Buying & Selling a Business

There is a lot that goes into a business transaction. No matter if you’re the buyer or the seller, you’ll want to have a team of experts to guide you through the process. Just having the money to buy a business does not make you ready to buy that business. In order to make a smart purchasing decision, you’ll need to spend a lot of time working with the seller and checking every necessary consideration off the list. To ensure you are getting the best deal, it’s recommended to work with a trusted business advisor.

In order to learn more about this, we asked MJ Cassner from Transworld Business Advisors for some insight on the process of buying and/or selling a business.

“For sellers, we make confidentiality and best price a mutual goal,” MJ said. “My advice is to sell when the business is doing well—don’t wait until you have to sell. At Transworld Business Advisors, we offer a professional business valuation at no cost to the seller. In addition, we’ll advertise your listing on over 100 websites both locally and internationally at no cost to the seller. Another important part of our process involves interviewing the seller to determine discretionary earnings and creating recastings from the business’s tax returns. This financial information is then shown to potential buyers. We adjust back in interest depreciation, and any owner perks or add-backs, to show the true value of the company. Transworld will get the business pre-qualified with a bank so the process is easier, and our team will recommend other financial and legal resources too.”

MJ shared some advice for first-time buyers as well: “First off, have a down payment saved and ready for purchase. I recommend 20–25% of the amount you can afford for a business (for businesses that cost $200k, have $50k cash available). Buyers should have capital start-up money available to get through initial months for unforeseen costs, improvements, deposits, payroll, etc. I also encourage buyers to strengthen their credit history to 700+. It’s important to be honest in disclosing your income, as lenders will check your tax returns. Choose a business you can feel passionate about. You may need to work a lot at first to get the profit you want. Even an owner-absentee business takes effort.”

When considering the purchase of a business for the first time, remember that there is really no such thing as too much due diligence. Communicate early and often with your team of professional advisors, including your accountant, attorney, banker, and other consultants. Additionally, reach out to other business owners you know who have gone through this process before, as they may be able to provide valuable insight from their past experience. Planning with a tax advisor can help minimize the taxes owed, or at least provide advance notice for when April comes around. Often times, an installment sale can be used to spread the proceeds of the sale over several years, which helps avoid having a huge lump sum due in one single tax year.

As we get into the topic of financing the purchase of a business, it’s important to remember that financing the business acquisition is only part of the game. You still need funds to operate the business after the purchase. The simplest way to finance a business acquisition is to use your own funds. These funds include your savings, retirement accounts, and home equity. No matter what you do, you will need to use some of your own established capital for the purchase, but it’s uncommon for someone to acquire a business by using only their funds for the purchase.

Bank loans have great rates, and if you have the right credentials, it’s not impossible to get a bank loan even if you don’t have an existing business. It will help to have relevant experience in the type of business you’re buying, partnered with steady personal income and good credit.

If you’re buying a business, or even if you’re just ready to start a business and build it from the ground up, Pinnacle Bank has programs to get you the capital you need. Their commercial lenders make it their business to understand your business. Local businesses have counted on Pinnacle Bank for over 75 years. Pinnacle Bank is also flexible when it comes to qualifying. You can use all types of assets, like inventory, machinery, and real estate as collateral. You’ll get the most competitive rates available and they’ll turn your application around fast.

Heartland Payment is another source for business financing solutions. They have partnered with Lendio, the nation’s largest business loan marketplace, to give you unprecedented access to capital. Lendio has helped business owners get $1 billion in loans. You can complete Heartland Payment’s online small business loan application, powered by Lendio, in just 15 minutes. Plus, there’s no fee or obligation. You’ll be happy to learn that the funding is very fast as well. Once your loan is approved, you’ll be able to access your capital in as little as 24 hours. There’s no dilly-dallying around! As America’s largest small business loan marketplace, Heartland Payment can connect you to more loan options than anyone else. All you have to do to gain access to their nationwide network of 75+ lenders is fill out the online application.

When you apply through Lendio, your dedicated personal funding manager will ask about your needs, walk you through different loan options, and help you choose the perfect small business loan. You won’t have to deal convoluted financial jargon. They keep it simple so you can make informed decisions and find financing fast.

Buyers who may be struggling to get a conventional loan might go the seller financing route. Essentially, seller financing is when the original owner of the business offers the new buyer a loan to cover a portion of the price of the business. Then, the buyer repays the loan according to agreed-upon terms. This is when it is crucial to get your attorney involved. Your lawyer will draw up and file the terms of your loan in a promissory note, which is a legally binding contact that states the terms of the loan that you and the seller agreed upon (repayment length, monthly repayment amounts, interest rates, collateral, etc.).

The legal advice from your lawyer will be invaluable for a number of different reasons. Susan Napolitano is a relentless civil lawyer at Berry Law who fights for her clients, specifically in the area of business transactions to make sure they keep all they have earned and that they continue to build upon their assets.

“Having handled the legal aspects of hundreds of business transitions, I’ve learned that the smoothest sales involve an attorney from the beginning to the end,” said Susan. “Ideally, a seller should visit with his or her attorney (and accountant) at least one tax year before listing the business for sale to prepare for a succession. It can be helpful when the seller’s attorney understands the seller’s day-to-day business, but it is imperative that the seller’s attorney understands the unique legal aspects of the seller’s business transition. “

Get an indemnity from the seller, otherwise known as a comprehensive form of insurance compensation for damages or loss. Even if you and your advisors have torn apart the seller’s books and records, sometimes things get overlooked and you find yourself getting sued because of something the seller did or didn’t do before you took over the business. With indemnity, the insurer indemnifies the policyholder—that is, promises to make whole the individual or business for any covered loss.

Berry Law was founded in 1965 by Attorney John Stevens Berry, Sr. They continue to uphold a heritage of aggressive, effective, and reliable legal advocacy to individuals in Omaha and the entire state of Nebraska.

Another key consideration when buying a business is the current employees. Does the business you’re purchasing rely heavily on a few key employees? If so, the key employees can be one of the most valuable assets for the business. Making sure you take time to identify who the key people are in the company, and ensuring those key employees stay with the company after you’ve purchased it, is a step that should not be overlooked. That being said, employee retention can be very challenging in the midst of a substantial transition period such as a change in ownership. If you’re taking over a business and you’re coming in with new ideas and changes that affect the culture, expectations, day-to-day operations, etc., be prepared for some resistance. It is difficult for employees to adapt to a new normal once they’ve gotten into a rhythem or routine. As an owner faced with turnover, it’s good to have effective staffing strategies in place ahead of time.

When buying your first business, there’s no shortage of things to consider. A key step is getting a business valuation to make sure the purchase price is fair. To explore this step a little more, we spoke with Jethro Hopkins, owner of No Coast Business Advisors (NCBA).

“When you are looking to buy a business, smart professionals use a business broker to represent their interests,” Jethro stated. “The business owner or seller is going to have professionals on their side, including a broker, CPA, attorney, advisors, and others. Having a trusted broker is a great way to level the playing field instead of just hoping that no one on the other side of the table will take advantage of you.”

According to Jethro, there are a few questions a buyer has a right to ask. These questions include:

• Is the business REALLY worth what they claim it is?
• Are there hidden dangers or liabilities in the business?
• What are the best financing options?
• How can I structure the offer to protect myself and give me a way out before closing if things don’t go right?
• What legal documents need to be executed properly?
• How can I get the best deal?

“The first and most important thing in the buying/selling a business process is figuring out the value of the business,” Jethro informed us. “Depending on if you’re working with a CPA, appraiser, or a broker, you’ll probably get different valuation results. This is because each entity is calculating the value of a business a little differently. An accountant will generally evaluate your business on the basis of its book value on paper. If you’ve been working with a CPA, they probably have a working knowledge of your business that other appraising agents do not, and would be a great source of information for questions about the tax consequences of selling your business. An appraiser is going to give you the hard provable value of a business considering the value of all equipment, fixtures, vehicles, and intangible assets, and deriving the net present value of its projected future earnings. Whereas a broker is going to use real-world market comparables from multiple sources to figure out a realistic selling price based on accepted methodologies and multiple valuation formats. Because it does not matter what any professional says a business is worth, it is what the market actually shows they can sell for.”

One of the things Jethro emphasized was the issue of confidentiality: “There are a variety of reasons that you, as the seller, would want to keep the sale of your business as quiet as possible,” Jethro said. “If you’re careful, your employees, suppliers, vendors, and competitors won’t know your company is on the market until wrapped up the majority of the process with a qualified buyer. Being discrete can make marketing difficult. This is why working with a business broker is crucial. We can confidentially market you business through many avenues to qualified and interested buyers in a way that does not breach the confidentiality of our clients. Before a prospective buyer is given access to company information, they must sign an NDA that restricts their use of privileged information. This agreement prohibits disclosure of protected information to parties that have not been approved for access by the broker and/or seller.”

Jethro also spoke to us about the condition of the local market for buying/selling a business: “The market is still booming. Any business that is operating in the green and has at least three years of established history, is a sellable asset that someone will buy. I’ve noticed that SAAS (software as a service) companies are a very lucrative business to sell right now. I’d say the average amount of time to sell main street market businesses is 5 to 7 months, whereas companies valued over $3 million will take 6 to 12 months because there are more details to prepare for a successful release to private equity groups. Another trend I see is absentee owner businesses, an individual or corporation that owns a business without actually actively managing it, are selling quicker than businesses with an owner who is actively involved in the daily operations process due to being of interest to a larger pool of buyers interested in acquisitions as an investment.”

Clients enjoy greater access to financing and additional vendor options through No Coast Business Advisors, a national business brokerage specializing in sale and acquisition. Every advisor with NCBA has been a business owner, which gives them unique experience that allows them to understand other business owners. In addition, Jethro recently completed all requirements necessary to become Nebraska’s only business broker to hold the elite Certified Business Intermediary (CBI) designation, awarded by the International Business Brokers Association (IBBA). Someone would have to go to Kansas City to find the next closest advisor who can do what Jethro does.

No matter which side of the table you are on, business transactions require a careful process that demands a lot of attention, and it’s impossible to go about it alone. You’ll need to have trusted advisors in your corner to assist you along the way. Don’t be afraid to pick up the phone and ask for help!