Tom told me when he was first approached by and met with a Business Broker, his initial reaction was: “Why do I need you guys? I can sell it myself. No need to pay a brokerage fee.” So a year later Tom was approached by a principal who let him know he was interested in buying the business. They reached an agreement on price and then nothing happened. The deal died.

No one was there to manage the transaction. No one was there to lead both the seller and more importantly, the buyer, through the transaction. In Tom’s case, neither the business seller nor the business buyer really knew what steps to take. They came up with a price but never really decided on terms. They really didn’t even have a comprehensive agreement. Furthermore, the buyer needed to get financing but was unfamiliar with the process and ineffective in securing what was needed. Tom wasn’t aware of how a different deal structure might have helped get the financing done. In the end, both parties grew frustrated, threw up their hands and walked away.

Six months later Tom listed his business with a professional business broker. Six months later he is under a solid contract, due diligence is complete, a business loan has been secured and closing is scheduled. Tom told me the business brokerage fee he will pay at closing is money well spent. He is looking forward to investing his newly created nest egg and hitting the links.

The basic steps are as follows:

• Recognizing that you are emotionally and financially ready to exit the business
• Assembling a team of advisors to assist in process:
- Spouse & Family
- Attorney
- Accountant
- Business Intermediary / Broker
- Financial Advisor
• Collecting financial information for valuation – 3 to 4 years of business tax returns and financial statements, FF&E listing with estimated market value, estimated inventory value, information on real property, when applicable
• Choosing Business Broker who will prepare a business valuation and based on comparative sales of other similar businesses, offer an estimated market value
• Listing the business for sale with a professional Business Intermediary – avoid up front fees!
• Cleaning up the physical aspect of the business, good signage, no clutter, fresh paint or flooring, repair FF&E
• Cleaning up the financial aspect of the business: have all financial records ready for inspection, resolve outstanding issues – lawsuits, contracts, employees
• Telling a great story – be ready to talk about the business with prospects, getting them excited about the opportunity – you should be pumped and proud of your achievements so that excitement is contagious
• Negotiating a win-win deal, a transaction that provides both the business buyer and business seller with terms and price they can feel good about, ensuring both continue to work hard to complete the transaction
• Building a good rapport with the buyer based on mutual respect and trust
• Providing due diligence materials in a comprehensive and timely manner
• Maintaining the business operation in top form as you move towards closing
• Smiling as the transaction closes and you reap the benefit from years of hard work and hustle – You deserve it!

When selling your business, work with a Business Broker. A VR Business Intermediary works hard to manage the business selling process in a professional manner ensuring a smooth transaction.

This is definitely the time to buy a business. The owners of quality businesses realize that if they want to get top dollar they need to offer generous terms and recognize pricing multiples have come down somewhat from their peaks in the frenzy of the recent unsustainable business bubbles. Serious buyers recognize that last year’s dip in revenues are related to the fall out from the financial crises and that as long as the business’ fundamentals are there, values can be derived from 5+ years of historical earnings rather than just the last few years.

I see 2010 shaping up to be a strong year for mergers and acquisitions of small privately held business. Business owners with a quality business to sell will have the advantage of exposure to a pool of bona fide buyers who want to get invested into a new business now so they can prepare for and best prosper from the continued economic recovery.

I’m counseling my clients on the buyer side of the transaction to make their best deals now before acquisition competition for quality businesses heats up to the point where transactions are priced on scarcity and greed rather than good economic metrics.

As we were discussing the value of the business and an appropriate pricing strategy, I let the owner know the I felt he should offer at the minimum 50% of the purchase price in Seller’s financing. His reply, “Hey, I can do better than that. I bought this business, putting down my life savings and then paying off the Seller’s note for about 80% of the purchase price. That Seller put me in business and helped me attain this great lifestyle. I would like to do the same for my Buyer.”

WOW! Someone that gets it!

So we listed the business based on a multiple or 3 times average SDE with the Seller holding a note for 75% of the purchase price. To make sure the Buyer had an opportunity to work into the business, we amortized the note over 20 years with a 5 year balloon. This monthly payment allowed the Buyer to retain a decent annual salary out of SDE while he or she learned the business. We figured in 5 years, the Buyer would have established sufficient credibility in the business to be able to refinance the Seller’s note with a conventional business loan.

Because of the way this deal is structured, this business opportunity is going to generate alot of Buyer activity. Plus the Seller is willing to stay on in a diminshed capacity for up to a year to ensure that the transition goes smoothly. That’s smart. Obviously, the deal’s ultimate success depends on the Buyer’s ability to take over and operate the business in a profitable manner. This scenario is likely to transpire with the Seller acting as a true mentor.

With economic conditions as they are, with uncertainty dominating the Buyer-Seller discussion, it is even more important to structure each deal as more of a partnership that leads to a successful transition. Buyers are likely to take on the risk of paying higher multiples when Seller’s show they have faith in the future of the business and are willing to stay in the game a little while to ensure its continued success.