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BayState Business Brokers Blog

How Much is a Book of Business Worth?

Posted by Marc Gudema on Wed, Sep 16, 2015 @ 09:57 AM

The typical business sale is one in which a buyer continues to operate the business as a standalone business.  But, there can be other situations where a business sale will generate more value to the seller and the buyer when it is sold as a book of business.  A book of business is the customer base of a business that sells to other businesses.  These are the customers who buy from the business on an ongoing basis.  In the sale of a book of business, it is typical for the buyer to merge the purchased business into their business.  They are likely to keep key employees, particularly those with the customer relationships.  On the other hand, they are not likely to want to buy most of the equipment because it would duplicate equipment the buyer already owns.

Buyers and sellers have trouble arriving at a price for the book of business, particularly if the business being sold is not generating much income to the owner.  If the business isn’t making much money, the owner may think that the book of business has little value and sell the business for the value of the equipment.  A buyer recognizes that additional income will be generated by merging the business with his business and, thinks he shouldn’t pay the seller a price based on this increased income.  What the buyer and seller are both doing wrong is confusing the value of the business with the selling price.

When a business owner has a valuation done on their business, the valuation is normally based on valuingsell a book of business the business as a standalone business.  Let’s assume we have a business with $1,000,000 in sales and $100,000 in owner’s cash flow/seller's discretionary earnings.  Let’s assume that an independent valuation arrives at a value of $250,000.  What will the business sell for? That depends on how much a buyer is willing to pay.  Perhaps, $250,000 if sold as a standalone business.

Let’s assume the buyer is another business with the same sales and owner income.  By buying this business and merging it with his own business, he will eliminate many duplicate expenses such as rent, payroll, utilities, and other expenses.  It is possible that the additional sales will add $200,000 in income to the acquiring business resulting in a business with $2,000,000 in sales and $300,000 in owner’s income.  If a buyer would pay 2.5X cash flow, an average selling price for a business, the buyer should be willing to pay up to $500,000 for the book of business. 

In this sale, the selling price of the book of business should be between $250,000 and $500,000.  There are two factors that affect the eventual selling price: the desirability of the customer base and how much competition there is for the business.  Some factors that affect the desirability of the customer base are:

  • How profitable the sales are – leaving out the fixed expenses of the selling business.
  • How desirable the customers are, which could depend on the buyer’s target market.
  • How quickly the customers pay their accounts.
  • How concentrated the customer base is in a few customers.
  • How likely it is that the customers will switch to another supplier.

The second factor is how much competition there is for the business of business.  If you are a buyer, you would like to be the only potential buyer dealing with a seller who is not knowledgeable about his options and who is unwilling to test the market for their business.  If you are a seller, you would like to expose your business to as many potential buyers as possible so the price is bid up.  The difference between the potential selling prices can be enormous.  In one sale that I did, the selling price was four times the offer from the largest industry buyer who was buying many of the other businesses in the industry.

A business broker can help you buy or sell a business.  But, in the case of the sale of a book of business, the use of a business broker, who can expose the business to many buyers, can pay off much more than the cost of the business broker’s commission.

Top Ten Reasons Not to Sell Your Own Business

Posted by Marc Gudema on Thu, Jun 11, 2015 @ 12:14 PM

Business owners are a pretty self sufficient bunch. We learn to do things to save money, we learn to do things because there is no one else to do them. You are probably the most capable person at your business.  You’ve probably also developed a lot of self-confidence. You feel you can do almost anything.

When it comes to selling the business that you’ve worked to build, it’s worth it to hire a professional, someone who has the expertise and experience to get the job done right.  There is too much at stake to risk making it a do-it-yourself project. Selling your business is one of those things that requires the experience of a professional.  Here are just a few of the reasons why you shouldn’t attempt a for-sale-by-owner (FSBO):

10. Maintaining Confidentiality.  Maintaining confidentiality is essential when selling your business. How do you maintain confidentiality and vet potential buyers without revealing your identity if you are dealing directly with buyers?  You can't.  You need an intermediary between you and the buyer.  A business broker, as someone who is not involved with the business, vets leads and qualifies buyers. 

9. You are probably not dealing with the best buyers.  Because of the problem of maintaining confidentiality, many business owners selling their own business are dealing with buyers who approach them.  In many cases, these are savvy business owners, in the same industry, looking to buy a business on the cheap.  Or, they are friends of the owner in the business.  Neither of these types of buyers may make the best offer nor be financially qualified to buy the business.

Upset_Businessman_on_the_Phone8. It takes time better spent elsewhere.  Selling a business takes a lot of time.  Marketing presentations take time to prepare.  Dealing with multiple buyers take time.  Meanwhile, you’re trying to run the business and live your life.  Do you really have the extra time to spend your precious hours selling your business when someone else can do it for you? 

7. You don’t have the expertise.  Selling a business requires many different types of expertise.  You need to be very knowledgeable about financial statements and how businesses are valued.  You need to know about the legal process involved when a business is sold.  You need to know what you can do and should let your attorney do.  You may have a very good attorney and accountant, but they do not have the same expertise as a business broker when it comes to selling a business. 

6. Acting as your own salesman typically backfires.   If you don’t have good sales skills, you definitely should not be selling your own business.  But, even if you are a good salesman, there is a good reason not to sell your own business.  The more you pursue a buyer, the more you are sending a message that you are desperate to sell which will tend to make the buyer think that they can pay less for the business.  Since it is a business broker’s job to pursue buyers, doing so doesn’t send the same message.

5. Your marketing doesn’t match that of a good business broker.  Sure, you can advertise on a few of the Internet business-for-sale websites, but a good business broker has many more ways to sell the business – an effective website, a buyer database, a co-broke group, and reaching out, confidentially, to industry buyers.  The result: The business broker is likely to reach more buyers resulting in a faster sale at a higher price.

4. A business broker acts as a buffer.  Buying or selling a business is very stressful and takes a lot of time.  During that time, the buyer and seller are likely to get upset with each other and things may be said that would kill the deal if they were said directly to the other party.  The business broker is a buffer between the parties that prevents these deal-killers.

3. There is much more to completing a sale than accepting an offer.  Accepting an offer to buy the business is only the first step to closing the sale.  Typically, there is due diligence, the seller obtaining financing, negotiating a lease with the landlord, and drafting a purchase and sale agreement.  There may also be transferring a franchise or liquor license, or other things that need to be done.  Much of the time involved in selling a business is expended while it is under agreement.  A business broker helps the buyer to buy the business.

2. You need a trusted advisor.   Your attorney and accountant may be very skilled and knowledgeable, but most don’t have the knowledge about the marketplace and selling businesses that is needed.  A good business broker can advise you during the process and help you avoid making a major mistake that will cost you a lot.  Also, a buyer is more willing to accept what a business broker suggests since they have developed a relationship with the business broker, rather than what your attorney or accountant suggest who they don’t know and who they see as being strictly on your side.

1. Selling Your Business Faster For the Best Price.  This reason alone should be enough to move any seller towards using a business broker.  Selling a business is both tedious and stressful, and the only reason to undertake such an endeavor on your own would be to save money.  But when it comes to selling a business, do-it-yourselfers typically get a lower price for their business.  Why is that?  Brokers can reach a greater number of prospective buyers who compete on price.  Because they widen the field, a broker usually more than makes up for their commission with a higher sales price, providing the seller with a higher take-home figure.

Some sellers have opted to serve as their own broker, only to find the process much more complicated and time consuming than they anticipated.  Business deals are complex transactions that require expertise well beyond what the average business owner has.

A business broker is your advisor, your knowledge bank, your marketing team, and your expert negotiator, all wrapped up in one. 

Tags: business broker, how to sell a business

Who is Representing You When You Buy or Sell a Business?

Posted by Marc Gudema on Thu, May 21, 2015 @ 10:00 AM

Whether buying or selling a business, it is important to understand the role of the business broker you are working with, who they represent, what their obligations are, and where their duties lie.

The Seller’s Agent

Let’s say you have a business you want to sell, and you find a business broker to sell your business.  You will sign a contract with that business broker, which—among other things—outlines the business broker’s role and obligations.  In this case, the business broker is acting as the seller’s agent, also referred to as the listing agent.

As a seller’s agent, the business broker is obligated to make a deal that is in the best interest of the 2_business_brokersseller.  They are obligated to share with the seller information from and about prospective buyers, and they are obligated to try to get a deal that meets the seller’s goals.

A seller’s agent may keep certain seller or business information from prospective buyers, in an attempt to get the best deal for their client.  This means that a seller can confidently share all the details with their broker without fear that the information will be passed on to prospective buyers.  However, there is an obligation to not misrepresent the business to potential buyers. 

In most business sales, a potential buyer contacts the seller, or listing, agent directly.  The buyer may be helped by the selling agent, such as to find an attorney, accountant, or lender.  But, the primary obligation of the selling broker is to the seller.

The Buyer’s Agent

The buyer’s agent, on the other hand, is obligated to act in the best interest of the buyer.  The buyer’s agent will look for a business that meets the buyer’s criteria.  They should advise the buyer if a business seems overpriced, and they should share any details they might learn about the seller or the business.  They will walk the buyer through the negotiation process, and assist them with getting the deal closed.

A business broker who is acting as a buyer’s agent can be compensated by receiving a percentage of the commission, just like the typical practice in residential real estate sales.  In order to do so, normally, the buyer’s agent must contact the seller’s agent on the buyer's behalf.  Many seller's agents will not share a commission with a buyer’s agent who is brought in after the buyer has already contacted the seller’s agent directly.  Also, there are business brokers who will not co-broke.  In this situation, the buyer may need to compensate his business broker directly.

A buyer’s broker can conduct an active search for a business to buy for a buyer.  In this situation, the buyer’s broker is contacting business owners whose businesses are not on the market to see if they are interested in selling their business.  The buyer typically pays a flat fee or monthly fee and also pays a success fee when a purchase is completed.  It may be possible to add the success fee to the purchase price so that it is included in a loan to buy the business.  Although the buyer is paying a fee, they may be saving that amount or more by buying a business at a lower price than if it was on the market.

The Dual Agent

It is possible that a business brokerage firm acts as a dual agent.  A business broker lists the business for sale and is therefore a seller’s agent.  Another business broker in the same firm represents the buyer.  Each agent needs to treat their client’s information with confidentiality, even to the other broker in the same firm.  They should maintain a wall between them in their dealings with each other.  The dual agency should be disclosed to the buyer and seller involved in the transaction.


A business broker can act as a facilitator.  The role of the facilitator is to assist both parties in completing a sale of the business, but the business broker does not represent either party.  This usually happens when a business is sold to an employee or a relative where the parties already have some type of relationship. 

Other Factors

Aside from the different roles that business brokers play, buyers and sellers should remember that another person’s interests may also factor into the deal—the agent’s.  Because a business broker is almost always paid on a commission basis, they get a percentage of the sale, which may be shared between a seller’s broker and a buyer’s broker.

To some extent, the brokers are also looking after their own interests. Although they are required to work in the interest of their client, a higher sales price means a higher commission.  A broker should be selected carefully after reviewing their track record or references to ensure that they will properly represent your interests. 

Tags: business broker, business brokers, agency

Selling a Business: 5 Reasons to Offer Seller Financing

Posted by Marc Gudema on Wed, May 13, 2015 @ 02:47 PM

The decision has been made.  You’ve decided to sell your business, and your business broker has managed to attract several potential buyers; none of whom can get the financing to close the deal.

You are not alone.  Many buyers, or businesses, do not meet the criteria laid out for traditional business Seller_financing_320x291financing—the SBA 7A loan.  To qualify for an SBA 7A loan, a buyer generally needs 25% of the sale price for a down payment.  They must also have good credit and some level of business experience to prove to the lender that they have what it takes to successfully run the business.  In addition, the business must generate enough cash flow to give the buyer an income and pay-back the loan.

This criteria results in frustration for business buyers when they are denied a loan from several lenders. Many buyers and sellers think that this is the end of the road, but all is not lost.  Savvy buyers are not restricted to this type of financing, and many are enlisting the help of the seller to assist with financing.

What is seller financing?

Seller financing occurs when the seller of the business offers to finance a portion of the sale.  The amount is usually small, about 5% or 10%, but can go up to about 50% of the sale price.  Seller financing ranges anywhere from putting up a portion of the typical 25% down payment required to obtain an SBA loan, all the way to financing the majority of the sale price. 

Why it may be right for you.

Seller financing is common—more so during down economies.  Sellers may consider financing part of the deal because they are eager to sell and/or the market is slow.  Whatever the reason, there are significant benefits to the seller that come with seller financing that should be considered:

1)      It increases your prospective buyer pool.  Offering additional financing options deepens the prospective buyer pool.  Offering some form of seller financing means that buyers who many not qualify for traditional loans may become viable candidates. Or seller financing can bridge the gap between how much the buyer has for a down payment and how much is needed.

2)      It may allow you to sell your business for a higher price.  Businesses that are partially seller financed typically sell at a higher price.  With more flexibility in terms and lending qualifications, buyers who are serious about buying a business are more amenable to a higher overall price, particularly when traditional financing is not available to them. 

3)      It will increase the overall profit from the deal in the long run.  Want to double your profit?  Interest is paid to the seller on the seller-financed amount, increasing the overall revenue—by a large amount.  A seller note at 8% over nine years actually almost doubles the amount received. 

4)      Avoid the lengthy loan process and close the deal quicker.  A seller can review a buyer’s credit worthiness and business experience quickly, avoiding the typical one to two months a bank would take to process the application. 

5)      Receiving installment payments may make you eligible for significant tax breaks.  Owners who finance their business can receive tax breaks for installment sales by spreading the gain out over several years. The tax implications are varied for a seller-financed sale, and sellers should contact a tax professional for specific advice on this subject.

What about the buyer?

The hallmark of any good business deal is a win-win situation for all interested parties, and seller-financing can be a win for all interested parties. Seller-financed business sales may be a lifeline to buyers who would otherwise not be able to purchase a business through conventional financing.

What type of buyer wouldn’t want to avoid the paperwork and time required by a bank loan?  Qualifications are fewer, interest rates may be lower, terms more agreeable, and the process is more streamlined—and best of all, seller financing lets the buyer know that the seller has confidence in the business they are selling.

To learn more about the SBA 7A loan program, visit  

How to Sell a Business with Too Much Inventory

Posted by Marc Gudema on Tue, May 05, 2015 @ 02:40 PM

It is not unusual for businesses that have been in business for a long time and have been doing well financially, to have much more inventory than is necessary for their type of business.  Since most businesses have some inventory, I’m primarily referring to distributors or retailers whose primary asset is their inventory.  This isn’t a problem for the business owner until they want to sell their business. 

When we give a business owner an estimate of the selling price of their business, we use databases of business sale information to calculate the estimated selling price.  One of the most popular databases, Bizcomps, gives us figures that do not include inventory.  When using these comps, we must add the actual value of the inventory of the seller’s business to get an estimated selling price with inventory.  When there is too much inventory, we can end up with a selling price that won’t be acceptable to a buyer or a lender.  Let me give an example.

Let’s assume we are selling a hardware store with $1,000,000 in sales, $400,000 in inventory, and $150,000 in Seller's Discretionary Earnings(SDE).  An average gross profit for this business is about 38%overstocked of revenues so cost of goods sold would be $620,000.  Average inventory turnover is about 2.7 so the average inventory would be $230,000.  This is how much a buyer should need to operate this store.  Let’s assume the market selling price is 1.8X SDE plus inventory.  Using these figures in this example would give us a selling price of $670,000 (1.8X 150,000 plus 400,000).  Let’s assume an SBA loan with 25% down and the balance paid over 10 years at 6% interest (a common lending scenario today).  The buyer would be borrowing $502,500; let’s assume the buyer needs $80,000 a year to live on.  The loan payments would be about $67,000 per year.  This situation would not be acceptable to a lender or a buyer.  Typically, 1/3 of the cash flow is the maximum a buyer would be willing to pay to service their debt.  In this situation, that would be $50,000.  For a lender, after deducting the $80,000 a buyer needs to live on, they would be left with $70,000 to service the debt.  Lenders look for a much higher coverage ratio, 25% to 35%, than the 4% in this situation.

What this analysis shows is that you can’t just add the extra inventory to the selling price and expect a buyer to pay for it. If we did so, we would be advertising this business for over 4X SDE, a high figure and higher than alternative businesses a buyer can buy.  Also, a buyer recognizes there is too much inventory and simply doesn’t want to tie up their money in it.

Here is how to sell a business with too much inventory.  What we need to do is offer the business for sale with the proper amount of inventory and dispose of the extra.  Since it normally takes several months to sell a business, the seller can be doing this while the business is being marketed by the business broker.  If some of the inventory is obsolete or not salable, a buyer would not accept it so it’s best just to get rid of it in the best way possible.  The rest, which is, presumably, good inventory but more than needed for a good inventory level, can be reduced over time by the normal sales of the business or making returns to vendors.

If the inventory hasn’t been reduced to the agreed upon level by the closing date of the sale, there are still ways for the buyer and seller to deal with it.  The seller may sell the inventory to the buyer.  The seller may give the buyer extended terms and/or a discount to give the buyer an incentive to buy the inventory.  Another alternative is for the seller to sell the inventory to another company.

There are many ways to deal with excessive inventory when selling a business, but simply expecting the buyer to buy it, is not the best way to do so.

How to Get Paid More for Your Business By Selling to a Strategic Buyer

Posted by Marc Gudema on Thu, Jan 15, 2015 @ 04:14 PM

In my last blog, I explained what the strategic value of a business is.  The strategic value of a business is the extra value of a business – beyond its financial value – to a particular buyer.  The problem is knowing who those buyers are and getting them to pay you, the seller, for the strategic value.  A buyer recognizes that they are bringing the strategic value to your business so they don’t want to pay you for it unless they have to do so to buy the business.  We use the M&A Process to get you, the seller, paid for the strategic value of your business.  Here is how it works.

The first step in the process is developing a professional presentation for the buyer which will explain the features, benefits, and potential strategic value of your business to them.  When we contact the buyer, we want to be sure they recognize the financial and strategic value of your business so they are willing to pay for them.  You know your business very well, but the buyer does not.  Some of the best buyers, such as Private Equity Groups, may look at many potential businesses to buy.  They need to quickly be shown the benefits of your business so they take the time to look at it further.  In most sales, we will not set a price for the business.  We are dealing with buyers who will make their own determination of what the business is worth to them.  Setting a price will put a cap on potential offers.

The second step in the process is to develop a list of potential buyers.  This is an important part of the process.  It takes a lot of time and creativity to create this list.  Some potential buyers are competitors or other companies in the industry who would benefit by purchasing the selling business. We want to not only contact potential industry buyers, but ones that may be in related industries or suppliers.  We want to contact all businesses that could find strategic value in buying your business.

You may be questioning whether the identity of your business will be kept confidential.  We understand that if it was known by your employees, suppliers, or customers that your business was for sale, it could damage your business.  In our marketing, we take steps to make sure that your business is not identified by its location or characteristics.  We screen buyers to be sure we are dealing with genuine buyers.  You can be part of the screening process.   The identity of your business is kept confidential until a potential buyer signs a confidentiality agreement.

auctionIn addition to the potential buyers we identify, there may be potential buyers that we don’t identify.  We reach them through working with buyers’ representatives and Internet advertising.  Today, it’s an International market and the beauty of the Internet is that it reaches this potential market.

The next step in the process is to contact the potential buyers about your business and initiate an auction process to receive offers.  Part of the process of identifying potential buyers is to identify who to contact.  In a smaller company that is likely to be the owner.  In larger companies, there may be officers who review potential acquisitions.

The use of the word “auction” may scare you.  I am not referring to the Ebay type of auction or public auctions that you may have attended.  This is a private auction.  The only participants are those who have been screened and signed confidentiality agreements.  The goal is to receive multiple, competing, offers.  There is a deadline for buyers to present offers and the offers are not revealed.  You choose the best offer.

This blog was just intended to be an introduction to the M & A Process.  The purpose was to show you how we can get buyers to pay you for the strategic value of your business to them.  Without using this process, it is likely that a seller will receive much less for their business than is possible.  Contact us to discuss your specific situation and get your questions answered.

Tags: m&a, strategic value,

When you sell your business, what is its strategic value?

Posted by Marc Gudema on Tue, Nov 25, 2014 @ 02:01 PM

If you are thinking about selling your business, you may have heard that you can get more for it if you can sell it to a strategic buyer. That is probably right, but it raises some questions: What is the strategic value of your business? How do you get paid for the strategic value of your business? How do you find the best strategic buyers?

The first issue we should clarify is what is, and what is not, strategic value. Strategic value is not valued as an asset of the business when you sell the business. Many business owners recognize that a business buyer can take advantage of opportunities, within the business, that the current owner is not developing. This could be adding to the sales or marketing effort or investing in new equipment or other internal changes to grow the business sales and profits. This is not considered strategic value. A buyer may be willing to pay more for your business for its growth opportunities, but this is not considered strategic value.

42-16353593Strategic value is the value of the additional sales and/or profits another business achieves by buying your business and by their ability to develop the tangible or intangible assets of your business. For example, if you have a new product and the potential buyer has a much larger sales force and marketing capabilities, they may be able to develop sales of the new product that are much higher than your business can. Another feature that may create strategic value is your market – your customers, location, market niche – that the buyer doesn’t have. By buying your business, they may be able to increase the sales and profits of the combined businesses beyond just the total of the two. The strategic buyer may achieve higher profits just by eliminating your business as a competitor and eliminating duplicate costs.

The problem with determining what the strategic value is in these examples is that its value is determined by the characteristics of the buyer. For example, in the case of your new product being developed by a buyer, the strategic value depends on the buyer’s capabilities. A regional player will be able to develop it less than a national player. The buyer who gets the most value from the product could be in a related industry and your product will give them an entrée into a new market that they can sell other products into.

It is difficult to calculate which  buyer would gain the most strategic value from buying your business and how much the strategic value is to each. You may be able to make an estimate. For example, in the case of the new product, you may know what the size of the market is and what the profit margin is for the product. This gives you an estimate of the potential sales and profits. Of course, a buyer may calculate these differently and they may not be able to gain all the potential sales. They may be more conservative in their estimates.

The next question is how do you get paid for the strategic value when you sell your business? Buyers are not likely to pay you any more for your business than they need to. If you are dealing with only one buyer, and they know that, they may not pay you any premium for the strategic value. If you are not represented by a qualfied intermediary, they may recognize that you don’t have the knowledge to know what your business is really worth to them and they not make the best offer. In my next blog, I’m going to discuss how to get paid for the strategic value when you sell your business.  Contact me and we can discuss how we can get you the best price for your business.

Tags: sell a business, m&a, strategic value,

It’s Not Just About the Money, How Good of a Business Buyer are You?

Posted by Marc Gudema on Fri, Oct 31, 2014 @ 10:36 AM

Although the money in a business offer is an important consideration for most business owners selling their business, it is not the only factor.  If the owner decides that the likelihood of getting that money (closing on the deal) is not good, then they may accept another offer.  Here are some factors that affect how owners, and business brokers, evaluate buyers and the offers they present.

One of the most important things to do if you are buying a business is be open, honest, and forthcoming about yourself and your financial situation.  You want the business seller to be this way.  You need business_broker_-_young_woman_-_Copyto be also.  Problems in your financial history may not be a deal-breaker if you explain them.  But, being unwilling to provide information about you and your financial situation is likely to cause a business seller and business broker to be unwilling to deal with you.

You also need to be someone that is not too hard to work with.  Getting a deal done is usually a matter of give and take.  If you’ve shown an attitude that everyone better do things your way or else you won’t pursue the business, you are not likely to get the result you want.  Typically, the first step in the process is signing a Confidentiality Agreement.  Most business brokers will consider a few edits to their Confidentiality Agreement.  But, if you are re-writing it, that is not a good way to start. The business broker and seller are questioning that if you are this difficult to get started with, how hard will you be down the road in reaching agreement on an offer and a purchase and sale agreement?

Make sure that the information you request to present an offer is reasonable. Keep in mind that the owner is busy operating their business and responding to requests from other buyers. Request the minimum you need to present a business offer.  Also, this is not the time for due diligence.  Make an offer assuming that the information you are given is accurate.  If during due diligence, you find it is not, that is the time to revise or terminate the deal.

This leads to another thing to keep in mind.  Time is important.  Business brokers have a saying “Time kills all deals.”  What that means is that the longer it takes to get a deal done, the more likely it is that it won’t get done.  There are some good reasons to move as quickly as possible to present an offer to buy a business.  The most important one is that, if you are pursuing a desirable business, there will be other buyers.  Another buyer may move quickly.  I’ve had more than one very good buyer meet with an owner and then present an offer and negotiate a deal on the same day, Another reason to move promptly is that, if you take weeks to present a business offer, the seller gets the impression that you move slowly and it will take a long time to finalize a deal with you.

Here is the last thing to keep in mind.  There are many buyers and business brokers want to work with ones who are likely to buy a business.  All of the issues I’ve mentioned in this blog influence whether a business broker will be willing to work with you and show you businesses to buy.  As I wrote at the beginning of this blog, the price you are willing to pay is not the only factor to be considered.  All of the other factors affect how likely you are to close on a deal and how attractive you are as a buyer to business sellers and business brokers.

See all of the businesses we have for sale.  Contact us for help to buy a business.


Tags: buy a business

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

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