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The ultimate guide to selling your business
 

The ultimate guide to selling your business

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    The ultimate guide to selling your business The ultimate guide to selling your business Document Transcript

    • The Ultimate Guide to Selling Your Business on Your Own The Seven steps to selling your business 1 Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Table of Contents The Seven Steps to Selling your Business1. Prepare your business for sale  Prepare your financial statements  Set a realistic asking price  Pricing a business that is losing money  Consider financing a portion of the sale  Prepare key documents for the sale2. Advertise your business for sale  Options to advertise your business for sale  Writing an ad copy that sells  An example of an actual ad copy3. Pre-Screening Buyers  Our research about buyers  How buyers respond  Responding to Buyer Inquiries  What is an NDA or Confidentiality Agreement?  The secret to quickly pre-screening buyers  What to do after you receive the buyer’s NDA  The secret to selling your business efficiently4. Showing your business to buyers  Wait for questions  Set a meeting  The showing  Disclosing the right amount of information  The purpose of Due Diligence  Which documents to disclose before an offer is made5. Negotiate an Offer  Talk terms  The different types of offers  Further qualifying the buyer  Keeping your focus6. Due Diligence  What is due diligence?  How long is due diligence?  What is the purpose of due diligence?  Preparing your business for due diligence7. The Closing  Get help  Closing documents
    • Introduction Hello and congratulations on the decision to sell your business. While selling your business can be a complicated process, it doesnt have to be frustrating. There are many steps to successfully selling your business and if you handle each one effectively then the entire sale can be a successs. We dont believe it is necessary to hire a broker and pay them 8-12% commission. If you have a little time, the right resources, the right tools, and the right attitude; you can sell your business on your own. Having been business owners ourselves, we believe in helping business owners and providing them with the right resources and direction. We are only here if you need our help, and only for what you need help with. No need to commit to a long term contract and pay high fees for something that you can handle on your own with the right tools. Your business is likely one of your most valuable assets. It makes common sense to invest a little time in learning how to handle in properly. Unfortunately, many business owners incorrectly believe that they can give the entire process over to a broker and have them handle everything. This isnt true. You will have to play a huge part in the process, whether someone is handling it for you or if you are managing the process on your own. This short guide will help you with the major steps in selling your business. We will share with you the secrets we have learned from helping hundreds of people sell their businesses. Read this guide and follow the advice and you will surely save countless time and thousands of dollars in the process.About Us Licensed in Nevada, Ohio and California; we have specialized exclusively in selling businesses for over ten years. Approximately one year ago we created this For Sale by Owner Program where we help business owners sell their business on their own without having to hire a broker. We require no contracts and you can cancel at anytime. We are a small company and believe in prompt, personal service. 3 Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Step #1 – Prepare Your Business for SalePrepare your financial statements Nearly every buyer will ask to see your financial statements at some point during the process of looking at your business. This typically happens fairly early in the process. How do your financial statements look? Are they straightforward, accurate, and easy to understand? If you are like most business owners, then you have probably not prepared your financial statements with the goal in mind to sell your business. Many business owners financial statements are often inaccurate, are full of contradictions, are incomplete, are sometimes completely unavailable, and most importantly are not designed to help you sell your business. Most financial statements we see do not show the “real” profit of the business but rather include unreported income or inflated expenses; all which lower the value of the business? What can you do about it? The first step in preparing your business for sale is to “normalize” your financial statements. This involves making adjustments to your financial statements as if you had originally prepared your financial statements to sell your business. This process is called “normalizing” the financial statements. Most business owners unnecessarily deduct excessive expenses when operating their business. Unfortuately, these expenses lower your net income on your financial statements and thus lower the value of your business. Many of these expenses are personal in nature or are unnecessary. “Normalizing” your financial statements involves removing these expenses (these are the “adjustments”), which ultimately increases the value of your business. Many business owners also do not report all of their income. This type of adjustment should NOT be made in writing. There are strategies for dealing with unreported income – this will be discussed in much depth later on in this guide. What do we mean by “financial statments”? When we say “financial statements” we are referring to your “Income Statements” or your “Profit and Loss Statements”. This document shows the Income and Expenses from your business and also shows the “Net Profit. The process involves the following steps: 1. Retype your financials statements into Excel - we recommend 3 years 4 2. Your Excel spreadsheet should have 3 columns: original, adjustments, and adjusted. Page 3. Make the necessary adjustments to your financial statements 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • 4. Click here for an example and complete description Sample adjustments you can make to your financial statments include the following: 1. Depreciation – This is a non cash expense and should be removed 2. Interest – If the buyer is NOT assuming your debt or loans then this expense should be removed 3. Owner’s Salary – If you are drawing a salary from the business then this expense should be removed. This is ultimately going into your pocket anyway, so this should be added back. 4. Amortization – Amoritaztion is similar to depreciation, however is for intangible assets. 5. Taxes – Income taxes should be added back if they appear on your financial statements 6. Non-Reccuring or One-Time Expenses – This might include an investment in new equipment, development of a new website, unnecessary attorney fees, or any other unusual or one-time expenses. The end result is an Excel spreadsheet that shows the original financial statements along with the adjustments and the adjusted figures. Instead of “net profit” you will now have a figured called “adjusted net” or “discretionary earnings”. To view the complete process click the link below: http://www.morganandwestfield.com/normalizing-financial-statements/Set a realistic Asking Price The first step in pricing or valuing your business is to “normalize” your financial statements or prepare them so that you can value your business. After you have done this you can now begin the process of valuing your business. How do I price my business? Pricing a business is primarily based on how profitable the business is. This is the number one things that buyers are looking for and therefore the basis for how buyers value a business when making an offer. There are other variables that buyers consider when buying a business, however nearly 90% of them are looking for one thing – “profit” (or “adjusted net” or “discretionary earnings”). What would you look for if you were buying a business? Wouldn’t you look for a business that is making the highest profit or adjusted net possible? But how do you define “profit”? “Profit” is really what you put in your pocket and should be the figure that you came up 5 with using the process above. Page Other terms for “profit” include the following: 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • 1. “Seller’s Discretionary Earnings” (SDE for short) – This is the most common and is used by nearly every broker and almost all buyers who have dealt with brokers. 2. “Seller’s Discretionary Cash Flow” 3. “Cash Flow” 4. “Adjusted Net Profit” or “Adjusted Net”METHOD #1 – The Cash Flow Method Step #1 – Figure out the cash flow (this is called “recasting” or “normalizing” the financial statements) and this involves adding back to the profit the following items – depreciation, amortization, owners salary, non cash expenses, non recurring expenses, and other perks. Step #2 – Multiply the cash flow by the “multiple”. Here are common CURRENT multiples:  Retail businesses – 1-2 times cash flow(restaurants, clothing stores, etc.)  Service businesses - 1.5-2.0 times cash flow  Manufacturing businesses 3.0+ times cash flow  Wholesale businesses 1.5 – 2.5 times cash flow Example - $100,000 (Discretionary Cash Flow) x 2.0 (the Multiple) $200,000 (Value of Business) (Please note that these are current multiples. They were actually much higher before the downturn. How do you determine the appropriate “multiple”? Unfortunately this can only come from experience, however the guidelines above can be a useful starting point for you. If you need assistance then please call us and we can give you some guidance.) This first method is the most widely used and it is used for nearly every business that is profitable. It is quite simple. What should the price include? It is simple – The price should include anything that is used or needed to create the “cash flow” or “profit”. This includes ALL of the equipment that is considered “required to operate the business” and that is used in the daily operations. 6 Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • What about inventory? This is a common debate among experts and you can safely try to get paid for the inventory in addition to the price. It is going to be negotiated anyway so ask for it up front and see what happens. We could write a 50 page article on this but we won’t – we believe in keeping things simple.METHOD #2 – COMPARABLE SALES What about comparable sales? This is tough – They are NOT public record and are only privately disclosed. The best place to get this information is from a broker that has accesses to private databases. There are 3-4 databases with comparable business sales, however, the information is very sparse and often quite inaccurate. Call us and we can tell you what the multiples may be for your business.Pricing a business that is losing money So you have a restaurant that you invested $200k into. It surely has to be worth what you put into it right? Sorry but it is unlikely. Here is an interesting fact – Buyers will usually consider buying a variety of different types of businesses. So (this is a BIG “SO”) the price of your business must be competitive with the buyer’s reasonable “ALTERNATIVES”. Note – This formula is NOT true if the buyer is specifically looking to buy ONLY your type of business. For example, the buyer ONLY wants to buy a bakery. But don’t fool yourself – less than 5% of buyers only want only one type of business. You shouldn’t be selling your business based on exceptions anyway. The price of your business must be competitive with reasonable alternatives. Imagine you are a buyer - which business would you buy below?  Business A – Asking $200,000 - restaurant that is breaking even  Business B – Asking $200,000 - restaurant making an annual profit of $100,000 Which business would you buy? 95-99% of buyers will buy Business B. Remember that most businesses are priced at around 2 times the cash flow, so realize that if you are asking $100,000 for your business, then most businesses THAT SELL at that asking price will be producing $50,000 per year of cash flow (or profit). The number one thing buyers look for in a business is profit. But I see businesses for sale that are asking $250,000 or $300,000 and yet are not profitable? Yes, they are “for sale”, but not “sold”. Why do you think you don’t see that many businesses that are priced right that are still for sale? It is because they are SOLD – because they are priced right. 7 Probably 80-90% of businesses are overpriced – don’t let this fool you. Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Consider financing a portion of the sale What is Seller Financing? With seller financing, the buyer makes a down payment on your business and then makes monthly payments until the price is paid in full. Some sellers erroneously think that they have to lend the buyer money – you don’t. Keep it simple – you get a downpayment and then you receive periodic (typically monthly) payments until you are paid in full. How do I know how much to finance? It has to make sense – If your business makes a profit of $7,000 per month then a note of $4,000 per month will surely NOT make sense. Basically the profit from the business has to be able to pay for the note, AND, pay the buyer a living wage. If it can’t then it isn’t going to work. The following information is based on statistics on over 10,000 business sales (please email us for the complete study – it is actually quite interesting).  Average interest rate – 7-8% (there is very small variance). This is based on RISK, not prevailing interest rates. Financing a business is risky, hence the relatively high return.  Average length of note – 5 years (varies from 3-7 years).  Average down payment – 50% (varies from 30-70%).  All cash deals - LESS than 10% of businesses sell for all cash. The bottom line – If you are not willing to finance the sale or your business, then there is probably going to be some other seller with a reasonably similar business who is. Issue – If a business owner reports all income and shows a high profit on his/her tax return then almost any buyer could obtain financing on the business. This obviously is not true, so must sellers must finance the sale of the business if they are really serious about selling. Are you unsure how to structure your sale for seller financing? Use our complete Business for Sale Package –we cover this and many other important considerations. The cost is as low as $600 and the package includes nearly all of the forms and other tools needed to sell your business on your own.Prepare Key Documents Lease – Find your lease, read it, become familiar with it again. Many buyers will ask you specific 8 questions regarding your lease. It helps to be prepared and knowledgable regarding your lease. Page Have answers to the following questions: 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    •  What is the start date of your lease?  What is the expiration date of your lease?  Do you have options to renew? (Are these automatically transferred with the lease? Be careful on this one, they oftentimes are personal to you and are NOT transferred when the lease is assigned).  What is the base rent?  Does the base rent increase annually? If so, how much, specifically?  How much are the CAM/NNN charges? Is this included in the rent or in addition to the rent?  What are “permitted uses”? Many buyers want to offer a new product or service – is this allowed in the lease?  How much is the assignment fee?  What are the minimum requirements for a new buyer to be approved by the landlord? Equipment List – If equipment is important to your business then it is wise to prepare a detailed list of your equipment. Please email us at jacob@morganandwestfield.com for a sample equipment list. Seller’s Disclosure Statement – The number one reason buyers often do not buy a business is because of “fear”; typically fear of the unknown. This document helps calm the buyers fears by disclosing any potential issues with the business up front. Please email me at jacob@morganandwestfield.com for a sample Seller’s Disclosure Statement. Need help preparing your business for sale?Call us today at 888-693-7834 x-101 for assistance. We can offer you assistance in preparing your businessfor sale at very low costs. With over ten years of experience selling businesses, we can guide you in the rightdirection and save you countless wasted hours and thousands of dollars.We also have complete business for sale by owner packages from as low as $500. These packages include a 1-2 hour consultation, all forms required to get an offer on your business, buyer pre-screening forms, do ityourself guides, a complete summary on your business, a mini valuation, and much more.Call us today at 888-693-7834 x-101 or send an email to jacob@morganandwestfield.com 9 Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Step #2 – Advertise Your Business for SaleOptions to advertise your business for sale Craigslist – No doubt, Craigslist does get very good exposure; however, there is not a better place to attract more unqualified buyers than Craigslist. While you can get lucky and sell your business using Craigslist; if you value your time then it is not a good option. We recommend using Craigslist if you have the time and your business is less than $100-200k, however please do so with extreme caution. The Multiple Listing Service (MLS) – About 20-30 years ago the MLS was a great place to sell a business, however probably less than 1% of all business brokers even think about using the MLS. The MLS can only be accessed by licensed Realtors who typically specialize in selling residential real estate or homes. Most residential real estate offices no longer allow their agents to sell businesses due to the high degree of knowledge required and high potential for litigation. As a result, the MLS is rarely a viable option to sell your business. Newspapers – Does anyone actually read the newspaper anymore? Look in the Sunday edition of your local paper in the “Business Opportunities” section. There are likely less than a few ads in this section and most are for new franchise opportunities. About the only newspaper that is highly effective is the Wall Street Journal, however, this is extremely expensive. Alternatively, you can experiment with local community newspapers, which are often low cost, however they do not always get a high response. If you have a business that is “ethnic” in nature and is ONLY likely to be purchased by one specific nationality (such as a Chinese restaurant) then you may want to consider ethnic newspapers that caters to this nationality, such as a Chinese newspaper. Business for Sale Sites – The most effective place to sell most businesses now is by using the Business for Sale Sites. These sites exclusively sell businesses and show up first in popular search engines such as Google or Yahoo! when searching for businesses for sale or to buy a business. Below are some of the most popular sites: www.bizbuysell.com www.mergerplace.com www.bizquest.com www.buyabusiness.com www.bizjournals.com www.mergernetwork.com www.businessesforsale.com www.acquireo.com 10 www.businessbroker.net www.globalbx.com Page www.businessmart.com 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Summary of advertising methods – The most cost effective and efficient way to sell your business is byusing the business for sale websites. The internet today is huge and most people immediately go to theinternet when looking to make a major decision, such as buying a business. Try going to Google or Yahooand search for “businesses for sale” or “buy a business”. You will see for yourself the different optionsavailable to you to sell your business. Call us now for a free two week trial!Are you motivated to sell your business and anxious to start introducing buyers? Call us today at 888-693-7834 x-101 to see how our free trial works.We can help you write your ad and begin introducing buyers in as little as a few days. Call us today for moreinformation at 888-693-7834 x-101 or send an email to jacob@morganandwestfield.comWriting an Ad Copy that sells If you have decided to sell your business using the Business for Sale websites then it is important to write an effective ad. An effective ad is short, to the point, and touches on potential buyers hot buttons. Click on the links in the section above to view other ads. Get a feel for the sites and see what attracts you to different businesses. Here are other things you can do to maximize the number of responses from your ads: Gross Sales – Businesses with higher gross sales get more responses. What you can do – report a higher number, use a projection, etc. – but be prepared to explain how it can be achieved. We regularly suggest that sellers include a projected number or estimate if the actual numbers are not available or if they are unattractive. Cash Flow (Net) – Businesses with a higher net get more responses. This probably has the biggest impact on the number of responses. What you can do – report a higher number, use a projection, etc. – but be prepared to explain how it can be achieved. This will be discussed in great depth in a later section. Location – Businesses advertised in larger cities get more responses. What you can do – ask us to advertise your business in a larger market area. Areas of less than a couple hundred thousand people should be reconsidered. Title – Catchy titles get more responses. What you can do – use a creative, catchy title. 11 Here are some titles we have used that have worked extremely well “The underwear CEO”, “Profitable virtual internet business”, “Coastal Lifestyle Business”. The title is meant to pull Page them in and nothing more. 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Fast response with complete information – Ads that state that buyers will get a timely response and access to complete information get a lot more responses. More on this later. Ad Copy – Do longer ads get a better response? No, they actually usually get less; however, they do tend to attract a more qualified buyer (qualified in terms of interest, not financially). Keep the ad copy short, crisp, and to the point if you want more responses. Write a long, descriptive ad if you are looking for highly qualified and interested buyers, but MUCH less responses. We strongly prefer a shorter, crisper ad. Should I sell my business on my own?If you have the right tools, and assistance from an expert than you can sell you business on your own. WithMorgan & Westfield, we give you the tools you need to properly sell your business. We require no contractsand our fees are low enough that it is cheaper in the long run to use our help than for you to manage theentire sale yourself. Our rates can often be as little as 1% of the sale price.Call us today at 888-693-7834 x-101 or send an email to jacob@morganandwestfield.comExample of an actual Ad Copy Example of an actual ad copy Ok………….here goes. Here is an actual ad copy we have used – it got an amazing response. TITLE - Lifestyle sports business 99k down on California Coast THE AD COPY - Stable revenue, stable cash flow. Fun, extremely rewarding business; ideal for sports oriented buyer. Shorter operating hours. Work indoors and outdoors. Highly motivated, realistic seller with seller financing. Business is growing and is stable. There is probably no more enjoyable business if you love sports. This seller is very serious, we have full documentation, long term lease, and seller financing is readily available. Have a 401k or IRA? Buy this with your IRA/401k with NO tax penalties. EMAIL NOW to immediately SEE A FULL PACKAGE ON THIS BUSINESS. We have an electronic NDA you can sign in 30 seconds then we send you a complete 15 page full color summary and audio interview with the seller. Why did it get such a great response? 12 The Title – It had a catchy title and appealed to nearly every buyer. Lifestyle, low down payment ($99k) , California Coast……………….can you ask for more? Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Numbers – The numbers were solid and we posted them. Ad copy – The ad copy mentions exciting highlights of the business, not boring characteristics such as square footage or length of the lease. Call to action – The ad asks for an immediate email and offers an immediate response; along with a complete package. This is a major hot button for buyers. Low down payment – The seller was offering seller financing with about half down; another hot button for buyers. What can you do? You have a business that isn’t on the coast in California, is not making a lot of money, and is relatively boring. What can you do to write a better ad? Write a strong, catchy title - Find out what is unique about the business and put it in the ad. There is something unique about your business, find it. Numbers – If your business is not highly profitable then try using projected numbers for the gross sales and cash flow and offer an explanation for how this could be achieved. Ad copy – Keep the ad copy crisp and sexy. Point out the highlights (on the coast, seller financing, verifiable numbers, long lease, etc.), NOT the boring traits such as: 5 year lease, 30 tables and chairs, north part of town, etc. Call to action – We will fully explain this in another email. It definitely warrants a complete explanation. Financing – Offer seller financing. Ads with seller financing get a significantly higher response. There you go – this may take some time but it will be well spent. I absolutely guarantee it. Need help? We can help you write your ad from scratch; however we charge a nominal fee for this. Writing an ad from scratch requires a tremendous amount of energy, creative juice and a significant amount of time to do well. Feel free to send us your written ad for review and we can point out a few things you can change. We do not charge for this. Need help advertising your business for sale?Call us today at 888-693-7834 x-101 for assistance. We have complete advertising programs for your businessfor as low as $99.We can assist you in writing your ad copy, placing the ads, pre-screening buyers, and all steps involved in 13generating qualified buyers for your business. PageCall us today at 888-693-7834 x-101 or send an email to jacob@morganandwestfield.com 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Step #3 – Pre Screening BuyersOur research about Buyers Ok………..here is an interesting point and yet very important. Have you thought about what it is like to look for a business from the buyer’s perspective? Well a few years ago someone asked me this question and unfortunately I had an idea but didn’t know for sure. So what did I do? I put on my buyer’s hat (and underwear – so I could get the full experience) and responded to business for sale ads and………………………………… This gets interesting. You will be shocked at what happened next..... Here is what happened: 60-70% of the sellers or brokers did NOT even respond at all. Of those that did respond: Only 25% of them responded in a timely fashion. Most sent a template email with NO additional information on the business. Most sent forms, including an NDA to complete – all to be printed, signed and faxed. ARE YOU KIDDING ME???? You are trying to sell me something and you are going to make the process difficult??? Most were unprepared to sell, had incomplete information and couldn’t answer basic questions, such as how long of a non-compete they were willing to offer or specific seller financing terms. The bottom line – The responses were sad. Few were prepared. Few responded and of those that did – the responses were not timely and didn’t provide any information. Don’t get me wrong – there were a FEW solid responses, however, they were very rare. What can you do about it? Respect the buyer’s time. Looking for a business is an EXTREMELY frustrating process. Respond to buyer inquiries promptly and professionally. Don’t respond to a buyer inquiry with “What do you want to know?” – PLEASE do not do 14 this. This kind of response could not make you look less prepared. Page Respond in a timely fashion and with more information and clear action steps. 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Be prepared – If you want to sell then be absolutely sure that you want to sell. Don’t waffle with the buyer and say you are motivated but not in a hurry – buyers dont want to waste their time. These are all attitudinal tips – in the next section we will explain specifically how to respond to the buyer inquiries.How buyers respond Buyers respond to your ads by using a contact form on nearly every site. The buyers must typically submit their name, email, phone number and other contact information to contact you. Most sites do not publicly display your contact information and NO sites publicly display your email address – this greatly reduces SPAM.Responding to Buyer Inquiries Here is how we respond to buyer inquiries.  A good response is timely, our responses are usually IMMEDIATE (our email program does this automatically).  Our responses do not appear to be a template – They are written in simple, conversational language.  Our responses include a brief summary (1-2 paragraphs in the email) of the business (this is repeating what is in the ad, however, buyers need a refresher because they often are looking at multiple ads and may forget yours) or as a separate document. We also RE-SELL them on the business and persuade them to take the next step.  We DO NOT include forms to print, sign and fax – Our NDA is electronic – Click on our home page to view our NDA – www.morganandwestfield.com.  Our responses thank the buyer for their time and acknowledge that the process is frustrating.  We offer buyers multiple methods to contact us – phone, email, etc.  We include our full name and contact information – This helps build a little trust and credibility. 15 Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Most buyer inquiries come via email – This is because the sale of a business is confidential andthe sites are set up so sellers can sell without disclosing their business name or contact information.Buyers must inquire through a web form. This also reduces telemarketing calls and weeds out 99%of spammers (unlike Craigslist). The sites are monitored by live human beings and they quicklyblock spammers.What response rate do most sellers get after emailing a buyer back? From our feedback wehear response rates of between 20-40%. Follow our advice and you should get an 80%+ responserate or over 3-4 times the average response rate.SAMPLE RESPONSE – The reply below is done immediately so the response is sent within minutesof the initial buyer inquiry. This also ensures an extremely high response rate and very high followthrough. Thanks for looking at one of our businesses for sale. This is a company that makes a hot/cold pack for the head, hands, back, and knees. They have been sold in major sporting goods stores, in QVC and there were negotiations to place them in Walgreens. The asking price includes a good portion of inventory and esclusive rights to the design and sale of the products. There are also other similar complimentary products that could be sold. The owner is in his mid 70’s and is highly motivated and looking to retire. The business can also be operated from anywhere in the World as the manufacturing is outsourced and the products can be drop shipped. We have a complete package available on this company that we can email you. In order to do so, we ask that you briefly sign our electronic NDA online at: http://www.morganandwestfield.com/resources/forms/nda/ The NDA takes less than a minute to complete and once we receive it, we will immediately email you the information. We understand that the process of buying a business can be extremely frustrating and we highly respect your time – we strive to make the process as quick and easy as possible. Feel free to call us anytime if you have questions. Thanks, Jacob E. Orosz, C.B.B. Certified Business Broker, Principal Broker | DRE License # 01848516 Morgan & Westfield www.morganandwestfield.com 16 888.693.7834 x-101 | fax 888.245.6657 | jacob@morganandwestfield.com Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • What is an NDA or Confidentiality Agreement? What is a confidentiality agreement? A Confidentiality Agreement (also called an “NDA” or Non-Disclosure Agreement) is often signed by potential buyers of a business prior to releasing confidential information to them on your business. Click below to view a sample Non-Disclosure Agreement: http://www.morganandwestfield.com/resources/forms/nda/ How do I use a confidentiality agreement or NDA? It is customary for nearly every business broker to respond to a buyer inquiry with a request for the buyer to sign an NDA. You must keep in mind, however, that when you are “selling” your business, any obstacles you place in between you and the buyer can minimize the chances of selling your business. Asking them to print, sign, and fax your NDA is a potential obstacle. Asking them to complete more than one document is an obstacle. If you are serious about selling your business, then you should respond to the buyer inquiry with a little more information on your business (beyond what is in the ad) with your NDA and a method to contact you if they have questions. Should I hire a broker?Many business owners mistakenly think if they hire a broker they will not have to get involved in the sale atall. This is a common misconception. Regardless of who sells your business, you will still have to beintimately during the entire process. With Morgan & Westfield, we give you the best of both worlds: lowfees and complete assistance. You can sell your business and minimize fees using our help and assistance.We have helped many clients in the past sell their business for as low as a few hundred dollars.Call us today at 888-693-7834 x-101 or send an email to jacob@morganandwestfield.comThe Secret to quickly pre-screening buyers Read this over ten times. This one point alone will save you dozens of hours with unqualified buyers. We have discovered one tiny little secret that will save you countless hours pre-screening buyers. Here is the process: 1. Receive a buyer inquiry 17 2. Respond to the buyer inquiry via email 3. Send the buyer a brief summary of your business (1-3 brief paragraphs) in the email along Page with an NDA for the buyer to sign 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • a. About the NDA (this is very important) – Keep the NDA simple. It should be 1-2 pages. On the NDA should be 1 -3 very important questions. i. How much liquid cash do you have to invest in the business? ii. What is your approximate net worth? iii. What is your approximate credit score? This process literally works like magic. Buyers who believe they are not qualified will typically put “N/A” or leave these questions blank. Some buyers may even put that they only have $5,000 liquid cash on a business with an asking price of $200,000. Unfortunately many buyers think they can obtain a bank loan to purchase the business and think they may be qualified. There is no point in asking the buyer dozens of pre-screening questions. Just ask them the most important questions. You should only be pre-screening them financially at this point. If your landlord or franchisor requires a buyer with a certain credit score and net worth then you may also want to include these questions as well. The second magical aspect – Another thing this method does is weed out buyers who have not looked at any other businesses for sale. Buyers rarely buy the first business they look at so it may be prudent to weed out these buyers. Nearly all experienced buyers know that they must sign an NDA before they can get any additional information on a business for sale. Experienced buyers will respond to your email by quickly signing and returning your NDA. These are the buyers you want to deal with. It also demonstrates that the buyer is cooperative and is willing to respect the confidentiality. We don’t explain what an NDA is and why it is required – the buyers we want to deal with already know. Inexperienced buyers will often ask why it is required and try to avoid signing it – we simply move on to the next buyer.What should I send after I receive the buyer’s NDA? If you want to save time and increase the chances of selling your business, then you should prepare a short written summary of your business that answers the basic questions that nearly every buyer will have. You can quickly lose buyers after the second or third round of phone or email tag. Simplify and streamline this process and send the buyer a brief summary on your business. We call this a “Business Summary”. A business summary is basically a brief overview or summary of your business. It answers the basic questions that nearly every buyer will ask you. 18 Every buyer will want to know the answer to basic questions about your business after replying to Page your ad or signing your NDA. 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Can you answer the following questions? A business summary addresses the following questionsquickly and efficiently; saving you countless hours with buyers (not ALL questions will apply toyour business):  What are your hours of operation?  What are the lease terms?  How long of a training period are you willing to offer?  Are you willing to sign a non-compete?  Are you willing to finance a portion of the sale? If so, what are the terms?  When was the business started? By whom?  How long have you owned the business?  Can you tell me about the product or service briefly?  What is the history of the business?  Can you tell me how you handle pricing?  Who are your competitors?  What are your major operating expenses?  What could you do to improve your business?  What expenses could you possibly lower?  Are the employees willing to stay after the sale?  How much do you pay your employees?  Are they paid benefits?  Are there any key employees?  What licenses are needed to operate the business?  What were the gross sales for the previous 3 years?  How profitable is the business?  Who is the landlord? Is he/she a large national landlord or small, local landlord  Do you have a websites?  Financial questions – what is your average accounts receivable, accounts payable, etc?  What percentage of your sales are cash sales?  Who does your bookkeeping and how often is it done?  How much inventory do you currently have? Is it included in the price?  How much working capital is needed to operate the business?  What is all of the equipment, furniture and hard assets worth?  Is bank financing available for this business?  Description of premises and lease terms – square feet, length of lease, terms, NET/CAM, options to renew, annual increase, security deposit?  Is the business seasonal?  Are any family members working in the business?  How many employees do you have? Full time, part time? Contract workers?  Is any equipment on lease? 19  Is any equipment on loan from suppliers? Page  Is any equipment not included in the sale that is located at the business? 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Click below to view a sample business summary: http://www.morganandwestfield.com/wp-content/uploads/2011/06/MW-Sample-Business-Summary.pdfThe Secret to selling your business the most efficientway possible Here is the method we use to sell businesses with the minimum possible effort: 1. Advertise the business for sale using the business for sale websites 2. Receive buyer inquiries 3. Immediately send the buyer a brief email on the business (1-3 pargraphs) and an NDA to sign if the buyer would like to see the full package (Business Summary) 4. Receive the buyers’ NDA and check to see that they are qualified financially 5. Email the buyer the Business Summary 6. Interested buyers then typically call or email to set up an appointment to physically see the business Once this process is set up, it takes less than an hour per month to pre-screen buyers and set up appointments (we automate this process, however it should still take you less than one hour per month). You are left with pre-screened and interested buyers who phsyically want to see your business and know the answers to dozens of questions about your business. There is little left to discuss other than answering a few more questions, showing the buyer the business and possibly discussing an offer to purchase.How many inquiries should I get from my ads? On average, over the last year, most ads have averaged around 3-5 qualified responses per month for us. Remember it only takes one buyer to sell your business. A “slow” ad will get 1 or 2 responses per month. A very good ad will get more than 10 responses per month. Examples of number of responses we have gotten:  Lifestyle business – 20 per month  Auto repair in rural town – 1 per month  Zero money down restaurant in Orange county – 40+ per month  Fitness studio – Asking $15k – 10 per month  Manufacturing Company – Asking $10,000,000 – 20+ per month  Auto glass company – 5 per month  Frozen Yogurt Shop – 5 per month 20  Restaurant in large city – 5 per month Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Need help pre-screening buyers?Call us today at 888-693-7834 x-101 for assistance. We have offer buyer pre-screening for as little as $49 permonth. We immediately respond to buyer inquiries sending them additional information on your businessalong with a link to an electronic NDA customized for your business.This greatly reduces phone and email tag and leaves you with pre-screened, interested buyers.Call us today at 888-693-7834 x-101 or send an email to jacob@morganandwestfield.com 21 Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Step #4 – Show Your Business to BuyersWait for Questions You have advertised your business for sale. You have pre-screened the buyers and sent those qualified buyers your Business Summary. What do you do now? The next step is simple. Wait for buyers to contact you with additional questions. You may follow up with the buyers if you like, however we dont think this is necessary. It is probably a good idea to call the buyer when sending him/her your Business Summary and introduce yourself to the buyer. We don’t do this – we simply receive the buyer’s NDA and immediately send the buyer the Business Summary. Most buyers appreciate our direct, fast approach, however as a seller it may make the process more personal if you call the buyer in addition to sending them your Business Summary. After buyers receive your Business Summary, they will typically call or email you if they have questions. What should I do after I send buyers my Business Summary? You really don’t need to do anything. Most buyers will contact you if they have questions or are interested in your business. You can follow up with those buyers who don’t contact you back. We recommend doing this in a few days or a week after you receive their inquiry. We don’t do this, however, you can do this if you are highly motivated and are in a hurry to sell.Set a meeting What do I do with interested buyers? Set a meeting. Set a meeting. Set a meeting. Interested buyers will likely call you and have specific questions for you. Do or say anything you can to set a physical meeting. This ALWAYS increases the chances of a successful deal. Get the buyer to invest time. Meet the buyer and establish trust. Show them the business. It is ok to answer their basic questions; however you should gently persuade the buyer to come see you. Why do you think we only include 2-3 pictures in the Business Summary? This is so we leave some curiosity in the buyers mind and it gives them a reason to come see the business and meet you. You can tell them that you have additional information at the business that you would like to share with them; such as your financial statements, the detailed Seller’s Disclosure Statement or any 22 other documents they may want to see. Try to avoid emailing these, especially your financial statements. Get them to come meet you. Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • The showing What do I do when the buyer comes to see the business? I like to immediately show the business to the buyer – after a very short getting to know each other introduction. At this point they usually haven’t seen the business and are dying to go for a tour. Don’t sit down and have small talk for 20 minutes – the only thing on the buyers mind is that they want to see the business – show it to them then have the small talk later. Let the buyer ask as many questions as they like. Answer them as best and straightforward as you can. You can get to know each other during the showing, and you can casually ask them questions about themselves and share like information about yourself. Show them the business – explain as much as you can. Show pride in your business. Weave in little tidbits about the history, ways to grow the business, and what you like/dislike about the business. Be honest – point out some of your dislikes about the business – this will make you look more credible to the buyer. It may be smart to point out some things that could be changed such as “I hate marketing; I wish I knew how to market this business better”. Avoid the following: • Don’t show tax returns • Don’t show bank statements • Don’t discuss the financials during the showing – tell them that you can sit down and discuss this • Don’t disclose proprietary secrets The importance of consistency: Read your Business Summary inside and out. Memorize the info contained in it. It is extremely important to present the information about your business in a consistent fashion to interested buyers. Buyers will notice inconsistencies and will then begin to doubt everything you tell them.Disclosing the right amount of information 23 What is the next step? Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Don’t stuff the buyer’s head full with too much information. Keep the meeting the right length – you will only know by feel. Keep some things a mystery – tell them that if they are interested, and come back for a second time, then you will show them something really interesting about the business. If they are interested they may come back for a second meeting. Some buyers make an offer after the first meeting. Some don’t. There is no magic formula. The right number of meetings is probably between 1-4. When is enough enough? Is the buyer requesting a 6th or 7th meeting? Don’t waste your time – move on. This is very important – when selling a business you are making certain representations regarding your income, etc. These representations are not verified before an offer is made so there shouldn’t be a need for 5 or 6 meetings. The in depth investigation of your business is made after an offer is ACCEPTED and this time period is called “due diligence”. A few meetings should be sufficient with the buyer. It should be enough for them to decide if they want to make an offer and move forward. Why is my buyer requesting so much information and meetings? Fear – that is the only reason. It is fear of the unknown. They likely have never owned a business before, and may be scared to death. Your job is to make them feel comfortable. If you are financing a portion of the sale, then you can tell the buyer that you wouldn’t finance the sale if you didn’t believe in it. Also, explain to the buyer that if they make an offer they will get plenty of time to do their research (due diligence). Using assistance intelligentlyIf you approach the sale of your business intelligently then you can maximize the sale price whileminimizing fees. At Morgan & Westfield, we focus on maximizing what you are left with after the sale. Wecan save you tens of thousands of dollars by advising you on some of the following items: *Minimizing taxes from the sale of your business *Structuring seller financing while protecting yourself *Exploring creative financing strategies *Gaining maximum exposure for your business *Assistance with deal structuring *Purchase agreement preparation and review *Due diligence guidance *Assistance with minimizing closing costs and escrow fees *And dozens of other critical considerations.................... 24Call us today at 888-693-7834 x-101 to see how we can help. Our rates can often be as low as a few hundred Pagedollars for the sale of $100,00 + business. 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • The purpose of Due Diligence Is the buyer requesting too much information? Have you met with the buyer 4,5 or 6 times? You should explain to the buyer that this thorough investigation is done after an offer is made and accepted. This time period is called “due diligence”. Due Diligence is typically 30 days, however, can be any length of time that you and the buyer agree upon. The buyer can usually back out during this time period for any reasons. They should, however, make a reasonable effort during this period.Which documents to disclose before an offer is made So you are talking with several interested buyers and a few of them asked you for tax returns and bank statements and some other sensitive information. What should you do? How should you handle this situation? Should you show these documents without having an offer in hand? What guidelines should I follow when dealing with buyers and deciding what I should show them? Before receiving an offer, you should be cautious with what you show to buyers. Certainly be helpful and engaging with the buyer, but do not give them everything they ask for. At some point you should politely and tactfully ask them to present you with an offer. Here is what is commonly shown to buyers before receiving an offer:  A summary on the business  Profit and Loss Statements (Past years and Year to Date)  Balance sheet  Lease summary or abstract (not the whole lease)  Equipment list  Sales literature, brochures, etc These items are usually released after an offer is made  Customer lists  Tax returns  Bank statements  Invoices and receipts  Full copy of the lease  QuickBooks file or full Financial Statements (General Ledger) The buyer says he isn’t going to move forward without first seeing the Tax Returns and bank statements. What should I do? Politely explain that all buyers say that and if you complied with every buyers’ request, 25 then a dozen or so copies of your tax returns and bank statements would be floating all Page over town. 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • The buyer is going to walk, what should I do? Call him on his bluff (tell him no) and see if he walks. If he does then call him back and tell him you thought about his situation and you completely understand, you talked to your wife, you prayed to god, you asked your priest, you have seen the light, blah, blah blah. If your records are good, then I suggest setting up a meeting with the buyer in person, at your place of business. Have the documents they requested lying on your table. Let the buyer spot check some of the documents for a short period of time. Give them confidence that you have the backup material to satisfy their due diligence requirements. Do NOT give them copies to take home. After they are done, press them for an offer. This type of buyer could just be seeking reassurance that they are making a good decision. Buyers typically do this by trying to acquire more information. More information will not make their fears go away. You have to challenge them and ask them for an offer. Is there a better way to explain this process to the buyer? Yes. Explain to them that you are making representations. These representations will be verified during due diligence. Give them verbal reassurance in the quality of your backup information. Explain to the seller that their earnest money deposit will be held by a qualified and licensed escrow agent. Need advice on dealing with buyers?Call us today at 888-693-7834 x-101 for assistance. Our complete business for sale by owner packageincludes all of the forms and guides to pre-screen buyers, show your business to buyers, and assist the buyerin preparing a term sheet or offer to purchase. This package starts from as low as $500 and includes nearlyeverything you need to sell your business.Our process is amazingly simple and once set up, requires only afew hours per month to execute properly.Call us today at 888-693-7834 x-101 or send an email to jacob@morganandwestfield.com 26 Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Step #5 – Negotiate an OfferTalk terms Have an interested buyer? Don’t panic. Talk with the buyer. You will want to agree on the following basic terms: 1. Price 2. Amount of earnest money deposit and who is going to hold it 3. Terms 4. Length of due diligence 5. Training period 6. Non-Competition Agreement 7. Name of closing agent or attorney 8. Any contingencies Don’t waste your time preparing a ten page purchase agreement if you can’t even agree on terms. Simply talk with the buyer and see if you can agree on terms. If you can agree on terms, then we suggest putting them on a one page offer to purchase form, or a term sheet. This helps you move the deal forward without having to worry about the purchase agreement. Please contact us if you need an offer to purchase form.The different types of offers Term Sheet A term sheet is used for discussion purposes only, and allows you to focus on the structuring of the deal without worrying how it looks on paper. If you can agree on the term sheet, then you can move straight to an offer to purchase, or a definitive purchase agreement. We have combined our term sheet and offer to purchase into one simple form. This is a simple document that can be signed, and also allows the parties to focus on the deal without worrying about the language. We see many sellers make the mistake of picking up the phone and calling an attorney before they even have a real deal. The issues here can be varied and it pays to have an experienced individual look at the deal. Call us anytime. We do not charge to review your deal. Our fees for closing the transaction can be as low as 1%, oftentimes with no fees until the actual closing. Letter of Intent Letters of Intent are similar to term sheets and can be an effective tool if used properly. 27 Again, they are great for discussion purposes, however, they should be replaced by a binding offer if you are commiting to the buyer. We see many sellers accept an open ended Page Letter of Intent (no expiration date or termination rights on their part) without accepting 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • an earnest money deposit or qualifying the buyer. This is a huge mistake and can cost you dearly if you commit to the wrong buyer. Offer to Purchase Offers to purchase range in length. We have combined our term sheet and offer to purchase into a one page form. Obviously, this shorter document does not contain all of the necessary language, however, it does allow the parties to commit to the terms and move the deal forward. It is very important that a shorter offer to purchase form, letter of intent, or term sheet be replaced by a more comprehensive offer to purchase. The language we use typically looks like this: “Seller and buyer agree to replace this offer to purchase/Letter of Intent with a definitive purchase agreement within 5 business days of acceptance”. “Definitive” Purchase Agreement This is the document that is actually signed at closing. This is a comprehensive agreement that is signed at closing by all parties. It may not make sense to start the process with this document as it may intimidate some buyers and may also be unnecessary if the buyer is not qualified. As we mentioned above, it may make sense to start the negotiations with a term sheet/letter of intent or a simple one page offer form.Further qualifying the buyer At this stage, it makes sense to further qualify the buyer. You may tactfully ask the buyer to provide you the following: 1. Personal Financial Statement 2. Buyer’s Disclosure Statement 3. Buyer Profile and Questionnaire You can either ask the buyer for this information before you begin preparing the offer, or you can stipulate in the offer/purchase agreement that the buyer will provide this information within 5 business days of acceptance (or any other time period you specify). This effectively makes the due diligence mutual, which allows you to cancel the offer if you do not approve the buyer. This is a very important strategy and can potentially save you a lot of stress and wasted time. Email me at jacob@morganandwestfield.com for these documents.Keep your focus 28 The number one mistake sellers make when they find a buyer: Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Most sellers get too excited and lose their focus when they find a buyer. More than 50% of deals dont make it to the closing table. Focus on continuing to run your business and obtaining additional back up offers. Many sellers also take their business off the market – a huge mistake! What do you think this does to the buyer? If you want to keep your negotiating position then keep your business on the market, continue to show it and accept back up offers. This will keep the buyer on his (or her) toes, and prevent them from playing games. About making an offer: We have provided you with a simple offer to purchase form. Keep this phase simple and discuss the basics of the deal with the buyer. Assure the buyer that they will get plenty of time to conduct their research and due diligence after they make the offer. Assure them that they are still not committed 100% until they finish their due diligence period. What about an earnest money deposit? We ALWAYS (ALWAYS, ALWAYS, ALWAYS) recommend getting an earnest money deposit. This shows good faith and lets you know that the buyer is serious and is also psychologically commits the buyer to a greater degree. You are also exposing a lot of information to the buyer regarding your business and obtaining an earnest money deposit is a reasonable thing to do. A typical earnest money deposit is about 5% of the purchase price of the business; sometimes with a $5,000 minimum. You can, however, negotiate for any deposit you like. An offer with a higher earnest money deposit carries more weight and many buyers know this and are willing to put down a larger deposit. The earnest money deposit is typically held by a third party such as an escrow company or attorney. Contact us for more information. What about further pre-qualifying the buyers? We have provided you with 3 other buyer pre-qualification forms. There is no magic formula for when these should be introduced. At the least, a buyer should complete these either with the offer to purchase or they should agree to provide these within x days (typically 3 days) of you ACCEPTING their offer to purchase. You can ask that the buyer complete these forms at any time you wish. We probably recommend asking that they complete these on their second visit. We also recommend introducing these anytime they request any additional in-depth information or if they want to take information home with them. Use your common sense and call us if you have specific questions regarding this. 29 Page888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Need help preparing an offer to purchase or dealing with your buyer?Call us today at 888-693-7834 x-101 for assistance. We can assist you in preparing your offer and guiding youthrough due diligence, all for one low fee at closing. Our rates are generally 1% of the purchase price and wecan often structure our fee so it is paid only in the event of a successful sale.With over ten years of experience in selling businesses, we can often bring you exponentionally more to thetable than the fees we charge. Mistakes in the last few stages can be costly and it pays to have an expert byyour side every step of the way; all for one low contingent fee.Call us today at 888-693-7834 x-101 or send an email to jacob@morganandwestfield.com 30 Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Step #6 – Due DiligenceWhat is Due Diligence? When a buyer makes an offer on your business, there is a period of time that follows where the buyer researches your business and further investigates your business. This period of time “typically” lasts 2-4 weeks and is called “due diligence”. Typical document requests and items investigated by buyers during this time period can include the following:  Financial Statements  Tax Returns  Bank Statements  Leases – premise lease, equipment leases, etc.  Any third party contracts such as supplier or vendor contracts  Sales and Use Tax Reports  Staffing and Payroll related documents: job descriptions, employment contracts, etc.  Insurance related documents: Workers compensation, health insurance, liability insurance, etc.  Equipment inspection  Licenses and Permits  Marketing, advertising, and promotional documents  Environmental documents and inspections  Franchise related documents The list above will not be typical for every business. Every business will have its own unique due diligence structure.How long is due diligence? Due diligence can be ANY period of time that you and the buyer agree to. The typical due diligence period for small businesses is typically 30 days. The length of due diligence should be based on the following: 1. The availability of information – The quicker you can respond to the buyers document requests, the shorter the due diligence period should be. 2. The speed at which the buyer reviews the information – The more organized and clearer 31 the information you provide to the buyer, the shorter the due diligence period should be. 3. Communication between you and the buyer – The more available you make yourself to the Page buyer the shorter the due diligence period should be. 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Have a question? Need guidance?Call us today at 888-693-7834 x-101 for assistance. We love helping small business owners. With over twentyyears of experience selling businesses, we can save you a tremendous amount of time, money, andheadaches. It is our goal to help you sell your business at the highest possible price, while helping youminimize transaction fees.Call us today at 888-693-7834 x-101 or send an email to jacob@morganandwestfield.comWhat is the purpose of due diligence? Businesses are complicated and hundreds of different things must be taken into consideration when looking to purchase one. Whereas with a house, you can look at it and quickly form an opinion, a business involves many intangible variables that are often not readily apparent. With a business, an offer must be made and then the representations are verified after there is an agreement on the terms. If all buyers conducted their due diligence before making an offer, then you would spend a tremendous amount of time with many buyers whom you may never reach an agreement.Preparing your business for Due Diligence Preparing your business to sell it greatly increases the chances that you will actually sell it. Preparing your business for due diligence is simple. It involves preparing and organizing the typical documents that most buyers will request and review during the due diligence period. Why should I prepare for due diligence? Can’t I just get the documents ready when the buyer requests them? 1. By preparing in advance, you may convince the buyer to agree to a shorter due diligence period, perhaps as short as 7-14 days. Your reasoning is that all the documents are prepared, organized, ready for review and the process will be quick and simple. Immediately after an offer is accepted, the buyer can start reviewing the documents. 2. By demonstrating to the buyer that you have prepared the business for sale, you tell the buyer that you are serious. Buyers like dealing with serious sellers. Believe it or not, many sellers “throw” (their words, not mine) their business up for sale because they are curious what buyers think of their business and are trying to determine what it is worth. After a buyer has encountered an unmotivated seller, they become quite interested when they 32 know you are 100% serious and have all your documentation in order. Buyers are more likely to spend time with a seller whom they know is seriou,s and has prepared for the sale. Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • 3. You greatly increase the chances of receiving an offer by demonstrating to the buyer that you have prepared and organized all documents needed for due diligence.. Many times, buyers are reluctant to make an offer on a business because they believe you have little information for them to perform their due diligence.What other tips do you have for me? If you have prepared your business for sale and organized these documents, it wouldn’t hurt to mention that in your ad copy. It could say something like this: “I am a very motivated and serious seller and have prepared my business for sale with the help of my CPA/Broker. I have all documents ready for due diligence, including financial statements, tax returns, bank statements, lease, equipment list, etc”. 33 Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Step #7 – The ClosingGet help Get help, period. Don’t handle the closing on your own. One small mistake can cost you tens of thousands of dollars. You can have your local attorney handle the sale or call us. We generally charge 1% of the purchase price and can structure our fees so we are paid only in the event of a successful sale, thus minimizing your risk. When to call – Call us during the due diligence process so we can review your deal and help you properly prepare for the closing.Documents required at closing Following are “typical” closing documents and tasks that need to be completed prior to closing:  Asset Purchase Agreement – Generally 5-6 pages, this outlines your agreement with the buyer.  Bill of Sale – This is the actual document that transfers possession at closing.  Equipment List – This must be attached to the Bill of Sale.  Buyer’s Disclosure Statement – This further reduces your liability post closing for any disclosures the buyer may not have made.  Allocation of Purchase Price – This MUST be filed with the IRS at the end of the tax year. Failing to do so can expose you to large penalties.  Non-Compete Agreement – this is a separate document and agreement signed by you only; typically notarized.  Training Agreement – This agreement spells out your agreement with the buyer to train him/her. It is important to get the buyer to sign off on the training when it is complete so there are no disputes. If you fail to do so then the buyer could potentially later refuse to make payments on your note; offsetting the note claiming you failed to train them properly.  Holdback agreement for training – If it is an all cash deal then savvy buyers may request that not all money is released until the training is complete.  Termination and transfer of DBA’s associated with business – If the buyer wishes to operate under the same trade name, then you must terminate your DBA/FBNS and tranfer it to the buyer.  Transfer of utilities – A clause should be contained within the purchase agreement to transfer the utilities in a timely manner. Failing to do so could leave you responsible for the 34 utilities until they are transferred. Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    •  Transfer of websites, phone numbers, etc. – Other assets of the business should be outlined and a clause should be contained in the purchase agreement whereby you agree to transfer these to the buyer at closing. Buyer forms new entity (Corporation, LLC, etc.) – Timing here is critical. We have seen deals delayed for up to two months because the buyer did not form their entity in a timely fashion. Buyer applies for licenses, permits, etc. - A list of permits and licenses must be made and the buyer must apply for these. Caution is recommended here as timing is important and must be coordinated with multiple other closing tasks. Transfer of merchant accounts – A buyer must be properly licensed and have bank accounts, etc. before applying for a new merchant account. Buyer must open new bank account in business name – Buyer must be properly licensed (DBA, business license, entity formed, etc.) to open a bank account in the business name. Notice to creditors – A notice to creditors must be filed in 13 states in which this law is mandated. Failing to do so can leave you open to exposure for many years to potential third party claims. Landlord/Lease assignment documents – If the lease is being transferred, this must be approved by the landlord in writing, and coordinated with closing. You dont want to transfer the lease until closing –timing here is critical. Financing documents, if applicable – If third party financing is involved, then there are mutliple other documents that often must be completed such as business plans, projections, etc. Promissory Note – If seller financing is involved, then this should be put into an agreement and signed by the buyer. Security Agreement – If seller financing is involved, then it is wise to place a lien on the assets of the business until you are paid in full. Doing so will prevent the buyer from selling the business or further encumbering the business without your permission. UCC Financing Statement – If seller financing is involved and you are placing a lien on the assets of the business, then it is wise to file a notice (lien) with the appropriate filing office. Sales tax clearance – If your business collects sales tax then you must get a clearance certificate for the buyer prior to closing. Failing to do so could expose the buyer to unpaid taxes. Payroll tax clearance – Another critical component. You will want to document that your payroll taxes are paid and current. Escrow instructions – It is not wise to handle the money yourself. The funds should be held by an independent third party and placed into a licensed trust account. Closing adjustments/prorations – Multiple adjustments and prorations must often be made (lease payment (s), utilities, property taxes, accounts receivable, etc.). Transfer of any intellectual property – If your business owns any intellectual property then this must be transferred property to the buyer and documented (patents, copyrights, 35 trademarks, etc.). Transfer of any third party contracts – yellow pages, advertising, equipment leases, etc. Page888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    •  Corporate Resolution – If your business is a corporation or LLC then proper document must be drafted, authorizing you to dispose of the corporate assets. VERY IMPORTANT – The list above is in absolutely no way complete. It simply represents “typical” documents and steps required to close. All business closings should be handled by a licensed professional only. The above list is provided for illustrative purposes only. Need help with the closing?Call us today at 888-693-7834 x-101 for assistance. Have a buyer? Unsure what to do? Need help withpreparing a purchase agreement or the closing?We can help you once you locate an interested buyer. We can also discuss your deal preliminarily and see ifit is appropriate for you to prepare a purchase agreement or conduct further negotiations with the buyer.Our rates – We generally charge 1% of the purchase price and can even structure our fee so it is only paid inthe event of a successful closing.Call us today at 888-693-7834 x-101 or send an email to jacob@morganandwestfield.com 36 Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Our ServicesBuyer pre-screening We pre-screen buyers for you, getting interested buyers to sign a customized electronic NDA for your business. Pre-screened buyers are then sent directly to you for approval. Rates are $49 per month.Complete business for sale by owner package Our complete business for sale by owner package includes almost everthing you need to sell your business on your own. Rates are from $500-800 for the complete package. Pre-Screening forms  Buyer inquiry email templates – We supply you with proven emails used to respond to buyer inquiries.  A teaser profile for your business – Typically 5 pages, this is sent to interested buyers along with your NDA. This increases the chance buyers will quickly respond.  NDA – We prepare a customized NDA for your business based on language we have successfully used for years. Business Summary and documents  Business Summary – We prepare a 12-20 page complete full color package on your business. Please contact us for a sample. We have been told by numerous buyers that ours is the best in the industry.  Seller’s Disclosure Statement – We provide you with this document which helps buyers feel comfortable that there are no undisclosed problems regarding the business. A mini version is incorporated into the Business Summary.  Equipment List – This document is a list of all of the assets included in the sale of the company. A mini version is incorporated into the Business Summary. Buyer pre-qualification forms  Buyer Profile/Questionnaire – This document asks the buyer important questions (bankruptcy, criminal history, previous business ownership, etc.). Having this in writing is very important.  Buyer Personal Financial Statement – Having the buyer put their financials in writing with a signature can put you at ease that the buyer has the funds and is qualified. Knowing up front that they are not qualified can save you countless wasted hours and thousands of dollars.  Buyer’s Disclosure Statement – This documents asks the buyer important legal 37 questions and gives them an opportunity to disclose post bankruptcies, licensing violations, arrests, etc. Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Offer to Purchase Forms  One Page Offer/Term Sheet – We supply you with a simple, fill in the blanks purchase agreement, that allows you to agree on terms with a buyer. After you come to agreement, we suggest you call us for assistance with due diligence and the closing. Benefits of our Complete Business for Sale by Owner Package 1. Increased chances of a successful sale – By following a formula we have successfully used for years, you will greatly increase the chances of a successful sale. 2. Decreased stress – Selling a business has been ranked as one of the top 5 most stressful events (after marriage, birth, divorce, and bankruptcy). Using our process minimizes this stress by streamlining and simplifying the process. We use this same process and spend less than 10 minutes per day pre-screening buyers for multiple businesses and giving them information on our businesses for sale (most of it is completely automated). 3. Impress buyers – By being prepared, buyers will see that you are serious about selling. They will also respect the fact that you are handling the sale professionally and will likely treat you with more respect in return. 4. Save time – Our buyer pre-screening process requires a minimum amount of time and will save you countless wasted hours with tire kickers or unqualified buyers. 5. Decreased litigation – By using a consistent process and documenting your representations, you may potentially minimize potential future litigation. Many lawsuits are “he said/she said” related and having a written document with your representations helps clarify these issues. The seller’s disclosure statement also gives you the opportunity to make any disclosures in writing up front. 6. Increased asking price – By clearly presenting your business in the best light possible and pointing out its highlights, you can increase the ultimate selling price of your business.Financial Statement recasting/normalization We recast/normalize 3 years of financial statements for you, providing them to you in both an Excel spreadsheet and PDF document that you can supply to buyers. A template is given to you for future adjustments. Rates are from $100-500. Please email 3 years Profit and Loss Statements to jacob@morganandwestfield.com for a quote.Assistance with closing 38 Call us today at 888-693-7834 x-101 for assistance. Have a buyer? Unsure what to do? Need help with preparing a purchase agreement or the closing? Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • We can help you once you locate an interested buyer. We can also discuss your deal preliminarily and see if it is appropriate for you to prepare a purchase agreement or conduct further negotiations with the buyer. Our rates – We generally charge 1% of the purchase price and can even structure our fee so it is only paid in the event of a successful closing. Call us today for a free deal review at 888-693-7834 x-101 or send an email to jacob@morganandwestfield.comDo you have additional questions? Do you have more questions? Email or call us anytime with your questions. You can reach us at 888.693.7834. Do you have comments on this package? Please let us know. We are always looking for ways to improve our processes and make the process simpler for you. 39 Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • The top 3 Tips for Successfully Selling your BusinessTIP #1 - HOW LONG WILL IT TAKE TO SELL MYBUSINESS I just put my business on the market. How long should it take to sell? Is this time period pretty accurate? Take this quick quiz: What is NOT black and white? A. A Zebra B. A Penguin C. A Nun D. A skunk E. A police car F. The answer to “how long will it take to sell my business?” The answer is F. Good job. How long after a girl and guy start dating do they get married? The answer obviously depends on several factors. Let’s explore those factors and see what you can do to speed up this process. What factors determine how long my business will take to sell?  Price of your business (if price is more attractive, it will sell faster)  Price of business (Lower priced businesses typically sell faster)  The industry your business is in and how popular it is  Whether or not you are offering seller financing  Where your business is located (businesses in large cities sometimes sell faster)  How and where you are advertising your business  How you are handling the sale process (the marketing material you have prepared, etc) Ok, now for the magic all shades of gray answer. On average, businesses sell in 6-9 months. Sometimes sooner, sometimes later, and sometimes not at all. It represents a “bell curve” with most sales taking from 3-12 months. Here are some points on how long each phase of the process takes:  Packaging and preparing the business for sale – 1 to 3 months  Marketing the business and finding a buyer 1 to 9+ months 40  Due Diligence – typically 1 month  Closing the transaction – typically 1 month Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • Now, in a good market and with a business that is priced fairly and no major roadblocks, the sale process should be from 5 to 9 months. Did you notice I said “no major roadblocks”? Unfortunately, nearly every deal I have been involved in had at least one major roadblock. Just assume this is going to be the case, and deal with it when it arises, and you will be fine. I don’t believe you. I think you are just scared to say how long it will take because you don’t want to be blamed if it doesn’t sell in the time you said it would. Ok, you got me, sorry. Your business will sell in 2 years. Are you happy now? Really though, selling a business is not an easy task. Because it is a very inefficient market (unlike residential real estate), it can be difficult to predict the time frame. This is mainly due to the confidentiality of the sale process and also due to the low level of cooperation among brokers. Buying a business is also an emotional process involving a complex decision making process that is highly unpredictable. Many sales also fall apart due to problems with the landlord or inaccurate financial statements. Why do you think brokers charge such high rates? It is because it is a lengthy and difficult process involving a lot of complicated steps. What can I do to sell my business faster?  Price your business fairly  Offer seller financing  Market your business for sale using the most effective media possible  Have a specific strategy for dealing with buyers, using an attractive marketing package  Market your business for sale in closest large metropolitan area This sucks, how can I deal with the stress of not knowing when it sell? You have two options. Weigh them closely and choose what you believe the best route to be. Option # 1 – Try alcohol, cocaine and marijuana on the weeknights to blunt your emotions and avoid facing reality. On the weekends, join a radical fascist group such as the “voluntary movement for extinction of mankind”, while simultaneously selling multi-level marketing to your closest friends and family to create additional “streams of wealth”. Option #2 – Accept the fact that you don’t know when it will sell and deal with it. Run the business as if you are NOT going to sell it. Go through the sale process and execute the necessary steps to sell your business while trying not to get too emotionally involved. Read this again twenty times, this is very, very important. I see many sellers have a mental breakdown after they get wrapped up with a buyer for 4 months, only to have it implode at the last minute.TIP #2 - IS BANK FINANCING AVAILABLE FOR MYBUSINESS? 70% of small business sales involve some form of seller financing. Less than 5 to 10% of business sales involve bank financing. Why is bank financing so hard to get? How do I know if my business 41 qualifies for bank financing? Page Why is bank financing so difficult to get for small business sales? 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • There is ONE main reason that bank financing is rarely involved in small business sales. Take a wild guess……………………………………………………………….. Small business owners hate paying income taxes and do everything they can to reduce their income taxes. They do this by either not reporting all the income or by deducting a lot of expenses to minimize the income. Banks have to follow guidelines and procedures. Banks have specific procedures when pre- qualifying a small business for a loan (acquisition). The first thing they request is the Federal Income Tax Returns for your business.Here is how their calculation works: (Example) Pre-Tax Net Profit from Tax Return: $22,000 PLUS: Interest: $6,000 Depreciation/Amortization: $5,000 Owner’s Salary: - $25,000 TOTAL INCOME AVAILABLE TO PAY DEBT SERVICE: $58,000 Less Debt Service (for bank loan) - $23,000 Less cushion on debt service (25% cushion) - $5,750 Income left over for buyer to live on ($29,250)This is a very typical example for most small businesses. The buyer must be able to live on theincome left over using the calculation above.Will lenders only look at my tax returns when considering my business for financing?Typically, yes. There are some exceptions such as for a medical practice, however, 90-95% of thetime the banker will primarily base their decision on your tax returns. If your tax returns do notshow enough profit to cover the debt service and enough for the buyer to live on, plus a cushion;then it is unlikely your business will qualify for a bank loan.Are there other financing sources available for buyers?Yes. Buyers can often access their retirement funds tax-free to buy a small business. Contact us fordetails on how to do this; this is very technical.Several years ago, it was very common for buyers to use their home equity for a down payment on a 42business. This is rarely the case today however. PageIs the buyer is a veteran, he/she may qualify for a VA Loan. 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • For additional information, feel free to call me at 888-693-7834 x-101. If you fax me your Federal Tax Returns, I can quickly look at them and determine if your business MAY qualify for bank financing.TIP #3 – THE TWO DEADLY DEAL KILLERS There are two deal killers that kill more than half of all deals. What are they and what can you do to fight them? Deadly deal killer # 1 – Throw away the abacus Throw out the abacus and start using QuickBooks. Keep your numbers clear and organized. The number one deal killer is poor financial statements. The answer is simple………….Make sure your financial statements are accurate and up to date. Be sure to have the necessary back-up material to support your financials (bank statements, receipts, invoices). If you are unsure if your financial statements are organized and ready for your sale, please contact me either via email or phone. We have an on-staff CPA that can review your financials in a matter of minutes. It is best if you have QuickBooks and he can remotely view your QuickBooks file. There is no charge for this and it could saves you months of dealing with a buyer only to have your financials kills the deal. Deadly deal killer #2 – The King of the Castle Hail to the King! Bless the King! Bow to the landlord and do as he/she says. Treat them with respect. Address them with “yes sir” and “no sir”. The landlord can kill the deal with a snap of the fingers so treat this relationship with finesse and tact. Treating them like a king or queen certainly won’t hurt. Follow these simple steps: 1. Let the landlord know early on in the process that you are selling 2. Ask the landlord what is important to them in terms of a new tenant 3. Position the new tenant to fit the landlords needs Well, that wraps it up. That was short and sweet. If you address those two issues, you will nearly double the chances of selling your business. 43 Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com
    • IN CONCLUSION Congratulations, you are now one step closer to the successful sale of your business. Are you confused where to start? Call us today at 888-693-7834. We can point you in the right direction and walk you through the entire process; all for very low cost. Call us today for a no cost review of your business. We will discuss several factors that are considered when determining how to properly advertise and market your business for sale. Every business should be handled slightly differently and with over twenty years of selling businesses, we can help you quickly determine the most cost effective way to sell your business. Call us today at 888.693.7834 x-101 or send an email to Jacob@morganandwestfield.comDo you have additional questions? Do you have more questions? Email or call us with your question. Do you have comments on this welcome package? Please let us know. We are always looking for ways to improve and make the process simpler for you. 44 Page 888-693-7834 | www.morganandwestfield.com | jacob@morganandwestfield.com