Experience can be a great teacher. I’ve been a business broker since 2006. Along with over 180 successful transactions, I’ve seen plenty that didn’t go well too.
Followers of my blog have heard me say in the past, “Time kills deals.” The more time passes, the more likely the buyer or seller can lose motivation. The reasons are too numerous to list, but suffice to say; I’ve seen deals fall apart because of hurricanes, business interruptions, family disputes, and more. The moral of the story? Get your paperwork in order as soon as possible to speed the process along.
Packaging a business for a sale is crucial in determining the speed a company sells and how much. I would encourage sellers to ask their broker about these details.
A business plan
All of the SBA lenders will want a buyer to create this document to understand how your business makes money. The bank wants to make sure the buyer understands the strengths, weaknesses, threats, and opportunities. The seller has an intimate knowledge of the business so they will be the best resource to provide feedback.
Sorting out the accounting
Sometimes the lines between a business and personal expense can be blurred. I work with buyers to identify which is which. This is important because we don’t want to undervalue or overvalue the business. We’ll make sure to have an answer for every expense line item and be able to justify it when a buyer asks. When we can put our best foot forward with detailed and correct financial information, it gives the buyer confidence that they are buying a good business from a seller that has run it well.
We never want to hand over financial information with errors or omissions. If that happens just once, the buyer becomes skeptical and trust is breached. That’s never good for deal negotiations.
Get the business SBA pre-qualified
Most buyers will take advantage of government-backed SBA financing. Part of the requirement is proving that the business is healthy enough to service loan debt plus pay the new owner a reasonable salary.
Since this is inspecting the company books, we don’t need to wait until we have a buyer to start this process. Not all brokers do the SBA qualification before listing the business, but I’ve learned that it’s a critical step to ensure we are optimizing the buyers qualified to purchase the business, creating opportunities for competition. Sellers appreciate that we can go through a checklist to position them for a timely and lucrative sale. If we wait to do this work AFTER we list the business, it’s stressful for everyone…and that’s when mistakes can happen.
If we can advertise that the business is pre-qualified, it sends the message that the seller is serious and has already cleared one of the financing hurdles.
Talk with your landlord
Sellers are frequently surprised when I tell them they need approval from their landlord. Also, if the business is being purchased utilizing SBA financing, they will require enough options on the lease to cover 10 years (the same length as the loan amortization). Sellers will want to review the lease document to see what challenges lie ahead, including the lease transfer fee and transfer language. Not all lease agreements are the same. The landlord will need to screen and pull background information on the new buyer in most cases. It’s a mistake to wait until the deal is nearly finalized before you begin the conversation with the landlord. Your broker can help you find the right time to approach the landlord.
Life insurance is required to financially back the buyer. Of course, it ensures the transaction’s finances should they meet their untimely demise. Because the approval process is outside your control, the buyer will want to start this process early. I have seen deals fall apart in the 11th hour because the buyer had a previously unknown health condition discovered in the health examination. In another case, a borrower was on antidepressants, and it caused more time killing back and forth discussion with the insurance company. A good broker will do their best to help make sure this doesn’t happen!
Pledging home as collateral
Borrowers of SBA loans will need to personally guarantee and pledge their home as collateral. The process for this involves getting a professional appraisal. Depending on the workload of the bank’s appraiser, it could take weeks. Worse, the home could appraise for less than predicted, destroying the loan to value numbers.
The good news is, you can mitigate most of this risk with careful planning and following a defined process. It’s dangerous to navigate a complex business sale transaction on your own because any detail missed can not only destroy a deal but also lead to litigation. Even if you have a buyer-seller match, seek out the help of a business intermediary to make sure things are done the right way and everyone’s interests are protected as much as they can be.
There’s no way around it, though; selling a business takes time. Usually, 75-90 days if you don’t hit any major roadblocks. Chances are, you will have something come up that requires a solution. An experienced broker will know what to do to fix it.
I like using the old Ben Franklin quote, “An ounce of prevention is worth a pound of cure.”
About Bianca Evans
Bianca Evans is an experienced business broker based in Jacksonville, Florida. She is a top producer in her field. She has made over 180 transactions since 2006, making her among the most seasoned in the area. She is a Certified Business Intermediary (CBI), a Certified M&A Professional (CM & AP), a Board Certified Intermediary (BCI), and has her B.S. degree from the University of Florida.
Other notable accolades and achievements:
•The Million Dollar Plus Award 2008, through 2021
•Dealmaker Award top 3% in the state for completed deals 2018
-Most dollars sold in North Florida in 2018, 2019, 2020
•Sold an array of industries, including manufacturing, wholesale/distribution, service, retail, restaurants, professional offices, and more.
•25 years of Sales Experience
She maintains her professional networks by participating in various associations, including the International Business Brokers Association (IBBA) and the Business Brokers of Florida (BBF).
One interesting fact about Bianca is that she used to be a business owner herself! She has been on both sides of the transaction when she purchased and later sold that same business. She finds that perspective invaluable when relating to her clients and balancing the many details and emotions.
She is licensed in Georgia and Florida and speaks fluent German.
To reach Bianca, email: email@example.com or visit her website https://www.myfloridabusinessbroker.com/