When you buy a business, don’t just think about buying the goodwill and the equipment and hiring the key people, consider where your working capital is coming from. If you don’t plan on where it is coming from, you may have to provide it out of your cash after the sale closes. The typical sources of working capital are the seller, a lender, or you. Which of these sources is used depends, to some extent, on the size of the business being sold.Read More
BayState Business Brokers Blog
An earnout is deferring part of the sale price of the business to a post-closing payment that is based on the performance of the business after the sale. It is common in larger business sales where the seller stays on with the business after the sale. In these business sales, it is an incentive for the seller to be motivated to manage the business well.
This is probably the most asked question when I meet with a business owner thinking of selling their business. It’s a good question. What is being sold, or included in the sale price, depends on how the business is being marketed. However, there are some things that can be said about what is usually included in the sale of a business.
For every business owner that lists their business for sale with a business broker, there are many more owners who would like to sell, but are afraid to put their business on the market. The primary reason is a fear that the business sale will not remain confidential. A breach of confidentiality could damage their business by causing it to lose employees or customers or damage supplier or bank relationships. So, instead of putting their business on the market, the business owner quietly sells to another company they know in the industry. In many of these business sales, the business owner mistakenly assumes that they probably netted as much as putting their business on the market because they would have had to pay a business broker’s commission.
People are used to negotiating over price and trying to get the best price. In the case of a real estate investment where the mortgage costs are a large expense and based on the price paid, getting a good price is very important to making money on the investment. When buying a business, the price of the business is important, but buying a good business is more important and paying a little more to get one makes economic sense. Typically, the extra price paid is recouped in a relatively short time.
The report, which aggregates business-for-sale transaction data provided by participating business brokers, shows an increase in business sales activity over the same time period in 2010 as well as an increase in the average sales price, and increases in the revenues and cash flow of the sold businesses. According to the BizBuySell.com Insight Report Data, the number of reported closed business-for-sale transactions in the United States rose by two percent, from 1,149 transactions in the First Quarter of 2010 to 1,172 in the First Quarter of this year.
Many of the classes and workshops at the Conference can be of value to individuals interested in buying or selling a business. There is a workshop that covers the basics of business valuation. There are two workshops that cover different ways to finance the purchase of a business. Anne Hunt, the Lead Lender Relations Specialist at the Boston SBA office, will conduct a workshop on SBA financing. Larry Carnell, of Benetrends, will explain how to use IRA funds to buy a business.
A third-quarter report from BizBuySell - the leading website for businesses-for-sale -- shows the year over year comparison in number of sales improving, but still lower than the same period in 2008. Also, the multiples of sales price to cash flow and sales price to revenue were down about 12% and 11%, respectively in the quarter, versus the same period in 2008. The report can be read at http://www.bizbuysell.com/news/article064.html.