Frequently Asked Questions CONFIDENTIALITY Is confidentiality important? Can you assure my confidentiality? Should I tell key employees that I am selling the business? FAIR MARKET VALUE How do you know the value of my business? What affects the selling price? Will the “potential” of my company be included into an asking price? Would a buyer acquire my business if “we are losing money”? MARKETING How will my business be advertised? Do you have buyers? How do you actually find buyers? Can you sell my business? Can you find investors for my company if I want to stay on? How long does the sale of the business take? How long do I have to stay with the company? Why a broker at all and not sell direct? Have you had experience in my industry? TRANSACTION STEPS What do I need to do to help sell my business? What type of businesses do you sell and take on as clients? What are the typical costs in a transaction? How can I get more information? Is confidentiality important? Can you assure my confidentiality? It is very important to maintain confidentiality preventing against employees, vendors, competitors, lenders, landlords and customers learning of a sale. Purchasers often attempt to request more information than they should be entitled to see without proper qualification – and most importantly, they will most definitely request so without a well qualified advisor facilitating the transfer process. Our firm is critical to support a seller’s confidentiality. For example, we ensure complete buyer qualification (as well as a thorough review of the seller’s business) to ensure that only parties are introduced which can truly execute a deal. This includes various forms of confidentiality agreements, blind profiles, and generic business advertising. And information is given in stages, as necessary with more sensitive matters only shared well into the process. By utilizing professionals like our firm, it is ensured that no party has to immediately release their respective identity and throughout the process we establish a communication layer outside of the company and facilitate buyer access to company information. It is outright impossible for a business owner to maintain such a level of confidentiality when selling independently. Back To Top Should I tell key employees that I am selling the business? Absolutely NOT! Until a business transaction has closed, only seller and buyer (and their respective advisors) should know about a transaction. It is absolutely mandatory to protect confidentiality when selling a business. Sharing information about a sale with employees, even with only a few selected ones, is likely to generate job security concerns. More importantly, such employees might then talk to the next employee, and soon, “the fire” jumps to suppliers and customers. However, too many transactions did fall through at the very last moment, and nothing is worse for a business owner than to deal with such a situation. Moreover, the reality is that human resources are part of the “good-will” portion of the purchase price and a business buyer will most certainly not destroy what he just paid for. After the transaction closing, seller and buyer will introduce the new owner and outline the plans for the future and 98% of the employees will most likely stay on. Back To Top How do you know the value of my business? In establishing the Fair Market Value of your operations, we work with a few, selected nationally acclaimed valuation firms which have been rigorously qualified by our organization. Such firms provide close to 5,000 valuations a year, and have an outstanding knowledge and strong comparative database for the transaction values of recently closed business transfers in your industry and market segment. We do not execute valuations ourselves to avoid any conflict between the analytical process and the business transfer process, however, we do collect all information on behalf of the valuations firms. Most of the information used for the valuation process and the later transfer process is identical, and thus, just dealing with one person reduces the time requirement on a business owner’s part. There is no third party personnel coming onto your premise or discussing matters with your employees, our professionals are your sole contact point for you! We typically meet for an hour with a business owner to ask various operational, marketing and financial questions, recast the last three tax returns, and establish an asset listing. We deliver these documents to the valuation firm and they will provide an extensive valuation report in form of an initial draft copy approximately two weeks later. Back To Top What affects the selling price? TERMS: Several factors come into play and can affect the sales price. One of the most critical is the ‘terms’ or the amount of down payment and the amount financed. Over eighty percent of all businesses sold are sold with 25% or less down, 50% bank financing and the owner financing being the balance. Asking for one-half down will reduce the price by approximately twenty percent. Asking for cash will reduce the price to about forty to sixty percent of the amount attainable with twenty five percent down. Down payment or the ‘terms’ is a key factor, because a buyer is trying to buy as much business as possible for the money available for down payment. In a nutshell, high percentage down payments cause buyers to substantially discount offers. PRESENTATION: A second critical factor is the quality of the information provided to a prospective buyer. The value of the assets and cash flow generated by the business must be provable and verifiable. A Neumann & Associates will be able to assist the business owner in arriving at these values. MULTIPLE OFFERS: The third most important factor that affects the sales price of a business is whether there is competition among prospective buyers for the business. Competition creates higher selling prices, as we all know from basic economic principles. A buyer who knows he has other buyers competing for the business will be motivated to offer the price being asked to ensure he does not lose the business to another buyer’s better offer. Back To Top Will the “potential” of my company be included into an asking price? Even taking hard assets and book value into account, most middle market companies are still (mostly) valued on the basis of multiple of cash flows. Investors (and their respective CPAs) will usually average historical cash flow and forecast it into the future. Thus, the business valuation is influenced by “future potential” or recurrence of cash flow, however, only if there is a definable “trend line”. If there are substantial growth opportunities that can be documented, a buyer will often pay an above FMV asking price. Generally, however, investors are reluctant to “overpay” on “potential” that has yet to be realized in the future or is merely based on “projections”. Paying at the upper end of the range of realistic values, typically requires the seller to be actively involved in the company for a longer period of time, or to structure a deal by way of royalty payments, for example, as a percentage of gross revenue. A Neumann & Associates has closed various deals in the past to address exactly said scenario and would welcome to make such experience available to any business owner’s specific situation. Back To Top Would a buyer acquire my business if “we are losing money”? “Losing money”, or a loss on the tax return, can have many causes, consisting of factors such as unusual high interest expenses, large depreciations, an unusual high owner’s salary, or a slur of different reasons. Many of these factors are “normalized” in the recasting process, and can very well lead to a substantial value for the company. Additionally, there might be causes such as a particular non-profitable product line, an unfavorable rent, too large overhead costs – all factors that would be eliminated, in case of a sale to a similar or synergistic company, and thus, could make the acquisition for a buyer very attractive. As a general rule, “financial investors” will not acquire a business with losses as they are seeking return on investment. However, a “strategic acquirer” (i.e. someone from within the industry or with a complimentary business) will view synergies to convert an unprofitable into a profitable investment. Back To Top How will my business be advertised? The advertising of each business will depend upon the size and type of business. BBN professionals use several media to solicit prospective buyers, including local and national newspapers, including the Wall Street Journal, trade publications and the internet. In addition, qualified buyers from other affiliate offices comprising more than 1,000 individuals, will consistently provide corporate acquirers and investment groups. Local newspapers are used as little as possible, because it is often more difficult to protect confidentiality when a business is advertised locally. Finally, our firm has (blind profile) advertising placed for each engagement on the top ten internet sites, which collectively provide 95% market coverage for businesses traded. There is virtually no possibility for a motivated investor to miss a business that we are engaged to sell. In addition, we rank in the top 5% of all relevant search terms for any investor seeking a business to buy. Back To Top Do you have buyers or investors? How do you actually find buyers? Yes, very much so. The truth is that there are more buyers than sellers, in particular, for solid businesses. Throughout our 50 offices and 25 years experience, we have developed outstanding contacts to buyers. They respect us for our professional presentations, analytical approach in preparing businesses, and our very confidential approach. Consequently, many buyers, investors, private equity firms and hedge funds contact us first when searching for new acquisitions, and thus, we can put your business in front of more qualified buyers than any other single practitioner office can do. Back To Top Can you sell my business? A broker by himself/herself cannot really sell a business, because he or she does not have the intimate understanding of the business and its operations, and certainly not the level of knowledge the owner has. Therefore, a professional broker’s initial job is to get a business prepared at the best possible obtainable price and with realistic terms of sale by way of a very professional presentation. The next step is to thoroughly qualify buyers to keep the seller (and buyer) from wasting time and money with individuals who are financially not qualified. Qualified buyers will be presented a business profile after they have completed a confidentiality agreement that protects the confidentiality of the seller regarding the potential transfer. The buyer’s documents are also treated with the same confidentiality. Our professionals will then schedule a meeting between the business owner and the interested buyer. During this meeting, the business owner will explain the business to the buyer. After this meeting, the broker will work with the buyer to establish an offer to purchase. The broker will present all offers and after acceptance will coordinate the due diligence process that will lead to the closing. Back To Top Can you find investors for my company if I want to stay on? We have successfully completed numerous assignments to find partial investors, sometimes in order to provide equity funding (as opposed to debt funding from the bank), sometimes for owners wanting to “take some money off the table”, while still being active in the future. Back To Top How long does the sale of the business take? Usually, there is a two to three months preparation time involved and a two months closing period. The time for the period in between, the marketing period and determination of the “right” buyer, depends on the macro economic environment, the industry, the specific asking price and terms, and various other factors. Overall, we transfer businesses within an average time period of twelve months. We will be happy to discuss the individual steps of the transfer in a meeting with you. Back To Top How long do I have to stay with the company? This depends very much on the sophistication of the business and the qualifications of the buyer. Generally, the more familiar a buyer is with the industry or company, the shorter the time period a seller is expected to be available. Buyers typically expect one to two months for the seller of a mid-sized business to be available, and for this to be included as part of the purchase price. Back To Top Why a broker at all and not sell direct? Following are a few key questions you need to be able to answer if you consider “selling on your own” – How do you reach qualified buyers, including possibly competitors? – How do you evaluate your business objectively and arrive at the best price and terms? – How do you prepare and provide the information for a prospective buyer? – How do you maintain confidentiality with customers, competitors, employees and suppliers? – How do you screen and pre-qualify buyers? – How do you effectively sell your business while managing your business? The International Business Brokers Association (IBBA) refers to a survey done by R. Jackim, according to which 80% of the entrepreneur’s net worth is typically tied up in a privately owned business, however, 75% of owners have no idea how they will exit from their business. Worse yet, 50% of 7 million business owners will sell in the next 15 years with most owners are universally wrong about the value or salability of their business. The SBA estimates that 80% of privately owned businesses are not able to be sold, due to poor representation. Let our firm help you in the most daunting task in your business life by obtaining maximum value within a reasonable time period. Back To Top Have you had experience in my industry? Buyers typically look at businesses from a segment classification point of view, namely (a) manufacturing, (b) distribution, (c) service and (d) retail. Once this determination has been made, an investor then becomes concerned more about the performance of a company, the market trends, future projections, etc rather than the specific market segment required product knowledge. Our team has experience in all sectors with numerous closed deals, respectively. For a listing of past projects, please check here. For a review of our team’s qualifications, please click here. Back To Top What do I need to do to help sell my business? Most importantly, the business needs to be offered at a realistic price and with reasonable terms. In the valuation preparation, a business owners needs to provide as much information as is possible so a professional valuation, marketing package, including a business profile, can be prepared on your company. The quality of the business profile will greatly enhance the ‘saleability’ of a business. A package prepared by A Neumann & Associates will contain the financial, operational and historical information about the business. Informed buyers make better offers. Most importantly, though, a business owner needs to continue running the business in a normal manner, keep the business clean and organized (on paper and in person), so potential buyers will like what they see, and to liquidate or set aside obsolete inventory and unneeded equipment before the business is placed on the market. It is also important to notify our professionals of any material changes in your business and to forward quarterly financial statements as soon as they are completed. This will keep the business’ marketing package current and attractive to buyers. Back To Top What type of businesses do you sell and take on as clients? With 50 offices in the field, we are not limited to specific businesses but can handle transactions in all fields. However, typically the businesses we do take on engagement should qualify to the following conditions – Gross Revenues / Sales in excess of $500,000 – The business has positive cash flow – Revenues and expenses are documented on tax returns for the past three years We do not work with clients who have a significant, i.e. more than 25%, undocumented revenue stream that is not reflected on the business’ tax return. Back To Top What are the typical costs in a transaction? Typical valuation fees start at $2,950, are very modestly priced, and constitute only a minor fraction of the asking price. Very often, we reimburse sellers for the valuation fees, and this would be the only “upfront” out-of-pocket expense. Our firm urges sellers to have a valuation performed by a third party before selling in order to arrive at a Fair Market Value asking price. Buyers do not consider sellers “as serious” if such appraisal has not been put in place. There are two other cost components on the “back end”, meaning, only when a deal is closed. These fees include your attorney’s fees, depending on the transaction size, as well as our success fee. Our fees are paid out of the transaction receipts at closing, and comes “off the top”. Our success fee depends on the size of the transaction and is negotiated before a business owner engages our firm. This is an “all-encompassing” fee, we do not charge retainers or such costs as advertising, document preparation fees, travel, entertainment, etc – there is no “small print”. We usually do not obtain any fees from buyers (with the few exceptions of “buy side”/ investor assignments) Back To Top How can I get more information? Please click here and let us call you back at a convenient time for you, or alternatively, please feel free to contact us at (732) 872-6777. Your inquiry will be handled completely confidential, we will never identify ourselves to your employees, and we will call you direct. Back To Top Glossary of Business Broker Terms Back To Top Contact A Neumann & Associates, LLC If you are considering selling your business, please contact us to learn more about our comprehensive service spectrum. Our experienced professionals will answer all your questions about selling a privately held business in complete confidentiality. Please Click Here to fill out a short form, or call us at (732) 872-6777. We will contact you directly and will never identify ourselves to your employees.