Buying or Selling a business is a difficult process involving the coordination of multiple professional disciplines with no ‘roadmap to success.’  Each and every instance is unique and as the seller or buyer, you can ill afford not to do it right the first time.  The stakes are high and you will do yourself well to seriously consider enlisting the assistance of a competent professional Business Broker.

Business Broker?  What is that?

Everyone has heard of Brokers – Stock Brokers, Mortgage Brokers.  But what is a Business Broker?
Simply put, a Business Broker is one who assists an individual (or company) in buying a business or helping a company sell their business – in concept not too different from a residential Real Estate Agent in the housing market. However similar, as you consider enlisting the help of a Business Broker, it will help to understand that there are very definite differences in the business buying and selling process.

• Real estate sales people will generally work more favorably with buyers
• Clients that contact a real estate person will likely purchase a property within twelve months, seventy percent of the time.
• Of clients who contact a business broker, over ninety percent will never buy a business.  Many of these calls are from people who do not have the resources, experience, or risk profile to actually buy a company.  Brokers spend a lot of their time screening to find the motivated buyers who are ready to make a decision.
• In residential real estate, you want everyone to know your home is for sale to accomplish the greatest exposure, a business sale must be conducted in the strictest confidence to protect the ongoing viability of the business.
• Realtors deal in number of bedrooms and baths, square footage and schools. Business Brokers deal in Revenue, Cost of Goods Sold, expenses, Inventory and overall business valuations, recasting, Income Tax returns, Profit and Loss Statements, leases, etc.
• Residential real estate is valued based on neighborhood comparables,  while businesses are valued on the basis of their cash flow.

Selling a Business

As a Business Owner, if your exit strategy involves selling all or part of your business enterprise . . .
A Business Broker can actually increase the cash that remains in your pocket following the sale at the same time assuring the buyer of an equitable acquisition at the lowest out-of-pocket cost.

There are 15 identified steps in the process of selling your business.  They include:

• Consider, and make the initial decision to sell your business.
• Evaluate your business, and establish a preliminary valuation.
• Engage your professional advisors.
• Conduct a thorough due diligence of your business.
• Prepare a detailed selling memorandum for the business.
• Identify the universe of qualified, potential buyers.
• Market the business to potential buyers.
• Negotiate with, and receive offers from interested buyers.
• Conduct detailed due diligence on the buyers who are finalists.
• Execute a letter of intent with the proposed buyer.
• Assist the buyer in its due diligence.
• Structure, and complete documentation for the sale.
• Sign the purchase agreement.
• Satisfy the conditions to the closing.
• Close the sale.

A Business Broker is experienced in the process and prepared to serve as a responsible and effective team leader for you and your legal, financial, and other professional advisors.  He will lead that team to create and implement the exit strategy that best fits your personal and business needs and desires and as well as those of the buyer.  You can expect the professional Broker to:

• Understand the many pitfalls inherent in business transactions,
• Maintain confidentiality throughout the process,
• Qualify buyers for reputation and financial capability,
• Work in the best interest of both buyer and seller throughout the transaction,
• Coordinate the efforts of buyer and seller’s advisory teams
• Assist in structuring the various financial options available, and most importantly
• Allow you the owner to do what you do best – run your business to maintain value.

Considering the pros and cons, the stakes in the transaction are too high to proceed without competent representation.

Buying a Business

As a Business Buyer, what is better, starting a new business or buying an existing enterprise?
Every year, thousands of people consider entrepreneurship. The two routes are either to buy an existing business or start one from scratch.  Each course has advantages and disadvantages, but experts generally agree that paying the extra cost for an existing business will outweigh the risks of starting one from scratch.

• Starting your own business can be very rewarding
• Needs a unique product, technology, or service
• You will not need to pay for Goodwill
• Obtaining financing may be very difficult
• You will need to support yourself (and family) from personal savings.
• The chances of survival of a start-up business is low – a 75% failure rate according to the Bureau of Labor Statistics.
• Buying an existing business may be a more efficient but frequently more costly.
• With existing customer base, relationships with suppliers, an operating process, a known location, employees that are hired and trained, assets, and a proven idea, owners will expect a premium
• Existing businesses can normally obtain financing from financial institutions.
• Seller will quite often provide a portion of the financing.
• There is an existing cash flow which can provide immediate income.

If your decision is to buy an existing enterprise, how does the Business Broker help . . . . and how can that partnership be most effective?

A business broker cannot find the right business for you.

• The two most effective situations in which a broker can be of assistance is to

• Provide you with access to businesses for sale that you may not find on your own.
• Act as a liaison for you and deliver bad news to the Seller.
• You may be asking the Seller to participate in the financing of your purchase.
• You'll have to work with a seller for training after the purchase.

• A business broker can help you but they cannot do your work.  It is your money, your future and your potential business.  Use a broker to help you, but help them out by making certain that you are well prepared, educated and highly committed to this process.
• Business brokers are not fortunetellers.  They need you to steer them toward the businesses that make sense for you.

• Define your criteria so that you know what you are looking for.  Telling a broker that you are "wide open" to anything really means you have no idea what you are looking for.
• Prepare a personal list of the type(s) of business(es) that you're looking for, how much you are prepared to invest, what your time frame is, your background, credit history, etc.
• Inquire about businesses that are a good fit with your background.  Some businesses don't require experience in the industry, but many do.
• A business broker may suggest common things to look for, but they cannot conduct the due diligence investigation for you.
• Be willing to sign a non disclosure agreement (NDA) and to provide personal financial information.  Sellers require brokers to get an NDA and financial information prior to sharing the company's confidential information to assure the buyer is serious and able to complete the sale.
• Due diligence is the time when buyers verify the information provided by the company and confirm through the details that there are no red flags. Don't try to do this before making an offer.
• A business broker cannot negotiate the best deal for you. Most will certainly attempt to bring all parties to a point of understanding, but if you want the best deal, then you must realize that nobody cares more about your investment than you do.
• Financing a business is not simple.  Your broker will know many options available to finance a business.  If you do not have the financial resources to execute a sale, a business broker is not going to indiscriminately distribute a company's financials to you. Be prepared to share your financial information with a broker and provide them with the proof they need to deem you qualified for a particular listing.
• In residential sales, the house and the land serve as the collateral that allows the buyer to obtain traditional financing.
• In a business, much of the value is in the intangible goodwill. Banks are left with very little to foreclose upon should the business fail under a new owner.  Seller financing is a major opportunity.  It will be important that the seller know the buyer, his reputation and personal financial condition, and his ability to operate the business.

On their website, Business Link provides several discussions on business acquisition and sale as well as other relevant topics significant to the small business entrepreneur.