BayState Business Brokers blog provides useful information to buy a business or sell a business.

BayState Business Brokers Blog

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.

Facilitator

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 www.sba.gov/7a-loan-program.  

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.

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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

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

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