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Topic: Negotiating Business Deals

Expert: Gary Bell
Date: 12/31/2007
Subject: business aquisition

Question:

I will go straight to the point. I was offered a well established business for sale by the owner, who is old ( 82) and he wants to retire, for a very good price, precicely $ 225,000.00.
I tried every possible venture to get funding on the internet with no avail except for fees to pay for the services they provide. The business is used and new office furniture and panel systems, it's been profitable for the past 35+ years. Me and my partners have the experience, expertize, managment team in this field plus real inovative ideas how to do this. The business is in place since the early 70's. Combined office showroom and warehouse plus other warehouse space accross combined approx. 50,000.00 sq/f, stuffed with an inventory of close to $750,000.00. We refinish,refurbish all this that they look like new at the fraction of the price that it cost anywhere. We have full woodshop, paint boot and all equipment to beat anybodies prices around here since there is no competition around for few hundred miles. I will include a brief summary of what we intend to do in the attachment. All is sound and feasable, what we need is funding. Can you give me any advivce as of what we are wrong with our approch to get legitimate funding.
One thing is possibly a negative, all of us partners (3) have bad credit for various reasons, mostly unpaid hospital bills, identity theft and so on but none criminal in nature.
Point is the business doesn't have any negative rating, it's all good records. We like to buy it, The price include all debts.Business broke almost the $1 M mark for the past two years at least. (I have records and pictures to back this up).
If you can give me any advice I really appreciate it.
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The Business Sale Or Transfer Process For Sellers

Below is a rough outline of some of the general steps usually involved in the transfer process of a small business for sale.

1.Broker And Seller Meeting: A confidential (information only) meeting is held with prospective Seller to provide a preliminary business valuation, outline of the Broker services offered, answer questions, and provide information about the listing, marketing, and sales process

2.Listing Agreement Signed:If the Seller decides to move forward, A confidential meeting is held to sign a exclusive listing agreement with Broker, and to collect listing information (click here to print list of information needed) so a in-depth confidential business profile (click here to view and print a profile outline) can be prepared for the Seller to review and approve.

3.Business Profile Approved: Seller reviews and approves confidential business profile. After approval, the activation of the marketing process begins, including placing a confidential teaser advertisement on 4 busy National and Regional "business opportunities & businesses for sale" web sites

4.Buyer Qualification & Non- Disclosure Agreement: Prospective Buyers who contact the listing Broker about the business are screened for financial capability, and are required to sign a non-disclosure agreement (indicating they are financially qualified) before receiving any pertinent details. Click here to view copy of non-disclosure agreement.

5.Confidential Business Profile Released: Qualified & disclosed Buyers are forwarded a confidential link to access an in-depth on-line (hidden from public) profile about the business for sale. Click here to view a sample business profile.

6.Buyer & Seller Meeting: Qualified buyers that have high level of interest about the Seller's business are invited to request a confidential meeting with the Seller to view the operation and to ask questions about the business. Generally, these initial informational meetings will last approximately 1 or 2 hours.

7.Offer Presented By Buyer: Interested Buyers are encouraged to write and present an offer to listing Broker to forward to Seller for his or her review. The Seller may accept the offer as presented, or write a counter offer with the help of Business Broker

8.Mutual Acceptance: Buyer and Seller agree to all the terms and conditions of purchase agreement. This includes any contingencies or conditions the Buyer may have attached to the agreement that must be removed or satisfied before closing date

9.Open Escrow: Signed purchase agreement and a pre-negotiated earnest money deposit from Buyer is placed in a third party escrow account. Escrow agent is charged with receiving, depositing, and distributing funds for both parties, evidencing the terms and conditions to agreement, as well as preparing closing documents to close escrow. Escrow agent w ill also perform a lien and judgment search on Sellers business. Any liens or judgments that arise must be satisfied before closing. Closing costs are split between Buyer and Seller, and are for example approximately $1,000 for a $500,000 value sale.

10.Due Diligence Period: Buyer (and advisers) begins a detailed review of the business, including financial records, tax returns, equipment leases, lease assignments, etc. On average, a Buyer's due diligence period can last anywhere between 2 to 4 weeks. This time period is also used by the Buyer to remove or satisfy any and all contingencies that may have been attached to the agreement. Ideally, the contingencies will be removed and signed off on at least a week before the actual closing date.

11.Closing Day:All contingencies to the contract have been removed or satisfied. Buyer and Seller meet at Escrow office to sign and execute all closing documents. Seller receives closing funds. Buyer is the new owner of record

12.Transition & Training Period: Buyer begins a pre-negotiated period of training and transition with the former owner. On Average this transition period can last any where between 2 to 4 weeks, with longer periods often negotiated by both parties when more complicated business operations are transferred

Why Sell Your Arizona Business Now?

Some compelling reasons why you might want to consider listing your AZ business for sale now:

1. It's a Sellers market: Corporate layoffs, a sluggish economy, and a stock market correction have brought an infusion of new qualified buyers into the market place willing to pay top dollar for good income producing businesses.

2. A recent decrease in the long term capital gains rate from 20% to 15% lets you put more in your pocket. Act now because these tax breaks may not be permanent.

3. Interest rates are at there lowest point in 45 years! And they may even continue to drop going forward allowing buyers to justify paying a higher price for your business.

4.SBA financing has become more readily available for qualified buyers to purchase qualified businesses - particularly if real estate is included. You have a better chance of walking away with more cash.

5.A strong local economy and attractive lifestyle continues to draw qualified buyers from around the country looking to relocate and purchase small businesses in Arizona.

6.Timing - It can take from 6 months to a year to find the right buyer for a business, give yourself the advantage of time to prepare & negotiate your exit strategy by starting early.

7.Technology is changing rapidly which could cause shifts in the business model and force decisions regarding capital equipment expenditures. Let the new owners invest in the equipment and a course of action they are comfortable with using their own money.

8.Operating a business is demanding - if you no longer enjoy giving a 100% effort, it may be time to consider selling before negative or irreversible trends develop.

9.The time to maximize the return on your investment is when things are going well. Negative trends in your business can develop before you know it that can cost you dearly in the buyer's perception of value.

Top Reasons Why Some Businesses Don't Sell

Below is a list of some of tbeyond.he top and main reasons why some small businesses don't sell in the Arizona market and beyond.

1.Business Is Overpriced: Industry statistics indicate that the #1 reason why some small businesses don't sell is because they are overpriced. Its very important for business owners/sellers to establish a realistic and credible asking price for their business that can be supported on a number of levels, including financial history and market comparables.

2.Insufficient Business Information: : It is imperative that sellers prepare and provide sufficient information to prospective buyers such as a business summary profile, equipment list, and most importantly, current and past financial statements. Most buyers will not move forward with a business purchase unless their is sufficient information to validate the target business is a good investment. View a business preparation guide.

3.Seller Is Not Negotiable Or Flexible: In most small business sales/transactions there are usually going to be a number of issues and terms the Seller may have to show some flexibility in order for the buyer to feel comfortable enough to move forward. A good example of this would be offering some type of seller carry back with terms, as most banks will not provide financing for a lot of small business acquisitions.

4.Seller Is Not Motivated : Sellers should be prepared to spend time with prospective buyers to properly show business, and provide sufficient (qualified) information in the sales process when requested. This is most important after a purchase contract has been signed and a buyer has begun the due diligence process to determine if the information represented and presented by the seller can be validated to the buyer's satisfaction.

5.Insufficient Market Exposure : Sellers should be prepared to have their business confidentially listed and marketed for a minimum of 6 months. The Business Broker hired to market and sell your business should offer or have access to multiple advertising and marketing venues to generate sufficient buyer inquiries and offers. Finding the right buyer for any small business is ultimately a numbers game.

Customer Concentration : Sellers should be keenly aware that having any one customer or client who accounts for over 30% or 40% of your sales may be considered a risk factor by some buyers and lenders.