FREQUENTLY ASKED QUESTIONS
Q: How long will it take?
On average, it takes me about 9 months to sell a business. Once a business is priced correctly, then I can usually get it under offer in 6 months with an additional 60-90 days required for due diligence, financing, legal documentation, and closing. My fastest record is getting a business under signed offer in 11 days ..... however, that was incredibly rare. Conversely, one listing I had (which was priced right and marketed thoroughly) unfortunately took me just over 21 months to close. During our initial free consultation call, I should be able to give you an estimated timeline based on your business model and financials.
Q: When is the best time?
There is no seasonality to selling a business. Buyers are looking for good businesses every month in the year. Because the sales process typically takes 9 months, there is no advantage to waiting until your fiscal yearend or any other time in your particular business cycle. The biggest factor regarding sale price, is to sell your business when revenue is increasing, and not waiting for revenues to dip and then trying to sell..... so in that regard, the best time to sell your business is when revenue is increasing. However, stable revenues and small revenue declines won't affect the timeline.
Q: What is my business worth?
Businesses sell for a multiple (eg. 3x) of Seller's Discretionary Earnings ("SDE"). SDE is calculated by adding the owner's (or shareholders') wages and benefits to the EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization). If the owner (or shareholders) are working in an operational role in the company, then there will be an adjustment for a Fair Market Salary for any such individuals. Once the adjusted SDE is calculated, then that figure is multiplied by the correct "multiple" for that business. Your business' multiple will be calculated during the valuation stage. Some businesses go for as low as a 1x multiple, and other businesses can go for a 5x multiple, or higher if there are certain elements present. During the initial free consultation phone call, I will be able to discuss the factors that increase or decrease your specific business.
Q: What factors determine business value?
The single biggest factor that contributes to a high multiple is: Growing revenue year-over-year for multiple years. Buyers ideally want a business with growing revenues. The profit as a percentage of revenue is also a key factor (eg. A business with a 20% profit margin will typically sell for a higher multiple than a business with a 10% profit margin). Industry factors, and the forecasted growth or decline in a specific industry, are a substantial factor in determining a business' multiple. Customer concentration is a key factor (eg. If more than 15% of your annual revenue comes from any one single customer, then that can negatively affect the overall multiple your business will sell for). Personnel matters is a huge factor in many business' multiple calculations (eg. If your management team has all been there for 10 years and they are wanting to stay, then that is highly appealing to buyers, and will increase the business' multiple). And most importantly is the banks' appetites for lending to various business models in various industries. I get every new listing pre-financed so that we know how much money the lenders will likely lend an approved buyer, and that will be a determining factor in your business' multiple. There are about a dozen other key factors which we will examine throughout the valuation process.
Q: Who will buy my business?
Most of the time the buyer of your business is going to be an entrepreneur who has at least some experience in your industry, who finds my advertisements online. They may be an immigrant to the country, however, typically they have been living here for a number of years. I have a large database of private equity buyers, however they typically only entertain business opportunities with $500K+ EBITDA. So if your business matches their criteria, then I will explain our best approach. I have a large database of overseas buyers and immigration consultants, however there is strict criteria for business visas, which we can discuss at our initial consultation call. And we can absolutely market your business to competitors, however that strategy often yields below-market offers. The person who buys your business is most likely to be a typical businessperson or small group of investors.
Q: What are the pitfalls?
The only thing I can guarantee you, is that it won't all go according to plan! If things go smoothly at your business operationally, then we have a good chance of a smooth sales process. However a number of things can cause huge delays or rescinded offers, such as one of your key employees leaving, a significant drop in revenue, the loss of a major vendor or supplier, the surge in significance of a key competitor, the loss of a major customer, a new government regulation, a number of lease-related issues that can sideswipe our process, or heaven forbid a global pandemic.
Q: What is Vendor Take Back?
Vendor Take Back ("VTB") is the legal term for seller-financing. Most lenders will require that the seller finances at least 10% of the purchase price of the business for a period of 5 years. Some lenders may require as high as 25% VTB. This amount is securitized and earns you interest. The terms of the VTB will be negotiated at the Letter of Intent stage, but will mostly be determined by the lender when I get the business pre-financed. The lenders essentially say that if you are not willing to finance at least 10-25% of the deal, then they are not willing to finance 50-65% of the deal. The buyer will typically have to pay 15-35% of the purchase price as a down payment. Often sellers will tell me that they are not willing to offer any VTB, in which case the valuation will be significantly lower, as all-cash buyers will almost certainly be our lowest offers.
Q: How long am I expected to stay involved after the sale?
This is something that will be negotiated at the Letter of Intent stage. Typically, I tell most clients to plan on staying on after the sale for 2 months in a full-time capacity, which will be included in the sale price. In some scenarios (eg. most franchises) the seller can move on after just one month. However in some scenarios, the seller will be required to stay in a transitional role for up to 3-6 months. It entirely depends on the specific nature or your business and the experience of the buyer. Periodically, the buyer will hire the seller to work for one or two years after the sale. All of these terms will be determined based on what is required to properly train the new owner. The buyer has to trust that you will stay committed to their success after the sale, or they are not likely to consummate the transaction. This relationship is very important.
Q: What about confidentiality?
When I market your business, I will do it anonymously. The advertisements may be somewhat descriptive of the business but vague on the location. Or we may be specific on the location but vague on the industry. You will approve the ads before I place them, and generally they will be written in a way that even if your employees saw the ad, they would not know it is your business. Then once a lead expresses interest, I will immediately send them a Non-Disclosure Agreement ("NDA") which is a legally-binding document for them to sign - stating they will adhere to the outlined confidentiality requirements. No prospective buyer will be disclosed any information about your business until I have a signed NDA from them. I will do absolutely everything I can to protect your confidentiality, but I obviously can not guarantee such. In the 100+ businesses I have sold, I have only had a couple instances where employees or competitors found out that the business was for sale.
Q: What are the legal factors?
The legal (and financial) consequences of your sale will be dramatically different if we structure your sale as an Asset Purchase Agreement ("APA") or as a Share Purchase Agreement ("SPA"). There are advantages and disadvantages to both structures, which we can discuss during our initial free consultation call. There a number of factors in your corporate structure and accounting history that will determine the best legal path for your sale. I will manage every single aspect of the transaction all the way through the legal documentation.