How Brokers Charge

Business brokers work on an up front or commission-based program. A business brokers goal is to work with you and your business to get the highest possible sale price, which is why it is important to use a broker who is qualified and specialise's in your industry. Business brokers are also professional negotiators, becoming the intermediary between you and the buyer. Business brokers fees are generally regarded as minimal compared to the increased return to the seller based on successful negotiations.

Getting Ready To Sell Your business

Business brokers will thoroughly inspect your business and provide you with an indication of your potential. Business brokers will customise a program that helps condense the key facts about your business into appropriate paperwork. Brokers will then discuss with you the options of whether it is better for you to sell now or to work the business model further to maximise your final payout. Brokers will work with you to minimise the risk of a buyer losing interest and pulling out of the deal in the final stage. This is done by making sure your books are in order. Lastly, brokers will provide you with a sample list of due diligence sign off sheets and work with you on these tasks.

First, take a good look at your business as if you were the buyer. Be aware of your strengths and weaknesses. You need to prepare and implement a detailed plan of action to get the business ready for close examination by potential buyers. This stage is critical in the sale of any business, to sell your business at a premium price it needs to be attractive and ready to be sold. A business that is place on the market for sale that is not prepared can be undervalued and sold below its true potential value. Some of the key issues to address are:

Make sure your financial records have been kept accurately and in detail. Consider switching to a computerised accounts system, if you have not already done so. Be ready to explain any unusual figures. Buyers view a business as an investment. If your business financial's are incorrect it can lead to the prospective becoming nervous and hesitate to invest in your business.

Ensure that all legal documents relating to your business are up to date and accurate. These may include leases, hire-purchase agreements, client and supplier contracts, staff contracts, patents, trademarks etc. These components in a business for sale make up a proportion of the goodwill in the business.

Target your more obvious weak points and bring them up to par with the rest of your business. This may involve renovating your business premises, expanding your client base, updating equipment, balancing stock levels etc. Potential Buyers will investigate your business for weaknesses to negotiate the sale price down, if you business is prepared for sale you can eliminated bargaining power held by the prospective.

Be honest with your staff - let them know that you're planning to sell, and that you'll do your best to ensure that they can continue with the new owners if they wish. Staff members can be a large proportion of the goodwill of the business. If staff members become negative towards the business it can influence a buyers decision. At the same time, try and give more responsibility to senior staff members - it's best if the business doesn't appear to depend too heavily on the owner.

Prepare an Information Memorandum, detailed information on your business - cover everything, such as day-to-day operations, information on your competition, relevant industry information, research and development issues and a history of your business. This document is also know an information memorandum, it is the most important documentation in the sale of a business. Prospective buyers will evaluate your business from the information presented to them from this document.

Sometimes a business owner might decide to sell his or her business rather than hand it to the next generation. Selling the business as a means of retirement has several advantages.

Once the business is sold, the owner no longer needs to worry about it and this can be a relief in retirement. As retirement approaches, the owner may feel that he or she would like to remain involved with the business, but that feeling may change as the years go by. If the owner decides to sell the business interest later, he or she may not get the good deal he or she would get while still personally involved.

When a business is sold on retirement the proceeds can be safely invested in a way that will ensure a sustained income for the remainder of the owner's life.

Another consideration is that pensions are assets tested which means continued ownership of the business could have an impact on the owner's entitlement to a pension. The funds from the sale of the of the business could be invested in a way which would minimise this problem.

One complicating factor in selling the business is that it may be difficult to sell without the involvement of the owner. For example, if there is no professional management in the business, the purchaser will be likely to want the former owner to stay on and operate the business for a fixed period of time.

The eventual purchase price will often hinge on the former owner continuing past successes. If this can be planned for, it need not be a problem. However, if retirement is forced on the owner, the sale price could be so adversely affected that passing a going concern to children might be a better option.

A business owner can retire in several ways. Each has implications, not only for you as the owner, but for the business and the business adviser.
In order to retire, you as an owner can:

• Allow the business to cease – particularly if the business is small and closely tied to the owner's personal involvement
• Sell the business
• Allow existing partners or family to run the business and maintain a passive involvement
• Take a new partner and retire from active involvement (or scale down involvement)
• Transfer ownership and control of the business to family members
• Appoint a manager.

Each option has its merits and drawbacks. However it is essential that any decision regarding retirement be made early so that death or infirmity does not force an unfortunate decision on the owner or the owner's family.

If a business owner wishes to retire, but does not want to end his or her involvement with the business, he or she might leave a family member or a partner running the business. This has the advantage of continued involvement without the responsibility of dealing with the day-to-day problems of running the business.

However, there are some negative sides to such a scheme. The first is the practical consideration that many people will find it difficult to step back from a business that they have nurtured over the years, and leave decisions to others. If they fail to step back, then they are not really retiring and the family member or partner may become dissatisfied and frustrated.

Equally, many parents will find it difficult to properly assess their children's management capabilities. A professional appraisal of both the potential and existing capabilities of the children should be carried out. This will benefit both the children (who should not be made responsible for something which is beyond their capabilities) and the parent (who may still be relying on income from a successful business).

If the business is to be run by remaining partners, it must be remembered that the partners actually running the business will probably want a greater share of its profits. At the same time, the retiring owner will want to maintain his or her lifestyle. A compromise must be found between the two points of view.

Another consideration is continuing liability. If the owner continues as a partner or director he or she may become personally liable for debts incurred by the business, even if he or she had no knowledge of the debts.

Where the owner chooses to take no further part in the business, and transfers ownership and control to his or her family, there are three basic considerations.

First and most difficult, the owner must accept that he or she no longer controls the business. Most people do not want to face difficult decisions, and handing over the reins of a venture that the owner has built, nurtured and controlled over the years can be the most jarring move that an individual has to make in his or her professional life. Yet if the change of control is to be successful and the business is to continue to prosper, it is essential to effectively plan and assess the situation.

Second, the owner must identify the potential problem areas in the transfer of ownership. Do any family members have both the aptitude and interest necessary for running the company?
If more than one family member wants to take over, how should the takeover be organised and how will the family members work together?

Third, retention of outside professional help is strongly recommended to strip away the layers of emotion that surround the transfer of a family business. An objective adviser can be the key to resolving disputes and ensuring that the decision made is the best one for both the family and the business.

• choosing among family members
• forming a committee structure of family members
• selecting a manager from outside the business or
• selecting a key employee to run the business.

• the nature of the business
• its life cycle stage
• qualifications and abilities of family members and
• expectations and capabilities of senior executives.

As well as selecting a successor for proper succession management; the owner must impart that information which he or she deems most crucial to the future of the company. This communication can take both written and oral forms. At a minimum, areas of concern which should be addressed include:

Financial picture

• financial statements, profit and loss statements, cash flow charts
• tax returns for the past five years
• banking information, including the names of the company's bankers, lines of credit, current bank accounts and average balances; and
• insurance information, including companies, agents and types of coverage

• partnership agreements or corporate records
• patents, licences and royalty agreements
• holiday policy
• retirement plans
• employment and labour agreements
• pending lawsuits and copies of all existing contracts and leases; and
• names and addresses of lawyers, accountants, consultants and any other outside professionals retained

• an inventory of major equipment
• manufacturing specifications
• process and scheduling procedures
• quality control measures and standards used to gauge performance and
• a brief appraisal of the efficiency of plant and equipment currently used

• lists of products and/or services and their selling points
• market positions
• major clients
• present and proposed advertising programs and
• profiles of competitors

• suppliers
• contracts
• an outline of basic procedures for buying; and
• inventory status and shortages

• organisation charts
• procedure manuals
• employee handbooks
• standard operating procedures
• job descriptions
• statements of a company mission
• standard controls
• management reports

• Is he or she suitably qualified?
• Is he or she suitably interested?
• How do employees and other family members feel about the choice?

Who will acquire control of the voting shares on the owner's death?

Will the value of the business be greater if the owner sells before retirement?

Will the owner's lack of involvement materially affect the price if the owner wishes to sell later?

Is there any concern about sons-in-law or daughters-in-law acquiring an interest or control in the business?

Be honest, realistic and reasonable when negotiating the sale of your business. We all want to buy low and sell high, but a fair market value is what both sides should aim for. Buyers are looking for a return on their investment.

Don't hide anything about your business - make sure that any flaws are brought out into the open right from the start. You'll lose the trust of the buyer by being dishonest. Building trust with a buyer can reduce the amount of due diligence done on your business.

Be positive - focus on the areas of agreement, be friendly, and listen carefully to what the buyer tells you. You may be able to resolve any conflicts before they damage your position. A buyers will investigate your business and indicate to your problems and areas of concern from a buyers prospective.

Don't drag out the negotiations - the longer it takes to come to agreement, the more time the buyer has to change his or her mind about the deal. Negotiations can be dragged out when information on your business is not prepared for the buyer.

Make sure that all agreements are put in writing and signed by both parties.

• Assets: as pensions are assets tested, ownership of the business could have a significant impact on pension entitlements.
  
• Further security: the money obtained from selling the business could be safely invested to provide future income security.
• Liability: owners and silent partners can be held liable for debts incurred by the business, eg, a director who lets a manager run the company may still be personally liable for debts incurred by the company.
• Responsibility: it may be difficult to leave a business which has been nurtured over the years and this can lead to worries in retirement and make it difficult for management or remaining partners to effectively run the business without interference.
• Death: owners deciding to retain an interest in the business, then his or her family may be left with a problem when the owner dies, as often the owner may be the person best qualified to decide what to do with the business interest.

The other aspects of retirement which should be provided for are superannuation, life insurance policies and estate planning.
No matter whether the ownership or only management is being passed to another, you as the owner must plan for succession.

The population is getting older. The effect is that over 40% of all Business Owners are over the age of 50. Population growth has lead to a large number of business owners reaching retirement.  A recent survey indicated that over 66% of people see selling their business as the primary source of retirement. Consider also ...

What does this mean, there will be more businesses on the market over the next 10 years. More supply this could

a) either push the price down or
b) mean that your business won’t sell.

However the younger generation may have an increasing propensity to spend and increased acceptance of debt. – They don’t mind borrowing money and taking a risk.

The second environmental effect

The interest rate rise and US sub prime crisis has lead to
Increase in the cost of money
Increase in the levels of risk of lending money. In other words the banks and institutional investors are more cautious.

Net effect: The good deals are still being done, but they are being done in less frequency and with more caution.

Business owners are not prepared and haven’t positioned their business.

What you have to consider is why people buy businesses. And in most cases the reason is that they wish to use the business as an investment vehicle. To make money.

Therefore the more you lower the buyer risk the higher the valuation. The higher the risk the lower the valuation.

What makes a business appear like a solid investment...

1. Is it in growth market.
2. Does the business rely on the MD
3. Are there long term sales contracts or recurring revenue
4. Is there a large customer database
5. A brand that has residual value
6. Has it has previous good trading figures
7. Business systems and employee
8. Forecast
9. Synergy with the buyer

And there are more. But even if you have the most attractive business in the world you may lose value because you lose credibility in the negotiation process. When a buyer approaches you they are going to expect that you have your past financial's, your management reports

In conclusion there are two issues

1. Making your business more attractive to potential buyers
2. Being ready when a buyer knocks on the door and having the documentation the systems and paperwork  ready