Selling a business is a complex and often challenging process.
A Seller sees his business as “his baby.” It has been a big part of his life and his identity; it supported his family and he has seen it grow from an idea to reality. His perspective will often focus on the “huge potential” the business holds simply for a buyer to build upon his base; the hard work has been done.
A Buyer is a bit more skeptical. There is no emotional attachment; problems weigh heavier on his mind than the potential. In reality – it’s strictly a financial transaction with significant risk.
The role of Venture Investors Business Group is to assure the business is appropriately priced, market it widely to all potential buyer groups and negotiate the best terms available in the market for the Seller.
Here’s an overview of our Sales Process:
The single most important component of successfully selling a business is appropriate pricing. While there is no single methodology for determining the “correct” price, there are many misconceptions as to how a business is priced. Not surprisingly, most of these misconceptions overprice the business. While buyers will purchase a business because of its potential – they will pay a price based upon its performance.
As a first step – we will provide a Broker’s Opinion of Value on the business. This will likely be a range that is aggressive, yet realistic. Alternatively, for more complex, or larger businesses we will likely recommend that a formal Valuation be performed by a third party Valuation firm which we can facilitate with one of our strategic partners.
- Engagement Agreement
Once we agree upon the pricing we will enter into a Representation Agreement. This is your authorization for us to market your business for sale. It also establishes the term of our Agreement and our fees. Note that while our fees vary by engagement, all are “success fees.” That is we do not charge anything up front, nor during the marketing process. We are paid a percentage of the ultimate sales price, subject to an agreed upon minimum – strictly upon the sale of the business.
- Packaging the Business
- The Business Profile: We will create this document, which will become the offering circular – that fully describes the business to a potential Buyer. It will include the business’ name and address, an overview of operations and staffing, financial statements for the last several years and pictures of the business.
- Internet Marketplace Ads: We will write ads to be placed on the internet – in the most widely used national and international business for sale marketplaces.
- Build Buyer Databases: As appropriate, we will create databases of potential strategic buyers as well as known investors and Private Equity firms (PEGS) that may be interested in a business of this type. These databases may also include respondents to other, similar business that we have advertised for sale in the past.
- Approval for Financing
Once the Profile has been completed, we will submit the marketing package and tax returns for the past 3 years to an SBA lender for pre-approval. The lender will provide a letter indicating interest and the amount of financing likely available – all subject to further review of the business, potentially a 3rd party valuations and the buyer’s qualifications. We will provide this letter to all respondents to whom we send the Profile.
Note – that all of the marketing we do will seek to maintain the Confidentiality of the business. Accordingly, none of the ads – either in direct marketing or those placed in on-line marketplaces will mention the name of the business. We will try to make the opportunity as compelling and unique as possible without providing so much detail that the business will be named or guessed at.
Our marketing efforts will include:
- Internet Marketplace Advertising: We will advertise the business on the most popular and widely used sites – catering to mainstream business buyers, investors, PEGs or even international buyers, as applicable. In today’s world these sites are the most likely place to attract interest from those actively seeking to buy a business.
- Strategic Buyers: are usually other businesses in perhaps the same industry or complimentary industries that would benefit from an acquisition – to achieve economies of scale from operations, greater market share, elimination of competition, etc… These firms are often not actively seeking an acquisition but may be interested if approached with such an opportunity.In our “Packaging” phase above, we attempted to create databases of these type of potential buyers who we will approach as part of our marketing process.
- Other Brokers: We will make the opportunity available to other brokers with our networks of professional associations – such as the California Association of Business Brokers. Please note that we will co-broker with any appropriately licensed individual or Brokerage firm who provides a (qualified) potential buyer.
- Working With Potential Buyers
As the first order of business – each respondent or interested party must sign a Confidentiality Agreement and provide evidence of an appropriate background and the financial wherewithal to successfully operate and acquire the business. Once we have received and reviewed this information we will provide the Business Profile.
This often results in questions, which we will seek to answer, which will often then progress to either a conference call with the Seller or a meeting and tour of the business.
- The Business Visit
Every buyer is going to want to see the business, probably while in operation. Some sellers are concerned that bringing a number of potential buyers through their place of business will be a disruption and create curiosity (i.e. concerns) from employees.
We will try to assure that only the most qualified and serious potential buyers visit. In some cases, we find it preferable to create a walk-through video as a prerequisite, or a first visit during non-working hours. Ultimately, we will schedule and accompany all visitors, pre-counselling them as to proper etiquette and protocol to minimize disruption and maintain confidentiality.
- Offers and Negotiation
Offers will come in the form of formal Asset Purchase Agreements, Letters of Intent (LOI’s) or verbally.
We will immediately advise the Seller of the offer, regardless of the format or amount. We will assure that the offer becomes written ASAP, preferable in the format of an Asset Purchase Agreement, as published by the California Association of Business Brokers. Larger transactions, particularly if generated by a sophisticated buyer will be in the form of an LOI.
We will provide guidance to the Seller re the details of the offer, and lead negotiations and counter-offers. We will also interface, as necessary with the Principals legal counsel.
- Due Diligence
Once a price and purchase format has been agreed upon, due diligence will likely begin. This is the process whereby a Seller has the opportunity to “peak under the covers” of the business and see if it is actually something they want to purchase. Due diligence will last for an agreed upon period of time. A Seller is free to ask for anything they want to see, subject to the approval of the Seller.
Due diligence will end one of three ways: (1) the Buyer will not like what they see and cancel the transaction (usually with no cost), (2) the Buyer will wish to change the terms of the purchase, which will then be subject to approval by the Seller, or (3) the Buyer and Seller are pleased – and the deal progresses.
Due diligence can be quick – i.e. 5 – 10 days, or months for a larger deal. We will oversee the process to assure that the process moves smoothly.
C. Due Diligence: We will facilitate the provision of documents and review as necessary.
D. Landlords: We will work with the Seller’s landlord to obtain an assignment or a new lease.
A Buyer should commence working with their financial institution concurrent with the commencement of due diligence.
We will provide financing referrals as needed, and monitor the Bank’s processing to assure timely completion.
- The Lease
Obtaining as Assignment of new lease will likely be a contingency of the deal. In fact a lender will require that a lease be in place for the duration of the loan.
Lease negotiations generally start during the due diligence process.
We are involved in the leasing process, as necessary to assure the satisfaction of the deal contingency.
- Escrow and Closing
- We strongly recommend the use of escrow and compliance with California’s Bulk Sales laws pertaining to the sale of a business, and will coordinate the set-up.
- We will monitor, and manage as necessary the escrow and bank funding process to keep the transaction on schedule for completion and closing as targeted.