What if You Already Have a Buyer for Your Business?

If a buyer finds you, do you still need a broker?

Normally, when an owner is thinking about selling their business, they will contact a business broker whose job is to advise, look for a qualified buyer, and help the parties negotiate the many possible pitfalls on the way to the closing table. It’s not an immediate process and can take months to make the perfect match. But what if a buyer finds you BEFORE you hire a broker?

In this scenario, it’s typically a willing family member, loyal employee, friendly competitor, or someone else that has a special connection with the business or the owner. This is usually great news for the seller because finding a buyer is often the most time consuming and tedious part of the entire process.

However, processing a business sale transaction is complicated and not like selling a home. It’s usually the most important transaction that a business owner will ever do in their lifetime. An entire career and the majority of the seller’s net worth is at stake. Don’t go it alone!

Who can help?

While it’s natural to ask your general business attorney for help, you will want to seek the professional guidance of someone who specifically does these types of transactions every day. Considering it’s likely the largest transaction of your lifetime, you can’t afford to miss any details that could haunt you forever. A business broker can guide you through the process and help increase the odds that you get the deal done, and oftentimes will help minimize your expenses. Tim Bellon with VR Business Brokers outlines the steps he uses to make sure the transaction goes smoothly.

Step 1. Get a broker “opinion of value” 

Make sure you’re fair to yourself by knowing what your business is worth on the open market. A qualified business broker will take a look at your financial records and can let you know what similar businesses have sold for and what do expect. 

Step 2. Draw up a purchase agreement

All purchase agreements are not the same. They will account for details such as the price, deal terms, contingencies, lease terms, real estate (if part of the deal), and many other potential items. 

Step 3. Due diligence

Bellon starts the process off with having a due diligence kickoff meeting. He makes sure all parties understand the process involved and expected timelines. This part of the process may take a few weeks as details of the transaction are negotiated and accounted for. Among other intricacies, the buyer will likely be asked to provide a  resume and a personal financial statement, while also working on securing financing.

If the buyer needs support with financing, a broker can recommend an SBA banker familiar with structuring similar deals. As part of his role, Bellon supports the buyer too and helps them with attorney and banker referrals while simultaneously hitting milestones to make sure funds are available at the time of closing. 

The seller has their own set of challenges including making sure the landlord is aware of the pending transaction and is willing to sign over the subordination of lien rights, if the deal is being funded through SBA financing. Most sellers (or buyers) don’t realize that to satisfy SBA loan requirements,10 years needs to be left on the lease agreement. If this isn’t the case, the parties  will have to negotiate with the landlord. 

One particular sticking point, Bellon says, can be the examination of the financial records of the business. It is critical that the financial representation made by the seller is supported by the business’ financials.  If there are excessive and questionable add backs (owner’s perks)  made to the financial statements, the seller should expect the buyer to question at least some of these add backs.. Failure to do so may create questions and can lead to deal killing mistrust. 

Step 4. Closing checklist

Bellon works from a proprietary “closing checklist” for the buyer and seller that accounts for details like:

  • Deal timeline
  • Contingencies
  • Due Diligence Items
  • Real estate/lease details
  • Insurance details
  • Personnel/employee details

Details like these require coordination with other professionals and need to be started weeks in advance of closing day. One example is in the case of life insurance. It can take a month or longer for a policy to take effect and funds won’t be available until the policy is bound.  

Step 5. Closing day

Getting to the closing table is a challenge in itself. It’s the specific time and date chosen to hand over or transfer funds, get signatures, and literally give the keys to the new owner. It’s sometimes months of work that have to come together at precisely at this time. Any missed details at this point can not only postpone or kill the deal entirely, but can even result in legal action. To be sure there are no surprises, Bellon works with a third party closing attorney,  to ensure that the closing documents are sent to each party ideally a week ahead of time.This closing attorney typically doesn’t represent either party and is only interested in making sure the deal is compliant with the law.  

How much does it cost?

If you already have a buyer identified, working with a business broker can potentially  save you  money on professional fees as some states have professional associations, such as the Business Brokers of Florida, who have many of the forms needed to put together a deal that have been written by business attorneys.  So in many cases, a large part of the work has already been done. The cost to complete the transaction can vary depending on the size and complexity of the deal, as well as how much buyer-seller negotiation happens.  We recommend that both parties consult with a business attorney to get an estimate of what their own individual fees would be.  The expense for the closing attorney is typically split 50/50, and it is not uncommon for the buyer to incur a few additional expenses. For complicated transactions like these, it is widely accepted as money well spent. 

Having the confidence that the transaction was done right, can free your mind to focus on what’s next in life. 

About time Bellon:

Tim Bellon, Owner VR Business Brokers: Tim was born and raised in North Dakota, and after the culmination of a 21+ year career in the U.S. Army, he and his wife Beth retired in Apollo Beach, FL. He earned his Bachelor’s Degree in History and Political Science from Concordia College, and a Master’s of Science in Defense Analysis from the Naval Postgraduate School.

Tim joined the VR Business Sales Team in 2012 as the owner and managing broker of an office serving the greater Tampa Bay, FL. During this time, he has focused on helping business owners realize their goals through selling, buying, or growing businesses. He also assists individuals, and companies looking to expand, in the identification and acquisition of businesses.

Tim is community-oriented and is a proud member of the following organizations; International Business Brokers Association (IBBA), Business Brokers of Florida (BBF), SouthShore Chamber of Commerce, Commercial Finance Association (CFA), American Legion, Disabled American Veterans (DAV), and the Knights of Columbus. Tim can be reached via email at TBellon@VRSouthShore.com.




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