The following is a brief overview of how we handle the business sale process from start to finish. You may scroll down or click on any of the following links to go right to that section.
| Step 1: Understand Your Objectives | Step 7: Negotiating An Agreement |
| Step 2: Estimate of Business Value | Step 8: Structuring the Sale |
| Step 3: Prepare the Business For Sale | Step 9: Due Diligence |
| Step 4: Marketing and Advertising | Step 10: Transfer Documents and Contingency Removal |
| Step 5: Qualify Potential Buyers | Step 11: Closing |
| Step 6: Presentation Review | Step 12: Transition |
| Step 1: Understand Your Objectives | |
| Step 1: Understand Your Objectives | |
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The first task in selling any business is making sure that a set of clear goals and objectives exists for the transfer of wealth from the business to the owner(s). Understanding the importance of timing the sale, what assets will be included, whether the owner(s) will remain involved for a period of time, where/when proceeds will be reinvested, and what additional business and personal issues must be addressed is critical. With an clear outline and understanding of these items, you will be prepared to move forward and will know the characteristics of a successful transaction. This will serve as the foundation ensuring an end-result that meets all of your needs. |
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Step 2: Estimate of Business Value |
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A key task in selling any business is deciding how much it is worth. Determining fair market value can be an involved process that includes the analysis of many variables. Once we have received or helped you to compile certain information and documentation, we can apply business valuation methods to arrive at an estimated value and a suggested listing price for your business. Business valuation generally uses one of three possible approaches: |
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| • | Asset Based Valuation |
| • | Market Comparison Valuation |
| • | Income Based Valuation |
| For most small businesses (defined as having annual sales of $5 million or less) the most commonly used and most appropriate business valuation method is the Income Based Valuation. This approach can be broken down into four generally accepted methods: | |
| • | Present Value of Future Earnings |
| • | Gross Revenue Multiples |
| • | Capitalization of Excess Earnings |
| • | Multiple of Discretionary Earnings |
| Step 3: Prepare the Business For Sale | |
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Step 3: Prepare the Business For Sale |
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Proper preparation is necessary for the best presentation of your business and is required in order to provide meaningful insight to prospective purchasers. The business must be strategically packaged with all applicable information and records documented and organized. This ensures that your business is presented in the best light, while providing potential purchasers with a way to corroborate your representations of value. This presentation educates potential buyers on both the tangibles and intangibles in your business, and is a means to demonstrate to the acquirer that the business is well organized and easily transferable. The perceived value of a business can be enhanced by making sure that intangibles such as name recognition, market niche, vendor relationships, operation and production systems, distribution channels, customer loyalty and trained and skilled employees are clearly explained. ACBI will provide you with an exhaustive checklist of items that should be assembled, tabbed and bound (in a 3-ring binder or comb-bound) for easy reference. You can use the check-list to create a table of contents for the book. The book enables us to provide prospective buyers with a business profile that presents the business as a unique market opportunity. While preparing the business for sale we will review and analyze the assets you hold within your business and may suggest legal structures you might consider using to better protect those assets and possibly enhance their value. Again, the appropriate structuring and accounting for assets is likely to greatly enhance the value of your business. Key points to consider in the preparation of your business for sale include: |
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| • | Disclose all relevant information, even potentially negative facts. Purchasers want to be able to trust sellers. Any indication that you're not truthful or that you failed to disclose something of importance can put off otherwise interested buyers. During the due diligence stage of the purchase, the buyer will likely investigate all aspects of your business and may well discover negative facts. It is best if these were disclosed by you. |
| • | Make sure that your business premises are clean, well maintained and well organized. As with most things, first impressions are critical. When a potential buyer visits the business location, how well you maintain the premises will go a long way toward communicating that the business itself is well organized and running efficiently. |
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Step 4: Marketing and Advertising |
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There are many channels that can be used to generate qualified buyers for your business. However, before launching into an overly broad marketing campaign, one of the first approaches should be to consider what we call "Strategic Buyers." These typically fall into the following categories: |
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| • | Competitors – businesses that are the same or similar to your own |
| • | Complimentary businesses – not direct competitors but those that might benefit from moving into a related business |
| • | Commercial
customers and suppliers |
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To identify possible Strategic Buyers, we will ask you to begin by considering the following: |
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| • | If you were expanding your business, what other businesses might you consider purchasing? |
| • | What related businesses might be a good fit with your business or customer base? |
| • | Do you have a
major supplier or customer who might benefit through
owning your business? |
| After considering any potential Strategic Buyers, we can turn to our own database of qualified buyers. We also have developed a network of accountants, attorneys, bankers and others to assist us in locating qualified buyers for specific businesses. In certain circumstances, we also advertise businesses in local, regional and industry publications as well as on Internet sites that specialize in listing businesses for sale. We also can identify interested purchasers through targeted direct mail campaigns. | |
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Step 5: Qualify Potential Buyers |
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Qualification of potential buyers involves fielding phone and email inquiries and obtaining and reviewing confidentiality agreements and documentation of financial capacity. During this process, we are able to assess the buyer's interest level, management skills and ability to meet the transaction's financial requirements. We strive to ensure that potential buyers are capable and committed to purchasing a business at a price and upon terms consistent with the marketplace and the seller's objectives. before we begin to focus our clients on the task of applying their resources toward preparing for a transfer. As a seller it is imperative that you learn as much as possible about potential buyers. Not only will you want to determine that a buyer has the skills and commitment to succeed in the business after the purchase, you first will want to determine the buyer's ability to close the deal. Throughout the sales process and especially during this stage, we protect the confidentiality of your business interests through the use of screening procedures and non-disclosure agreements designed to help ensure that customers, vendors and employees do not learn of the sale until the appropriate moment. Before we disclose any information about your business, we obtain the following documentation from each prospective buyer: |
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| • | Confidentiality Agreement |
| • | Buyer Profile |
| • | Buyer Personal
Financial Statement |
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After receiving these documents, we review them carefully to qualify each prospective purchaser. Only then will we provide the prospective buyer with additional information about your business. If the prospective buyer continues to be interested in pursuing your business, we request "proof of funds" documentation in order to substantiate their ability to consummate the purchase transaction. If they are willing and able to provide this documentation, we then will move forward to share the offering presentation and more detailed financial information on your business. |
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Step 6: Presentation Review |
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During this step, we will provide the prospective buyer with the business profile prepared in Step 3. This detailed offering memorandum presents your business as a unique market opportunity. We will respond to a variety of buyer questions and concerns and participate and manage meetings with the buyer aimed toward streamlining the process of selling your business. |
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Step 7: Negotiating An Agreement |
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Perhaps the most important and delicate part of the entire sales process in negotiating an agreement between the parties. Representing your interests at all times, we will assist the parties to structure an agreement that is fair and acceptable - a "win-win" result. Even after a preliminary agreement is reached, there will be plenty of details to be worked through to prevent the deal from falling apart. Our experienced negotiators will work to resolve issues as they arise and oversee all aspects of the process. You will be involved in the entire process, however, our approach allows you to concentrate on operating your business while we attend to all the details. This step will culminate in the preparation of a Letter of Intent (LOI) for the sale of your business. The LOI is an intermediate document that summarizes the terms and conditions that you and the buyer believe will be incorporated into a final Purchase and Sale Agreement. It represents an outline of where the parties stand in their negotiations and reflects the prospective purchaser's intent to consummate a transaction. Although often non-binding, the LOI typically includes the following substantive and procedural items customized to meet the specifics of each transaction: Substantive Items: |
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| • | The Sales Price and how it is to be determined |
| • | Whether the purchase will be an "asset sale" or an "entity acquisition" |
| • | How and when payment(s) will be made (i.e., lump-sum at closing or installment payments and in the case of the latter, the proposed interest rate and term) |
| • | Protection for the seller in an installment sale (i.e., retaining a security interest in business assets, obtaining personal guarantees from the buyer and/or third-parties and/or obtaining a lien on other assets of the buyer) |
| • | Assets to be included in the purchase and those that will be excluded, including the treatment of inventory, if any |
| • | The extent to which any business liabilities will be assumed as part of the purchase, including whether the buyer will assume or be assigned existing leases for premises and/or equipment |
| • | Any arrangements for training and support as part of the sale and whether the seller will continue working as an employee or consultant in the future |
| • | Whether and to what extent the seller agrees not to compete following the sale |
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Procedural Items: |
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| • | Whether the seller is expected to negotiate exclusively with the prospective buyer providing the LOI or whether the seller reserves the right to engage in discussions with other possible purchasers |
| • | A schedule for completing negotiations, entering into a Purchase and Sale Agreement, conducting due diligence and closing escrow |
| • | An outline of the due diligence to be conducted by the buyer and any further investigation of the buyer (i.e., examining prior business experience and financial ability to consummate purchase and service debt) |
| • | Whether or not the LOI is binding |
| • | A list of "open" issues and items that remain subject to negotiation |
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In the event the buyer is unrepresented and with your consent, the LOI may be prepared with our assistance. Typically, the buyer will be expected to provide an earnest money deposit at the same time that the LOI is submitted. Finally, we will review the LOI with you, seek answers to any additional questions you may have and assist you in formulating a response. |
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Step 8: Structuring the Sale |
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As the business owner and seller, you may accept an offer as written or respond with a counter-offer. Once the parties agree on all of the terms and conditions of the sale, those terms and conditions must be transferred into a clearly drafted legal contract know as a Purchase and Sale Agreement. A well drafted Purchase and Sale Agreement should reduce the possibility of future disputes by eliminating ambiguous, incomplete or contradictory understandings of the parties. In addition to the Purchase and Sale Agreement, there are other key legal documents used in the sale of a business. They include: |
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| • | Documents transferring ownership of the assets or the entity to the buyer. These include a bill of sale to transfer tangible personal property, and assignment documents for the transfer of leases, contracts and intellectual property such as patents, copyrights, and trade or service marks. In the case of an entity sale, there will be formal documents for the transfer of shares of stock or partnership or LLC membership interests. |
| • | If the agreement includes installment payments to the seller after close of escrow, documents that firmly commit the buyer to pay what is owed are required. These protect the seller in the event the buyer discontinues making payments and typically include promissory notes, security agreements, stock pledge agreements, deeds of trust and/or personal guarantees. |
| • | Non-competition and employment or independent contractor agreements to document the seller's commitments to the buyer after close of escrow. |
| • | A comprehensive closing checklist to ensure that everything proceeds smoothly through closing |
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It is important to have a qualified business lawyer/tax advisor to assist in the preparation of legal documents associated with the sale of your business. This advisor should ensure that all documents comply with appropriate laws (particularly relating to the allocation of the sales prices among the various assets) and that the sale will have the tax consequences that you anticipate. All Coast Brokers, Inc. works closely with a business and real estate law firm that specializes in advising clients with exit-strategy planning and representing them in structuring business acquisitions, divestitures and buy-outs. We can work closely with this law firm or any other legal/tax advisors of your choosing to ensure a coordinated handling of the transaction. Unlike other brokers, we do not recommend that you take your business "off the market" and discontinue marketing until the escrow is closed. On your behalf, we will continue to actively qualify buyers and pursue "back-up" offers in the event that a pending deal is not completed. |
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Step 9: Due Diligence |
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The Purchase and Sale Agreement usually includes language that makes the sale contingent upon the buyer verifying the accuracy of the seller's financial and operational representations. The formal due diligence period generally has a well defined beginning and ending point, often starting during the time between when a Letter of Intent is accepted and the Purchase and Sale Agreement is signed. The buyer and experts that he may hire typically begin the process of due diligence with a thorough examination of detailed accounting records and business information. The seller will be required to "open the books" and cooperate with the buyer and his representatives in every reasonable way to validate your business claims to their satisfaction. Most buyers will approach due diligence with a healthy sense of skepticism. Because all businesses are unique, the actual due diligence process will be somewhat unique as well. However, the procedures employed are typically organized into the following four categories: |
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| • | Data Collection and Examination |
| • | Interviews, Questioning and Discussion |
| • | Confirmation, Verification and Validation |
| • | Calculations,
Projections and Analysis |
| The due diligence process is one of the most important steps to ensure that the business sale is completed in a successful manner. Our professionals will work closely with you and the buyer to facilitate the due diligence process so that this step is completed successfully. | |
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Step 10: Modifications and Contingency Removals |
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After completion of the buyer's due diligence, we
will coordinate with all parties with respect to any
adjustments to the Purchase and Sale Agreement
and/or other transaction documents. We will then work
with the escrow company to facilitate the removal of all the
contingencies and the preparation of all other documents to
complete the transaction. This might also include presenting the buyer's qualifications to obtain any necessary
lease assignments and/or financial commitments.
This involves final preparation for legally transferring ownership of business assets (in an asset sale) or ownership of an entity (in an entity sale). Because different types of assets typically are involved in a sale, these documents could include: |
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| • | Bill of Sale – to transfer ownership of tangible assets such as furniture and fixtures, equipment, inventory, customer lists, rights to telephone and facsimile numbers and supplies. Vehicle ownership transfer requires the use of state-prescribed forms. |
| • | Deeds – the transfer of real estate used by the business as part of the sale involves preparation and recordation of a deed, along title insurance to ensure the buyer is receiving clear title. |
| • | Transfer of Business Licenses and Permits – to the extent the business operates pursuant to a license or permit issued by a state or local regulatory agency, the seller may have to assist the buyer effect a transfer of, or obtain the new issuance of, the necessary license or permit (for example, a liquor license) |
| • | Statement Regarding Absence of Creditors – used to satisfy the buyer's requirement to verify that the seller complied with all applicable bulk sale provisions. |
| • | Assignments – used to transfer intangible assets such as leases, employment contracts and agreements with customers and suppliers as well as intellectual property (i.e., trademarks, patents and copyrights). |
| • | Consent Forms Approving Entity's Sale of Assets – consists primarily of a formal resolution authorizing the entity to engage in the sale of its assets. |
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Step 11: Closing |
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This is the point at which the ownership of the business changes hands and the seller receives the agreed upon proceeds from the sale, typically the sales price or a substantial down payment. Rarely is the closing a cut and dry and process. Throughout the escrow, the closing documents are prepared and tailored to conform to the agreement between buyer and seller. Often, some adjustments will need to be made on the day of the closing. For instance, if a sales price is based in whole or part upon the value of inventory on the day of closing, an adjustment may be required at the final moment. We will prepare a customized closing checklist to coordinate and streamline the closing. The items on the checklist will vary for each business sale. We typically recommend scheduling the closing on a weekday and first thing in the morning when governmental offices, banks, title companies and others are available in the event they need to be reached to work out unexpected issues. We also recommend scheduling the closing on or near the last day of the month as it can make prorating expenses easier. Typically, both buyer and seller attend the closing. Often, others will need to participate as well. For example, in community property states like California, if you're married your spouse will be required to sign the transfer documents. Likewise, if there are guarantors or other necessary parties to the transaction they may need to be present as well (unless their signatures were secured in advance of the closing or you are authorized to execute documents on their behalf pursuant to a power of attorney). Obviously, the Purchase and Sale Agreement, related attachments thereto and the supporting transfer documents will indicate who is required to sign either prior to, or at the closing. If represented by an attorney in the transaction, your lawyer's presence at the closing can be reassuring and streamline the process. |
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Step 12: The Transition |
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| This typically involves a period of
cooperation after closing during which time the seller(s) will assist the
buyer(s) with training in day-to-day business
operations and helping to ensure a "seamless" transition
to the new owner(s). During
this time, which can be a couple of weeks to a couple of
months depending upon the scale and complexity of
the business, the seller is typically involved in introducing the buyer to
key supplier and customer relationships, maintaining
continuity for employees and transferring proprietary
information needed to operate the business successfully. This is a very important piece of the entire business sale process and the total time required varies from business to business and market to market. Determining what is expected early in the process. The responsibilities, reporting procedures and hours of committed effort should be detailed and agreed upon before the close of escrow. Beyond the initial transition period, sellers are often compensated for further assistance as a consultant or as a salaried employee. |
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Contact us today to get started.