When should I sell (this is not as simple as it sounds)?

You’re likely answer to this question is “when I’m good and ready”. We get it, but does that scenario put the most money in your pocket? Likely not.  When we give seminars on this topic for various franchise groups, we explain the magic equation/trend to getting the most for your company and it has to do with multiple, prior year, performance. What does that mean? If you had upward growth in earnings (sales would be good too), for the last 3 previous years, your company is likely going to be priced not on a weighted average of the last 3 years, but on 100% of the last full year, which would be your highest earnings year. So you need to actively look at your business once a year and do some long term planning and when you do, if you see this upward trend, just know you’ll likely get THE most money for your company at this point in time.  There is a lot more to this discussion including, is the economy doing well, are banks loaning, and do you have a solid appraisal?  All four are factors, but having the upward trend in earnings helps the most.

How Long Does It Take To Sell My Business

We’re glad you asked.  There is a lot to this question and if we were to give you a typical answer, in a typical selling environment, we’d say about 6 months or less from the time we actually go to market.  We’ve had companies literally under contract without even starting to publish the company as we had a ready buyer.  This happens because we have a database of over 10,000 buyers and the first thing we like to do is “hit” that database first.  We had another company recently go under contract literally in 2 days from the time we went to market and closed out just a few weeks later.  The point is, when the business is priced right, advertised properly and the listing managed well, we normally have most (over $500k sale prices) completed in about 6 months or less. Why the price tag? Smaller deals tend to have smaller earnings which equates to more risk for a buyer and there could also be more erratic earnings and sales, which makes the transaction more complicated and just plain harder to sell. It also can put the business out of the realm of bank financing as most banks don’t like deals where the overall loan amount is less than $250,000.  If we can’t get a bank on board, then we’re likely looking at much more in down payment funds or all cash.

Advertised Properly: There are 3 main ‘things’ (among several others) that go into most of our ads. We’ve reviewed hundreds of ads by other firms, and we have never come across all 3 of these ‘things’ in their ads.  Again, this is part of our “secret sauce” and a key reason that our deals sell for more money and quicker than the competition.

Well Managed Ads: Having your ads managed well is another huge reason our clients have such success and there are 2 main ‘things’ that we do that we don’t see any other broker do, but again that’s for a phone conversation, as this information is very proprietary.  Here’s a hint… We’ve been doing this for so long that we know the idiosyncrasies of every website we use (there are several) and know the things it takes to keep a listing at the top of categories or how to keep them ‘fresh’. We have found that our specific methods generate the best lead flow and that’s what you need to get a company sold…lead flow.  To manage ads to this degree requires a huge amount of work and a full time person dedicated to it.  We don’t know another company that pays attention to ads to this degree nor allocates the resources like we do.

These activities and so much more are specifically why we get our deals completed in such a short time period.

How do we get so many full price deals?

We are masters at making sure we get you the highest price possible (it’s “by design”)!  Getting the full asking price is not easy. A lot goes into the preparation of the business before we go to market in order to make that happen. Here are some of the reasons for our success, but you should contact us by phone to discuss the detail.

• Intense buyer controls and vetting
• Solid “Wall Street” level appraisals
• Professional selling profiles on your business
• Banking pre-approvals
• Seasoned accounting department
• Extensive pre-market work

Again, there is a lot to discuss about this portion of our system and a phone call is a better way to elucidate the strategy.

As we mentioned in the section “When will it sell” there are some very specific things we do in advertising and marketing, you may want to stop and read that section first.

In the age of the internet, every broker has moved away from newspaper ads to on-line ads. There just aren’t enough people looking at newspaper ads anymore to generate the lead flow to sell a business in a reasonable amount of time. We’ve even used the Wall Street Journal a few years back on multiple runs and generated very few leads.

The point is, we use all the main websites and several that many brokers don’t even know about (unless they’ve been doing this for as long as we have). We don’t use logos or the name of your business in any of our ads (nor do we recommend ANYONE do so) and if it’s located in a small town we try to keep the ad such that a buyer will not be able to figure out what/who the business is. We have to be honest though, if your business is located in a small town, then that can be somewhat problematic. Call us and ask us about one of our own businesses that we sold which was located in an isolated 9,000 population town. I think the conversation will be insightful.

Bottom line, advertising very specific items in your ad and managing the ad correctly to insure it ranks high on various websites are just some of the things that we specialize in and would be considered part of our “secret sauce” to getting our deals completed quickly and for the highest price. Call us for further details.

How long does it take to prepare my business to go to market?

We don’t just market a business – we prepare it to be “sold”.

Every company needs to have ‘preparation’ work done, and businesses which sell for over $500,000 will likely have sophisticated buyers that are expecting a well prepared and presented business.  No ‘wild’ errors, no missing data, and no subterfuge…in short a business that is ready to be purchased.

This preparation work doesn’t come easy or quick, and we’re not going to lie, there’s a bit of what we call “brain damage” involved. Why is this so extensive? As stated before, sophisticated buyers who are purchasing large businesses need that level of detail. Additionally, most of the data compiled will be needed for a banker later in the process as well, so you might as well get it all compiled and ‘straight’ before we have a buyer (and banker) at hand because buyers more than likely are not just looking at your business, but at several others too.  Look at it like pre-due diligence.   Most of the time we have 4 to 6 weeks in the preparation and valuation of your business which also gives us enough time to work with bankers to work out deal structure…All of this BEFORE we go to market. We start with a basic request of financial reports which literally will take you only a couple of minutes to pull. Before we can submit to valuation we will create a 30 to 60 page report on your company (we call it a ‘profile’) which will take some time to compile the data and assemble, and we need your help to do it.  A couple examples of questions we ask are, how many hours a week do you work in the business, and what do you do on a daily basis.  The point is, this is really important information for a whole host of people who will be reviewing your company.

Real World Story:

Here is a real world example of a business I recently was considering purchasing.  I was reviewing a 1.5 million dollar company.  I signed the NDA and received some information on the company. The ad stated specific earnings and sales of the business. However, when I reviewed the information provided to me, those sales/earnings numbers were nowhere to be found.  When I asked the ‘broker’ for a breakdown of the discretionary earnings, he literally used a highlighter pen and highlighted some numbers on the report and faxed the report back to me.  I had to try to locate his ‘highlighted’ numbers in the report and add them up myself – It was futile – I never could come up with solid discretionary earnings using his highlighted numbers. I then requested an Excel spreadsheet so I could recast the reports myself. After several days of waiting, he finally sent the spreadsheet reports.  I went to work and found that over the last three years there was at least $20,000 to $75,000 (each year) in earnings that were not found by the ‘broker’ and were not even part of his add-backs to the net profit. There was no real package – he just provided a short one-page narrative and some Adobe pdf financial statements.  Clearly this business was NOT properly packaged and certainly NOT ready for market. The ‘broker’ had no idea if he could get bank financing and he really had no deal structure outline.  After reviewing several companies (that I personally tried to buy) in the last 6 months, this was the norm, and they were all businesses priced over $1,200,000!

The point is, properly packaged businesses have a better chance of selling FASTER and for more money, as well as lending solid credibility that you have a GOOD company to purchase.  In fact, we have had bankers contact us on multiple occasions stating that we have the best packages prepared on businesses they have ever seen, and on several deals these detailed profiles have been instrumental in getting the company sold quicker and with what we call less “brain damage”.

How Do You Manage The Deal From Afar

A few sellers have asked us how we manage to sell businesses when we’re not physically there to manage the transaction, so we thought we’d address this for you.   It’s a fair question and easy to answer.

Actually managing the whole transaction from afar is quite easy and in fact, that’s the way we’ve been doing it for over 10 years!  It’s actually easier and more efficient in most cases to manage the transaction via computer/online, as everything that occurs throughout the transaction, actually occurs via computer/online…except for a “walk-through” by the buyer.  And even the walk through we can help you with from afar through coaching calls and specific documents that help you understand what to expect and how to deal with the buyer during this event.  Further, we provide important suggestions to buyers on how to be prepared for a conversation with you and how to be respectful of your time and how to conduct themselves when contacting you as well.

Additionally, when we work with buyers, we can use Zoom and screen sharing software, which (in some cases) is easier than having someone physically looking over your shoulder while reviewing a spreadsheet.  We think you would agree with that. The point is, in the age of the internet, this is about THE most efficient way of working the transaction… computer and telephone.

Finally, we do not know anyone else in this industry who does coaching for our seller’s to help facilitate a transaction.  And for the buyers… having us actually suggest to your buyer how to act and/or respect your time, again unheard of.  But of course, this is all part of our Managed Process and we encourage you to review that section under the “Why Mid-Atlantic Business Group” section.

Will You Need To Carry A Note?

Here is where our company really shines and in many cases makes your life after the sale so stress free.  For almost all of the businesses that will price over $500,000, we will have the business pre-qualified BEFORE we go to market. Why is this important?  Because we can determine how much a buyer would likely need to put down in order for you to NOT have to carry a note. That is our goal… for you to NOT carry a note.  Additionally, knowing the predetermined amount that will be needed to get the deal done is super important for a whole host of other ‘things’ that are super proprietary, all of which will help get your company sold quickly.  Give us a call to find out more, as there is a lot more that goes into this.

Keep in mind, not all deals will be “financeable”.  If you have had a heavy downturn in the current year or a steady downturn for multiple years in a row, you’re not likely to get a bank to fund the deal. However, in this scenario (and some others), if a bank does agree to carry a loan they may require a huge down payment from the buyer, but if the amount down becomes too high, let’s say it’s 40% or more of the price, it will push buyers out of the purchase. Many buyers will be more inclined to take that large down payment amount (if they have it available) and use it to purchase another business that has stronger (sales and earnings). When a deal gets into this realm (large down payments required) buyers seem to always want to put down the least amount they can to try and get the largest return. Here’s why…

Let’s say you have a deal with a $500,000 sale price and the bank comes back and says they can’t do the deal without 40% down or $200,000. The buyer could take that same $200,000 – as 20% of a larger deal – a business priced at $1,000,000 (20% of $1,000,000 is $200,000) and potentially get a better return on investment. Here’s why…The $1,000,000 business is likely showing earnings of $330,000 (that’s a 3x multiple which would be likely (or possibly more) on earnings over $300k). The business priced at $500,000 is likely making around $190,000 in earnings (about a 2.6x multiple – a lower multiple because the earnings are lower).  So for the same $200k down, a buyer could likely take out $120,000 in wages, pay their debt service of around $106,000, and still have $103k left over to do with what they wished.  In comparison, with the $500k business at 40% down ($200,000) the buyer would likely take a $120k wage, pay the debt service of $39k a year which would leave only $32k after paying the debt service.  That’s only a 15% return on their investment vs. a 52% return on the other, with the same $200,000 down payment!  That’s a big difference.

Additionally, larger companies tend to be less “volatile” and their earnings are likely to continue on with less problems vs smaller companies.  This is why the multiple used gets smaller with smaller companies due to the “risk assessment”.  This same principle applies to Wall Street level firms as well.    We present this scenario to simply illustrate the “thinking” that goes on in the industry with many buyers.

To conclude, we know that sellers do NOT want to carry a note if they can avoid it.  It’s messy and for a franchise purchase it’s even more complicated.  For one thing, after you sell the franchise you can’t just ‘take back’ the business if they defaulted on your note.  You would no longer be a franchise owner. You would have to be re-approved by the franchisor, and in some cases, there may be friction between the seller and the franchisor, leading the franchisor to denying you as a franchisee. Ultimately, your remedy would be obtaining your funds strictly through the purchase agreement language, as well as any assets the owner might have personally.  As business owners ourselves, and carrying notes personally on multiple transactions, we are aware of most of the pitfalls that occur. If you’d like to explore this more, a phone call is probably best.   And don’t forget to ask us about some specific language to insert into the purchase agreement that still gives you some control over the buyer on a monthly basis until your note is paid in full.  It’s language that we’ve worked out from serious trial and error that most attorneys overlook.

How Do You Protect Confidentiality?

Protecting the confidential nature of the sale is priority #1 for us! However, because you are likely a franchise, there are a lot of other people out there that are involved with your sale and the more people that are aware of it the higher the propensity that a breach of confidentiality could occur. You just need to know this going in because it doesn’t matter if you are a $200,000 priced business or a $50,000,000 business, breaches of confidentiality do occur. Most people won’t tell you this, but once you put your business out there it’s like a bell you can’t un-ring. Know this going in and manage accordingly. We have a strong Non-Disclosure Agreement (NDA) and many notices on documents and emails that discuss this and we tell our buyers verbally as well.  There is a lot more to this topic that bears serious reading, including THE #1 reason for breaches of confidentiality for franchises.

What do you charge to sell my company?

Obviously this is a question that every seller is going to ask, but spelling it out completely for the world to see would be business suicide. As a business owner yourself, you’d likely agree. However, in most markets and with most business brokers 10% to 11% of the sale price is fairly typical and on transactions that are over $1,000,000, most firms reduce the amount by various degrees. We have worked out a fee schedule that not only comes in lower than the normal broker, but we’ve even allocated a program to help work with the franchisor so if they actually find a buyer for your business, which sometimes happens, we will work it out so you’re not paying extra fees. It’s all part of why we get deals done when other broker’s listings sit stagnant on the market for years, or in some cases, don’t sell at all.

Business Brokers vs Real Estate agents: You might ask, why don’t business brokers charge the same as real estate agents? The short answer is that selling a business is a lot more work. Not only does it take someone who has a financial background or previous business ownership expertise, but it takes someone who knows how to manage people and emotions. Most real estate agents may never introduce you to the buyer of your home; everything is done in the background. Not so with selling a business. The buyer and the seller will need to meet many times in order to get a deal done and will likely even be working for weeks or months after the sale has completed. As you can imagine, there is a lot of ‘give and take’ and ‘synergy’ that needs to be built up to make a business sale happen, and of course, we’ve orchestrated this so many times we know where all the “landmines” are buried to keep the deal from getting away from everyone. You might be surprised to know, at last count (2020), there were about 1.39 MILLION real estate agents in the U.S. and only about 3,000 business brokers!  Bottom line, selling businesses is not for the faint of heart and is why the industry doesn’t charge the same as the real estate market.