Frequently Asked Questions
Welcome to Brokerage Bridge, your premier destination for navigating the intricate world of buying and selling businesses. As a national network of seasoned business brokers, we specialize in bridging the gap between buyers and sellers, guiding you through every step of the process with expertise and precision. Whether you're a seasoned entrepreneur looking to expand your portfolio or a first-time buyer dipping your toes into the world of business acquisitions, our team is here to provide comprehensive support and unparalleled insight. Explore our FAQ page to find answers to common queries, and embark on your journey towards successful business transactions with confidence.
Business brokers are professionals entrusted with facilitating successful business acquisitions. It's crucial to grasp both their capabilities and limitations. As your broker, we can assist you in determining which businesses align with your skills and experience, as well as those that don't; we can ascertain a fair price for a business and advice on structuring the acquisition to benefit both you and the seller; we can recommend sources of financing if necessary, and guide you through the entire process alongside the seller until the business transfer is successfully concluded.
However, it's essential to recognize that a business broker isn't akin to a magician who can conjure the perfect business opportunity out of thin air. Every business comes with its unique set of challenges. Transitioning into ownership may pose difficulties, including economic uncertainties, personnel issues, supplier relations, emerging competition, and occasional challenges with the seller. Initial results may not mirror those achieved by the prior owner. Moreover, understanding the significance of the down payment amount, alongside the source and terms of financing, can profoundly impact not just the final purchase price but also the overall success of the acquisition.
Based on industry statistics gathered over the past few decades, it's been found that the average success rate for businesses listed for sale is approximately 20%. While this might come as a surprise initially, the reality is that the mere act of listing a business doesn't necessarily guarantee its quality or desirability to potential buyers. Moreover, in cases where a business heavily relies on the owner's specific skills and knowledge, finding a buyer with the same expertise can significantly limit the pool of potential purchasers.
This situation underscores the importance of owners who have plans to sell their businesses in the coming years to seek the guidance of a business broker. Such professionals can help pinpoint areas that require attention to enhance the marketability of the business. By identifying and addressing these issues well in advance—ideally a year or more before putting the business on the market—it can make a substantial difference in the outcome of the sale.
Numerous factors contribute to this phenomenon, with the following typically being the primary culprits: inadequate business management, declining revenue streams, absence of a capable management team, heavy reliance on the owner for daily operations, unfavorable reputation, insufficient financial documentation, unassignable leases, and a deficiency in recurring revenue sources.
Regrettably, the majority of businesses aren't adequately prepared for a sale. The checklist of aspects requiring attention is extensive, and a thorough assessment by an experienced business broker can typically pinpoint areas that can be improved to enhance the likelihood of a successful sale. Perhaps the most substantial obstacle is a decline in revenue over the past three years, as potential buyers are generally hesitant to invest in a business facing such challenges.
The most opportune moment to sell a business is when it is in a phase of growth and solid performance. This typically involves three consecutive years of increasing revenues, along with a favorable economic climate overall. Businesses that boast robust financial performance, a well-established management team, and, ideally, a general manager willing to stay on after the sale can thrive in almost any economic landscape. However, it's equally crucial for the owner to be fully prepared and committed not only to selling but also to the entire sales process. While there are undoubtedly numerous other factors to consider, these represent the primary ones. Businesses that meet these criteria often attract significant buyer interest, ultimately resulting in a successful transaction.
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Assessing the business's current market value: This involves obtaining a Broker Opinion of Value, which determines the most likely selling price, often expressed as a range.
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Formalizing the agreement: This step involves signing the listing or engagement agreement.
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Gathering essential information: The Seller Interview plays a pivotal role in creating the Confidential Information Memorandum (CIM) or Executive Summary. These terms are interchangeable and refer to a document containing pertinent details about the business, usually shared with qualified prospective buyers.
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Bringing the business to market: The business is listed and presented to potential buyers.
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Engaging with prospective buyers: This stage includes responding to buyer inquiries, securing a Non-Disclosure Agreement (NDA) from buyers, initiating initial discussions, and pre-qualifying potential buyers before providing them with the CIM.
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Addressing buyer queries: Sellers answer questions posed by interested buyers.
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Assessing interest levels: A buyer-seller phone meeting is initiated, followed by ongoing discussions to gauge the level of interest from both parties.
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In-person meetings: Meetings between the buyer and seller often occur, sometimes including tours of the business facility when staff is not present.
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Outlining the terms: A Letter of Intent (LOI) is prepared, detailing the conditions of the purchase agreement.
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Negotiating the LOI: The LOI is negotiated between the parties.
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Due Diligence: This phase involves a thorough examination of the business.
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Preparing legal documents: The definitive purchase agreement and other necessary documents are prepared by the involved parties.
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Completing the transaction: The sale is finalized, and funds are transferred to the seller's bank account.
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Transition and training: A training and transition period, as defined and agreed upon in the purchase agreement, takes place.
To safeguard the confidentiality of the business sale, the Seller plans to share confidential information solely with individuals deemed both serious and qualified. While a potential Buyer may demonstrate seriousness, their qualification hinges on possessing the requisite funds to acquire the business. The Seller opts not to divulge any information to parties lacking the financial means to complete the purchase. Therefore, requesting proof of funds is deemed a reasonable and justifiable prerequisite.
The Non-Disclosure Agreements might seem to favor one party, potentially leaving the Buyer feeling unprotected. Confidentiality stands as a cornerstone in every business sale. It's imperative to keep the sale confidential from employees, vendors, and customers until the transaction concludes. Prospective buyers must recognize and honor this necessity. Compliance with confidentiality terms and refraining from bypassing the Broker is mandatory for all potential buyers until a formal offer is submitted. Besides this requirement, no further obligations exist. If you opt not to proceed with the purchase, you'll cease to receive communications from us, provided you refrain from disclosing the availability of the specific business.
In specific instances, we may request identification proof from potential buyers. Both Non-Disclosure and Non-Circumvent Agreements carry significant importance, as careless disclosure of business information could result in legal repercussions and detriment to the business. Therefore, treating these agreements with utmost seriousness and responsibility is paramount.
Achieving successful outcomes hinges on the seller's active engagement and prompt responsiveness to the advisor's information requests. It's of utmost importance that financial updates are provided in a timely manner and that the business is maintained in a presentable state—much like preparing a home for viewing. Additionally, sellers should grasp that while the sales process can be occasionally stressful, maintaining a focus on the ultimate goal is essential. While every sale involves stress, careful planning and expert guidance from an advisor can help mitigate these pressures.
Furthermore, a crucial responsibility for the seller is to sustain momentum in running the business to ensure maximum financial stability and growth. Both the bank and the buyer will insist on receiving monthly financial reports leading up to the closing date. Any significant disruption in the business's performance can potentially jeopardize the transaction, even in the final stages.
Typically, it can take up to six months on average, to locate a solid, profitable business within an industry where you can thrive. However, it's important to note that an average is just that—a benchmark. Timing may vary depending on your preferred industries, locations, revenue targets, and owner benefit criteria. Providing all necessary information at the outset can expedite the search process. Additionally, understanding your personal strengths and weaknesses is crucial from the outset. Some buyers, operating under the assumption they can manage any business, often end up purchasing the wrong one—a strategy that frequently backfires. Lack of relevant experience can hinder their ability to adapt quickly enough to compete in a competent, well-skilled marketplace.
Research indicates that the down payment amount may be a pivotal factor in expediting the sale process. A higher down payment, typically 50 percent or more of the asking price, is associated with a quicker path to a successful acquisition. A substantial down payment also signals to potential sellers that you have confidence in your ability to operate the business and fulfill all financial obligations.
No. The responsibility for paying all commissions to the Broker who has listed the business for sale rests solely with the Seller of the Business.
For most small businesses valued at under $500,000, binding offers are commonly made through an 'Asset Purchase Agreement' rather than a Letter of Intent (LOI).
When a Buyer offers the asking price for a business, it's customary to accompany the offer with a 10% deposit. However, if the Buyer proposes an amount lower than the asking price, presenting a higher deposit check can be beneficial as it showcases seriousness and prompts the Seller to give the offer proper consideration.
Business Brokers do not operate as lenders, and most small businesses for sale may not meet the requirements for an SBA loan. Any financing sought by a Buyer will largely depend on their personal creditworthiness, with common avenues including personal lines of credit, home equity loans, or savings to acquire the business. In numerous instances, the Seller may offer financing by carrying a note and participating in a portion of the transaction. For many small businesses, if Seller financing is an option and terms are agreed upon, the Buyer is generally anticipated to provide a down payment ranging from 50% to 70% of the purchase price.