Business brokerage is a specialized niche in which business brokers or intermediaries educate buyers and sellers about the sales process. For sellers, intermediaries establish the value of the business for sale, prepare marketing materials and advertise it. They interview, screen and qualify potential buyers, negotiate offers to purchase on behalf of sellers, structure deals, facilitate due diligence and, finally, close transactions.
Establishing a working relationship with a trusted Business Broker or M&A Intermediary provides you with a significant advantage that can literally make the difference between a successful outcome and a failed sale. Your advisor will get to know you, your goals and priorities. He will get to know your company, educate you in the sale process, anticipate issues, solve problems and answer your questions. He will shepherd you through the entire process and guide you in all aspects of the transaction from start to finish.
He will work with your accountant and/or attorney to present your business in the best possible light. Or he can introduce you to any number of qualified and competent CPAs and attorneys with whom we have worked in the past.
Many business owners begin the sale process by first engaging a Business Broker or M&A Intermediary to prepare a valuation of the business based on research and analysis. A number of methods are used to arrive at a sale price. Your advisor will discuss the valuation report with you in detail.
If you decide to sell your company, your advisor will prepare state of the art marketing materials and present your business opportunity to the market using a variety of methods/media to give it maximum exposure to a wide network of potential buyers. He will screen and qualify potential buyers so you don’t waste your time with people how have neither the resources nor the skills to purchase your company.
An experienced Business Broker or M&A Intermediary will keep your proprietary information CONFIDENTIAL. He will handle sensitive material in a confidential manner and discretely market your business to qualified buyers. He will insist all potential buyers sign a Confidentiality Agreement before releasing sensitive information to them about your company.
When a buyer is found, your advisor will help you negotiate the best deal for you. Terms and conditions will be formalized in an Offer to Purchase which he will discuss thoroughly with you. When you have accepted an offer, he will walk though the due diligence phase with you to ensure the buyer has the information he needs to proceed to a closing.
And even then, your Business Broker or M&A Intermediary will be with you to ensure a successful sale and your satisfaction.
At Creative, we offer sellers and purchasers the benefit of our many years experience in this profession. Our intermediaries work intimately with each seller client to understand the nature and value of the business for sale and the seller’s goals.
We advise sellers on how to best maximize sale price and minimize tax burden. We increase the pool of potential buyer candidates; provide aggressive, confidential marketing; and interview, screen and qualify buyers for our seller clients. When we have identified a good match for a business, we negotiate terms and structure deals for the seller that minimize seller closing risks, thereby enabling sellers to achieve the best possible outcome.
Your business may be your most valuable asset. You may be planning to use proceeds from its sale to fund part of your retirement.
Many things influence the value of a business. These include the economic climate, the industry, the financial performance of the company, the seller’s goals and exit plan, and the goodwill associated with your knowledge and business relationships, etc.
Determining what your business is worth is important. If the asking price is set too high, fewer buyers will be interested in it. If it is set too low, you’ll leave money on the table. No one wants to do that!
An easy way to calculate the value of your business is to average your last three years of Owners Benefit and multiply that number by between three and six.
“Owners Benefit” = the profit the business generates + non-cash expenses + excess cash you pay yourself + benefits a new owner would NOT have to pay.
Buyers purchase businesses for different reasons. Businesses sold for investment purposes involve lower multiples. Businesses sold for strategic or intellectual capital value involve higher multiples. If the new owner is a family member, the multiple will be lower. If you sell to an outsider, the multiple will be higher.
Now that you have a magic number in mind, imagine you are standing in your buyer’s shoes. Ask yourself, if you were the buyer would you be willing to pay the asking price you have in mind for your business. Be honest with yourself and be realistic.
A number of methods are used in a professionally prepared business valuation report in addition to the above mentioned multiple-of-cash-flow method. A Business Broker or M&A Intermediary takes these, tax consequences, and other considerations into account when valuing a business.
However, when it comes down to it, it is the buyer and their reason for purchasing your company that determines what he is willing to pay for it.
A Business Broker or M&A Intermediary uses a number of methods to produce a business valuation report. The end result is a number or range of numbers that represent the value of the business.
Public companies and middle market businesses are valued as a multiple of EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization. Small businesses are valued as a multiple of Seller’s Discretionary Earnings (SDE). SDE = EBITDA + Owner’s Compensation + the net Income (or net loss) on a company’s tax return + interest expense + depreciation expense + amortization expense + the current owner’s salary + owner perks.
SDE is the foundation of valuation for small businesses. It is arrived at by recasting the company’s financial statements, adjusting them with explanation for such things as owner’s salary, owner’s perks, and other personal expenses that a new owner will not incur when operating the business. Discretionary expenses such as medical insurance for you and your family, travel and entertainment expenses, business vehicles, memberships and subscriptions, salaries and bonuses paid to family members may be added back to your profits if they are expense a new owner will not incur.
The multiples used are driven by financing formulas, a buyer’s expectation of return on his investment after paying debt service on the acquisition, and a buyer’s need to receive reasonable compensation for the time and effort required to run the business. Industry type can also affect selection of a multiple.
Buyers are often willing to pay a higher multiple for higher SDE. The chart below illustrates multiples at various SDE levels, however theses do NOT apply to all industries.
|SDE||Multiple||Range of Business Value|
|$50,000||1.0 – 1.25||$50,000 – $62,500|
|$75,000||1.1 – 1.8||$82,500 – $135,000|
|$100,000||2.0 – 2.7||$200,000 – $270,000|
|$200,000||2.5 – 3.0||$500,000 – $600,000|
|$500,000||3.0 – 4.0||$1,500,000 – $ 2,000,000|
|$1,000,000||3.25 – 4.25||$3,250,000 – $4,250,000|
An experienced Business Broker or M&A Intermediary will know the correct multiple to use for a specific industry and use several methods to calculate the ultimate value of a business.
In 1978 it took, on average, 57 days to sell a business. Today, the average time from list to close is 225 days – a 4 times increase. The time it takes to sell a business varies widely. Many factors such as the length of time it takes to build value into your business before you actually decide to sell, and the degree to which your business and the buyer are a good match both influence the time it takes to sell a business. More complex transactions can take 1, 2, 5 years or more to close. Sellers may reduce the time it takes to sell, by preparing their business for sale well in advance, by remaining accessible throughout the marketing and sale process, keeping the process moving forward, and by making the transition smooth for a buyer.
Confidentiality can be key to the successful sale of a business. If sellers choose to keep the sale of their business CONFIDENTIAL, we take steps to ensure that the potential sale is known to no one but the owner. We do whatever it takes to protect the privacy of our clients. We do not disclose the identity of “confidential” businesses for sale until interested parties have been qualified and have signed a Confidentiality Agreement with us.
Almost any business can be successfully sold. However, the best time to sell is when the business is thriving and sales are increasing. Potential buyers will easily see the value of the business.
Determine a realistic price range. If the asking price for your business is too high, it will interest fewer buyers. If it’s too low, you’ll leave money on the table.
Understand the tax consequences. How your business is legally set up (Corporation, LLC, etc.) and whether you’re selling the assets or the entity influence your tax responsibility. Your CPA will help you understand the tax consequences of selling your company.
Get documentation in order. Buyers may want to review 2 or 3 years of tax returns and financial statements.
Clean out the closet. Resolve any outstanding issues that may interfere with a sale, especially in the area of company ownership, accounting and intellectual property rights. Resolve any potential deal breakers that may be lurking in the closet.
Prepare your facility and equipment. Do a bit of spring cleaning to make sure the premises and equipment for sale look their best.
Consider your options. Are you willing to stay on if a buyer wants you to? Staying on for a period of time can reduce the risk to a buyer and increase the value of the company.
Hire a Business Broker or M&A Intermediary. There are many benefits to engaging an experienced Business Broker or M&A Intermediary.
- Brokers value CONFIDENTIALITY and see it as one of the most important tools in selling a business.
- Brokers will help you determine the best asking price for your business.
- Brokers enjoy established relationships with people and private equity groups actively seeking to purchase existing businesses.
- Brokers handle the entire transaction from start to finish, coordinating with your CPA and attorney.
- Brokers attract and qualify buyers for your business.
- Brokers help you negotiate the best sale price for your business.
- Brokers help you and the buyer with the due diligence phase of the sale.
- Brokers often help a buyer with financing solutions.
Brokers work for you, the seller, and earn a commission only after selling your business.
When selling begins to seem like a possibility, business owners need to consider their options.
Business owners choose to sell their businesses for many different reasons. Sometimes, the decision to sell comes after a long and successful career when business is booming. Other times, a personal or family crisis may motivate the sale, or a tempting new entrepreneurial opportunity may have suddenly presented itself. Whatever the motivation, it will influence the outcome of your sale.
One of the first questions potential buyers ask is, “Why is the company for sale?” Carefully and thoughtfully consider what motivates you to sell your business.
Are you motivated to sell now to obtain the best sales price? Is your priority the timing of the sale? Are you anxious to exit the business due to a death or an illness? Are you selling because you’re burned out? Are you motivated to take a slower approach, perhaps to stay with the company for a time to secure its future… and yours?
All of these are valid reasons to sell and will affect the outcome of the sale.
Carefully determine your motivation for selling and the outcomes that are important to you. Consider:
- Sale price
- Sale timeline
- Departure or ongoing involvement
- Seller financing or cash pay out
- Disruption to clients and employees
An experienced intermediary can help by explaining the sales process and discussing those options. An intermediary can guide sellers in how best to prepare a business for sale. Sellers should think about why they want to sell, their vision for the future of the business, things they might like to see happen with it after they have moved on, how they and their family feel about selling the business, and what they will do after the sale.
To maximize the value of a business, be able to provide as much documentation as possible to support the selling price.
We provide comprehensive exposure for businesses that we bring to market by advertising in a number of ways including traditional and new media. We use word-of-mouth, print media such as newspapers and trade journals, and electronic media such as email, social media, and websites.
The methods we use to market businesses for sale online include proprietary websites, 3rd party membership-based sites, and fee-based subscription website services. We send email notices about businesses for sale to individuals and organizations in our extensive database of qualified buyers, professional VIP’s (attorneys, accountants, bankers, etc.) and fellow business brokers. Additionally, we advertise at relevant trade shows and industry events and in relevant trade and association publications. All in all, our marketing program enables us to advertise our listings to hundreds of thousands of potential buyers, private equity groups and investors.
On a very confidential basis, we use our extensive ever-expanding network to reach the broadest possible audience for our seller clients. We formally present business offerings to our associates, colleagues, local and regional professionals, industry-specific buyer groups, and our database of individuals and organizations looking for add-on businesses to merge with or acquire, strategic buyers, and targeted private equity groups. We search our database of over 7,000 potential buyers for likely buyers for our seller clients.
As a member of the Midwest Business Brokers Association, the International Business Brokers Association, M&A Source, and other professional organizations, we maintain active relationships with professional business brokers who represent clients all over the world looking to buy or sell businesses. Locally, our co-brokering agreements enable us to confidentially introduce business offerings to a very large network of Wisconsin brokers.
We interview and screen each potential buyer, thus we limit the exposure of our seller clients’ businesses and introduce only serious and financially qualified buyers to our offerings.
While most buyers prioritize cash flow and potential, the range of buyers is wide and their specific purchase criteria vary greatly.
The best defense is a strong offense… Sellers should continue to operate their business as usual to ensure profitability, while preparing their business for sale. When working with an intermediary, sellers should provide all the necessary information and documents in a timely manner, and be accessible for the intermediary and prospective buyers.
Generally, buyers want to know that a change in ownership will not adversely affect profitability. Strategies include facilitating an easy transition for the buyer and ‘transparency.’
To facilitate an easy transition from one owner to another, sellers must maintain the organization and systems that have made the business profitable to date. This can ensure continued profitability even after the closing. Facilitating an easy transition for a buyer may mean staying on for a transition period until the new owner is comfortable operating the business.
To approach the sales process with transparency means to put everything on the table upfront and throughout the entire process to keep surprises to a minimum. Every surprise can cause the buyer to question the sale.
There are a number of financing options available to buyers and many ways to structure a deal. With 35+ years in this business, the Creative team is well-qualified to review all the options and the tax consequences of each with sellers. We work with a seller client to configure a sale that provides the best value for the seller. If sellers are able to finance at least part of the sale, the buyer pool essentially widens and the seller may receive a higher price for the business. There is a tradeoff however – a higher price overall comes with a certain amount of risk, whereas immediate cash often accompanies a lower price.
Price is allocated to goodwill, fixtures and equipment, leasehold Improvements, covenant not to compete, liquor license, furniture, and inventory.
For the purposes of this explanation,
“Seller” – owner of the business for sale
” Intermediary” – Seller’s Creative representative broker
“Buyer”- party who will purchase the business or commercial property
“Buyer’s Broker” – the buyer’s representative broker.
- The Seller and Creative Intermediary meet to establish rapport, share expectations, talk about the business for sale, its financial history, company structure, employees, strengths in the market and challenges faced. The industry, market served, competitors, and potential buyers are discussed and the Sales Process is described. This initial meeting provides the Intermediary a clear understanding of the business, its potential, and the Seller’s goals. The Seller gains an understanding of how Creative works and the services we provide. After this meeting, the Seller will have sufficient information to decide whether to wait or to move forward. To move forward, the Seller and Intermediary lay out a strategy for selling the business.
- An Employment Contract (i.e. Representation Agreement, Engagement Agreement, Listing Agreement) is completed by the Intermediary and signed by the Seller.
- The Seller is presented with a list of items needed to determine the value of the business and to list it for sale. The list includes:
- Last 3 years of financial statements (Profit & Loss and Balance Sheet)
- Present year P&L and Balance Sheet current within 60 days
- Market value of Inventory
- Market value of receivables
- Market value of patents, gift certificates and other tangibles
- Copies of licenses, patents, loan documents, contracts, agreements
- Last 3 years business tax returns
- List of all equipment and other assets to be included in the sale
- List of all equipment NOT included in the sale
- Copy of any Environmental Reports
- Copy of Survey of Property and Layout of Building
- List of all employees – names, job descriptions, benefits, rated
- Copies of Agreements related to employee benefits
- A recent Appraisal, if done in the last 3 years
- Copy of Marketing-related Materials
- Copies of all other documents needed to present a fair and accurate description of the business to prospective Buyers.
- The Intermediary analyzes the data provided by the Seller and researches recent industry activity for similar businesses to prepare and present an educated business Valuation Report to the Seller. This is an honest assessment of the value of your business.
- The Intermediary and the Seller agree on a Sale Price.
- A comprehensive and confidential Marketing Plan is developed by the Intermediary, discussed with and agreed upon by the Seller.
- The Intermediary writes a narrative about the business for sale; produces Marketing Materials including the Information Packet, Executive Summary, brochures and flyers; and begins Advertising the business for sale.
- The Intermediary Introduces the Business for sale to the entire Creative team.
- Company Databases are Searched for previously qualified Buyers whose purchase criteria might match that of the business for sale.
- The Executive Summary and Information Packet are sent to potential Buyers.
- If the business for sale is a Confidential Offering, potential Buyers are sent the Executive Summary about the business and asked to sign a Confidentiality Agreement (CA) before the identity of the business and its details are provided to them. The Information Packet is only sent after we have received a signed CA from potential Buyers.
- If business for sale is a non-confidential offering, the Information Packet is set to interested parties.
- The Intermediary Interviews, Screens and Qualifies potential Buyers.
- The Buyer’s Broker Writes an Offer to Purchase, secures an Earnest Money deposit from the Buyer, and delivers them to the Intermediary.
- The Intermediary Presents the Offer to the Seller. Together they discuss terms and decide whether to accept or counter the Offer, and discuss how best to Structure the Deal.
- Representing the Seller, the Intermediary Negotiates the Offer with the Buyer’s Broker.
- Upon Offer Acceptance, the Intermediary may arrange a Seller/Buyer meeting in which the Seller’s and Buyer’s Disclosure Statement is completed, questions are answered and the statement signed by both parties.
- Due Diligence Investigation begins when an Offer has been accepted and the Disclosure Statement has been signed by both parties. The Intermediary facilitates the Due Diligence process.
- If due diligence proves the business is as represented, the Buyer signs the Conditions Removal document.
- If due diligence does not prove that the business is as represented, either the Offer will be renegotiated, or the Offer will be cancelled and the Buyer’s earnest money returned.
- If due diligence proves the Buyer is as represented (capable of purchasing and managing the business that is for sale) the Seller signs the Conditions Removal document.
- If due diligence does not prove the Buyer is as represented, the Offer will be cancelled and the Buyer’s earnest money returned.
- After both the Seller’s and Buyer’s Conditions Removals have been signed, the Intermediary prepares the transaction for closing.
- When the Due Diligence Investigation concludes, the Intermediary works closely with the Seller’s accountants and attorneys to ensure the best deal. Next step is Closing Preparation. The Intermediary …
- Estimates the closing date, the date of possession by the Buyer, investigates insurance (will buyer assume Seller’s insurance or acquire new?),
- Secures, answers and/or provides copies of the following to ensure a timely close:
- Listing Agreement
- Purchase Agreement and Counter Offers
- Both Condition Removals
- Liquor License, if applicable – Transferable?
- State Sales Tax Number
- Federal EIN – Employer Identification Number
- Property Tax bill – for pro-ration
- Seller(s) name, home address, Social Security Number, license (if applicable).
- Buyer(s) name, home address, Social Security Number, license (if applicable).
- Earnest money check
- Leases – monthly rental, security deposit, assignment, etc.
- If Buyer or Seller is a corporation, the EIN, names of the officer(s) authorized to sign and a copy of the Corporate Resolution authorizing the sale of the assets or stock is provided.
- A Closing Statement and additional Closing Documents are prepared.
- The Sale Closes successfully, funds are disbursed and the celebration begins!