The most important first step when considering the sale of your business is finding an experienced advisor. Collins & Collins Investments understands this may be the single most important financial decision of your life. Our professionals have assisted hundreds of companies of all types and sizes by managing valuation, timing, negotiation, decision making and all the other steps required for a successful sale of your business. Collins & Collins Investments helps you achieve the best possible outcome.
Your Company’s privacy and goodwill are protected when we manage the sale of your business. Marketing effectively, yet quietly, is a delicately balanced process called generic marketing, which should be handled by an experienced advisor. The goal is to maximize exposure, but only to qualified and motivated prospective buyers. We avoid disclosing your information to unqualified prospective buyers who don’t have the resources, management skills, and motivation to make a reasonable offer that can result in a successful transaction.
The Confidentiality Agreement used to protect you and your business has been crafted and reviewed by several Attorneys and is worded strongly in your favor. It provides specific legal remedies for breach of contract which are explained to prospective buyers and their advisors to avoid problems before they develop.
In order to help you realize the best price and terms for your business, it is important for your business intermediary to be well informed. The information and cooperation you provide will help us obtain the most advantageous sale for you. Copies (preferably digital) of the following information are required:
It is also important to prepare a descriptive overview of your business that includes products sold, services rendered, patents, licenses, franchise agreements, equipment leases, other basic business agreements, copies of all notes, mortgages and security agreements, Internet domains, an accurate competitive analysis, a list of key employees, their job descriptions and salaries, and a current business valuation report.
An experienced intermediary should manage the sale process from the first day you decide to sell your business until the day you get your check. This will involve cooperating with your other trusted business advisors (your Attorney, Accountant, Banker and retirement Planner). There are four distinct phases in the sale process; valuation, marketing, negotiation and transition.
After all of the required information is gathered, business financial statements must be recast. Understandably, many small businesses suppress profits, thereby suppressing taxes. When this occurs, their financial records do not reflect their true earning power. For example, owners of small businesses often reward themselves with benefits, which increase expenses and reduce profits. Recasting adjusts owner related benefits and other discretionary items. The result of this process is a value referred to as seller discretionary cash-flow, EBIT, or EBITDA.
Three different approaches are commonly used in business valuation: the income approach, the asset approach, and the market approach. While there are quite a few methods of determining the fair market value of a business as a going concern, the Direct Market Data Method is usually the most relevant. This method uses comparable sales to help value your business.
Once the fair market value of your business has been determined, your intermediary should identify the target markets for your business and prepare the Confidential Information Memorandum and the marketing plan. Promoting a generic description of the business stimulates interest.
Prospective buyers are qualified based on their capital, credit, authority and motivation. Qualified prospective buyers must sign a confidentiality agreement prior to receiving any confidential information about your business. After agreeing to maintain confidentiality, prospects receive a copy of the Confidential Information Memorandum. Often they will have questions which may require additional information from you. When the time is right, and after consulting with you, qualified prospective buyers are individually escorted and introduced to you. Each meeting is scheduled at a time and place convenient for you.
After initial meetings, prospective buyers are encouraged to make written offers, which you may accept, reject, or counter. Offers will include contingencies and will require you to make representations and warranties. Effectively negotiating the purchase and sale process requires skills gained over many years. Experience matters!
Once agreement is reached, the due diligence process begins. Each contingency must be addressed on schedule. Standard contingencies include financial and legal reviews, a covenant not to compete, employment contract(s), an assignment of lease and sometimes a financing contingency.
After all the contingencies have been met or waived, the transaction closes. The closing is the meeting that results in the purchase and sale of your business. Through cooperation with your other advisers and with our thorough understanding of this process, Collins & Collins Investments offers you an effective and efficient solution to the challenges associated with selling your business properly and for the right price.
Purchase and sale contracts almost always include an employment contract(s) for key employees of the business. Depending on the management structure of your business, the new owner may require you and possibly some other employees to be employed by the business after closing. This helps to insure a smooth transfer of goodwill to the new owner.
It is not at all uncommon for a business owner to have an exaggerated opinion of the fair market value of their business. In most instances, the owner understandably has developed an emotional perspective. It is also common for a business owner to have become comfortable with the risks associated with their business. Prospective buyers have a fresh perspective of these risks and commonly discount the value of businesses accordingly.
As a business Buyer, working with a business appraiser can be very beneficial. When used properly, a valuation can be a powerful decision making and effective negotiating tool. In much the same way that your broker will pre-qualify prospective sellers, a valuation can effectively pre-qualify a business prior to making an offer to purchase. A pre-offer valuation offers several benefits to you and your broker as well as to the prospective seller. First and foremost, it can assist in establishing a realistic selling price for a proposed transaction. The emotional component of the transaction can be reduced by an unbiased third party valuation.
A qualified business appraiser will calculate the value of a business from a purely objective point of view. This allows both you and your broker to utilize your time more effectively. A valuation can limit unrealistic expectations by providing a “reality check”. From the perspective of the purchaser, third party valuations add credibility to the negotiation process.
In the absence of a third party valuation, you may not have an accurate opinion of the selling price of a business or be able to determine whether or not it is realistic. By seeing that the proposed price is in line with recent sales of comparable businesses, the anxiety level of both parties may be reduced. At the same time, the purchaser’s confidence level in the negotiation process is enhanced, as is the likelihood of the transaction being financed by a third party and eventually consummated. The net effect of utilizing a valuation as a decision making tool is a more efficient use of resources by all parties concerned, a lower level of subjectivity and often a shorter negotiation process for the business. The cost of these decision-making tools generally range from $1,000 to $10,000.
Business appraisers can adapt the valuation process to suit your particular needs. Most can prepare limited scope or summary valuation reports designed save time and money. These tools often fulfill the requirement of supporting the proposed transaction and assist with closing your transaction at a fair price.
In today’s competitive marketplace, it is important that business people utilize their resources as effectively as possible while avoiding costly mistakes. Business buyers, sellers, appraisers, lenders and brokers ultimately work toward a common goal, even if it is from different perspectives. Through years of experience we have refined an effective system of managing the purchase process for you. From the day you retain us until the day your deal closes, you will be able to focus on running your business, not learning how to sell it. We get business transactions closed smoothly, quietly, and for the right price.
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