with one business broker, you can be introduced to many more businesses.  Also, if the business broker represents you, you have someone helping you to evaluate the business.

Although co-brokering is prevalent in the sale of homes, it is not in the sale of businesses.  In fact, the opposite is probably true.  Nationally, there are probably many more business brokers who are not in a co-broke group than the number that are.  Why?  In my view, the primary reason is greed.  They do not want to share their commission with another broker.  But, if you asked, of course, they wouldn’t give you this reason because it is not a reason based on providing a better service to their customer.  They are likely to say that they can reach most of the potential business buyers or that many of the other business brokers are not competent.  Another reason they may give is the potential for vicarious liability.  These reasons don’t hold up to scrutiny.

We are members of BBANE, the only group of business brokers in New England that are co-brokering business sales.  There are 14 agencies with about 60 brokers in the group.  We recently had a $2,500,000 business sale between two brokers in different states.  The listing broker would not have known about the buyer without the participation of the selling broker in the other state.  The business-for-sale websites have certainly expanded the number of buyers that see an advertisement for a specific business.  But, it isn’t perfect; they don’t reach everyone.  Many business sales are started when a buyer talks to a business broker about what type of business they are looking for and the business broker finds a business that fits. (Isn’t the same true in the sale of homes?)

Another rationale for not co-brokering is that the other business brokers are not competent.  That’s simply not true.  Just like lawyers, doctors, or any profession, there are better and worse business brokers, but I’m comfortable working with the other brokers in BBANE.  Many of them have years of experience in the industry in which they have sold many businesses and have taken many classes to become better business brokers. 

Vicarious liability is a concern that can be dealt with.  If I’m selling your business and there is a co-broker involved who is working with the buyer, there is a potential for vicarious liability if that other broker represents the seller and me.  Vicarious liability means that the seller or I could be liable for a misrepresentation that the other broker makes to the buyer.  We avoid this by having the other broker represent the buyer, not the seller or me, and our Non-Disclosure Agreement clearly states this relationship.

When you need a business broker, you need one that works with other brokers.  Not a cowboy who thinks he can do it all by himself.

Tags: buy a business, sell a business, business broker, co-broke

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