Andrew Rogerson's Blog, page 65

Due diligence items when selling a business

There are many critical stages when selling a business or buying a business.  As a business broker that specializes in the sale of a business or practice, I always put in a lot of time and effort to make sure that I can present the business/practice and the seller in the best light possible before marketing to attract buyer interest.  My view is that the higher the quality of the work I do upfront, the greater my chances of the seller and buyer achieving their ultimate goal which is to respectively sell their business and buy their business.

The result of this initial effort will or will not matter when the seller and the buyer get through the tough part of meeting and getting to know each other, negotiating the deal (which can be draining and demanding) but then have it all fall apart during due diligence generally because what the buyer thought they were buying is different to what they thought they had been told.  At the moment I am dealing with some buyers that wish to buy a Primary Care and Urgent Care clinic.  Their due diligence list has 182 items on it.  They want to know what they are buying and are leaving no room for error.



So let’s have a look at a few items that a seller may help during the due diligence phase of selling their business and achieve their ultimate goal to sell their business.  These are only a few items and by no means exhaustive.

Seller finance is involved in almost all transactions.

Seller finance is involved in almost all transactions.  A seller can protect themselves by:

Getting personal guarantees from the buyer
If the seller is going to allow seller finance and there is another primary source of finance such as an SBA loan, understand the seller will lose loan payment priority and have to subordinate to the other lender on security interests.  The bottom line – it may make better sense for the seller to carry more finance and eliminate the SBA loan.
If real estate is part of the transaction, ensure Deeds of Trust are executed correctly.

Earnouts

Earnouts fit some transactions while they don’t fit others.  An earnout where the buyer repays the seller from the ongoing operation of the business can be a win for the buyer and a win for the seller.

It generally comes into play when the seller believes the business will continue to grow even when there is a change of ownership to a new buyer.  However, a seller should keep the terms of the earnout simple to prevent buyer and seller arguing about what is and isn’t part of the earnout.
Also, the seller should protect their interest by defining how and when the buyer presents the financial statements or accounting so they don’t feel the buyer is manipulating the results to lower the payment of the earnout.
Make it clear that what happens if the buyer ‘gets an offer for the business they cannot refuse.’

Terminating employees

If the business has a number of employees and the seller wants to make sure they dot their i’s and cross their t’s, it can be a good investment to have an attorney that specializes in labor law make sure everything is being done correctly.

For example, make it crystal clear whether the employees are being terminated by the seller at the close of escrow and hired brand new by the buyer.
This includes whether or not any unpaid holiday pay goes directly to the employee from the seller or from the seller to the buyer who wants to keep that pay and use it as leverage to make sure the employee doesn’t request time off as soon as the buyer takes over the business and makes it harder for the buyer.
Worse still, the seller may think he’s sold the business and moved on to bigger and better things but now finds they are dealing with a law suit.  This is because an employee doesn’t like their new owner and the new owner certainly doesn’t like the employee and so they were terminated only to find the sellers been caught in a wrongful termination law suit that the buyer set in motion and the employee figures they may as well drag in the seller as he has plenty of money from just selling his business.

Disclose, disclose, disclose.

My favorite safety net for a seller is to disclose, disclose and disclose.  It’s pretty hard for a buyer to with-hold money or sue for money by saying something happened or didn’t happen the seller said or agreed on when the buyer was fully informed.

Non-compete agreements

Most attorneys will advise that non-compete agreements restricting an employee to do or not to do anything in California is not good business.

Buyers and sellers typically come to an agreement on some non-competes include a geography that the seller agrees not to do any business but keep all non-compete agreements very simple.  I’ve seen deals fall apart where the ONLY thing the seller and buyer cannot come to an agreement about is a non-compete.

Making a deal to sell a business and/or buy a business is very hard without a third party to provide some objectivity in the deal.  Being a business broker and being active in the deal making is the hardest part of the transaction.  The next hardest part is making sure each party is able to deliver on their agreements.  It is very common for a deal to implode because the two parties are locked over “one last thing.”  Often that “one last thing” is simply a culmination of the seller thinking he’s given up too much and the buyer thinking exactly the same thing.  The best recourse is to pull back from the negotiations and then try again.  However, it’s during due diligence when the deal will make or break as both sides need to allow the other party to check and verify their representations.

If you would like more information about selling your business please visit my webpage Sell a business; or buy a copy of my book Successfully sell your business.  If you would like more immediate help with selling your business you are welcome to send an email to Andrew Rogerson; or give me a call on 916 570-2674.

SBA loan updates and changes from October, 2013

SBA loans have become a critical source of finance when a seller wants to sell their business and a buyer wants to buy a business. The SBA or Small Business Administration is a federal government initiative and since the Great Financial Recession has been the primary source of third party finance allowing businesses to be bought and sold.

Just like all things, the program is constantly evolving and changing. Here’s an update on a lot of those changes so you can include them in your thinking if you want to sell your business or are looking to buy an existing business. The SBA program also allows those that wish to buy a brand new franchise qualify for a loan if the franchise meets certain criteria. If a franchise is on your buying list, give me a call on (916) 570-2674 so I can help you find the right franchise with the right finance option.



So what are the ‘new’ changes that you would want to know if SBA finance is part of your deal or answers to some common questions that borrowers like to ask.

A common question asked is – Can I get an SBA loan to buy less than 100% of the business? The answer is no – the buyer must acquire 100% of the business. Buying say 50% equity in the business is not an option.
A buyer must have ‘skin in the game’ with some cash as their downpayment. The cash can be in a 401k or IRA plan and follow the rules for using this money.
The borrower should show they have a downpayment early in the process or the SBA lender will not invest time processing their loan.
The borrower also needs to have cash available to show they have enough working capital for both the business and to live on personally for a period of time while the cash flow from the business kicks in.
Some seller finance is becoming the new norm with SBA loans. Seller finance often means the seller’s note is on full standby for 2 years. Full standby means the buyer doesn’t need to start making any payments on the sellers note include principal and interest for two years as the SBA lender wants the buyer to learn and operate the business as strongly as possible. I just closed a deal in July where the buyer brought a downpayment of 15% and the seller had to carry finance of 25% with the SBA lender contributing 60%. This transaction took about 7 months to close because the SBA loan process was so difficult; but that’s another story.
Sellers should be willing to provide strong training to pass the business on to the buyer. The arithmetic is simple – Good seller training = increased buyers chances of success. If the business is a franchise then less seller training is OK because the franchisor should be providing ongoing training. Also, the SBA will not allow the seller to remain as an officer, director, stockholder or key employee of the business.
SBA lenders don’t like a lot of an intangible asset in the transaction called goodwill. Sellers expect to see a lot of goodwill in a transaction because they think their business does exceptionally well and they there want to be rewarded when they sell. If the purchase price includes goodwill that’s in excess of $500,000 the SBA lender will want to see a minimum cash injection of at least 25% of the purchase price.
A third party certified business valuation from an accredited appraiser to confirm the valuation of a business being acquired by the borrower has been an SBA requirement. The rules have now been relaxed a little if the amount being financed is $250,000 or less as the lender can now perform their own internal valuation of the business saving both time and the borrower some money as they paid for the third party appraisal. The requirements come with a few rules and these are as follows. The lender can perform its own internal valuation if the amount to be financed to buy the business is less than $250,000 and this is calculated by SBA loan plus seller not) minus the appraised value of any real estate and/or equipment.
If a buyer wants to apply for an SBA loan, at a minimum they will require:

Credit History
Experience
Liquidity/Down Payment
Collateral


A buyer’s credit history remains a key factor when approving an SBA loan. If an SBA lender has no previous lending history with the buyer and they have numerous charge-offs and past dues it will be difficult for the lender to provide finance.
The borrowers work experience is often subjective but common criteria to make that evaluation include:

Does the buyer currently own a business?
Has the buyer owned a business in the past?
Does the buyer have experience in the industry they are buying the business as an employee in a similar business?
Will the borrower get sufficient seller training to allow them to be successful.


Liquidity and downpayment are critical from two perspectives. First, for a lender to approve an SBA loan they need to see the borrower has sufficient cash not only for the down payment but secondly, they also have sufficient cash reserves for the business operations plus their personal obligations. This is part of the reason you’ve heard the expression – cash flow is king.
An SBA loan provides the lender with a security in the loan to about 75% of its value with the guarantee of the full faith and credit of the US taxpayer. To make sure the SBA helps manage that risk properly, the SBA requires that all available collateral from the buyer be pledged to collateralize the loan. If the buyer pledges all available collateral but it is still not sufficient to “fully secure” the SBA loan, it is then up to each lender to decide if they have sufficient collateral for the request.

If you would like more information about selling a business, buying a business, buying a franchise or a related service such as valuing a business, please visit my webpage Services and choose from the drop down menu the information you would like.  If you would like more immediate help, you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

How to prevent fraud from damaging your business

How to prevent fraud from damaging your business? Fraud costs many businesses more than it should, can threaten the very survival of the business and ties up its owner in emotional knots. Mike Ueltzen is a partner in the firm he founded some 16 years ago called Ueltzen and Co. The practice has three main areas of expertise and these are forensic accounting, economic damages, business valuation and tax & accounting.

Although Mike is a partner in Ueltzen and Company; which has a firm of 20 members that specialize in the above areas, he was recently a guest on my radio show when we had a conversation about his area of expertise which is forensic accounting.

If you own a business and have lost money fraudulently or own a business and are worried what to look for and how to protect your business, listening to my conversation with Mike as it will be invaluable to you. Some of the topics we covered in my conversation include:

Is there a typical profile of an employee to watch for that a business owner should be more aware?
Does fraud happen at all size companies or more prevalent in the middle to larger size companies?
Are certain types of business more prone to fraud?
What are some of the methods a fraudster uses?
If you were hired by a client, where would you be spending your time and focus?
Is a fraud typically a one off event or does it occur over a period of time?
Do fraudsters tend to work on their own or do they have an accomplice?
How and what does a company do to uncover a fraud?
How do employers typically respond when the find out a fraud has been committed?
Is there such a thing as a typical amount a fraud costs a business?
Do you help companies set up or create fraud prevention strategies?
What are some of the simple steps you can take to prevent fraud prevention?

To help but my conversation together with Mike, he sent me a 45 page PowerPoint presentation he has put together for his clients that is chock full of information and tips. If you would like to view a PDF version of Mike’s presentation simply click this link Fraud prevention suggestions from Mike Ueltzen.

If you would like to hear my conversation with Mike Ueltzen, you are welcome to listen by clicking on the following link – Mike Ueltzen and Bret Rossi. Mike was the first guest for the show and so my conversation with him starts about 3 minutes into the recording.

If you would like more information about selling a business, buying a business, buying a franchise or a related service such as valuing a business, please visit my webpage Services and choose from the drop down menu the information you would like. If you would like more immediate help, you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

Free business information from Money 2.0 with Andrew Rogerson

Free business information from Money 2.0 with Andrew Rogerson continues the weekly radio show I’ve been doing on 105.5FM called Money 2.0. The final show came to a wrap with the last show on September 24. It’s been an absolute blast putting the show together and interviewing over 50 experts in their fields over the last 8 months or so.

My guests for September continued to cover the diverse range of topics I’ve focused on all of which at their core were around selling a business, buying a business or buying a franchise and owning and operating a business. Each show is recorded and available to listen on my website which you can get to by clicking the following link: Money 2.0 with Andrew Rogerson.

My guests for September and the topic of my conversation includes the following:

Marketing, advertising and PR can be a challenge for a lot of business owners. Reg Carter is a marketing junkie that uses his skills to help his customers grow and strengthen their business. He’s also the senior partner with Carter/Sartain. My conversation with Reg was around the approach he brings to a successful marketing campaign, how to determine the right marketing mix. We also talked about some of the successful marketing campaigns he’s put together, if social media is a good option for all businesses and more.

Business valuations can be confusing as there is different logic to different types of valuations for different industries. Terry Flanagan is the owner of Circumference Valuations and is a certified appraiser or Accredited Valuation Analyst (AVA) through NACVA with an area of specialization in medical practice valuations. My conversation with Terry covered the different types of valuation and how these are influenced by the reason for the valuation, what goes into putting a valuation together and more.
Forensic accounting is an area that touches many businesses only when they are mired deep in a problem. There are steps business owners can take to prevent it being a problem in the first place. Mike Ueltzen is a partner in the accounting firm he started called Ueltzen and Co. located in Sacramento, CA. The practice specializes in tax and accounting, business valuation, economic damages plus Mike’s area of expertise which is forensic accounting. It was fascinating to talk with Mike as he spoke about theft and fraud and the different lengths people will go to take money from a business that doesn’t belong to them. Related topics we spoke about include what personality traits and behaviors to watch from those that will perpetrate a fraud and most important of all, what steps a business owner can take to reduce the chances of a fraud…and again, the good news is that there are proactive steps a business owner can take.
Bankruptcy has been all too common for too many during the recession whether it be a bankruptcy for a personal and/or business need. Bret Rossi is an attorney and is also a Certified Specialist in bankruptcy. As you can guess, Bret specializes in the legal area of bankruptcy for both individuals and businesses. My conversation with Bret includes the different chapters of bankruptcy available be they Chapter 7, 11, 12, 13 or now a new one called Chapter 9 and how best to approach bankruptcy if you feel this is an option you want to follow. In addition, Bret and I spoke about what causes someone to have to file for bankruptcy in the first place and what they can do to avoid it.
Mergers and Acquisitions come into play when a larger business owner has come to the decision it’s time for them to exit their business and they would like to sell it for the highest price possible. The normal market segments for a businesses are Main Street with annual sales up to about $10,000,000 and then middle market businesses. Once a business has an annual net income of at least $1 million and the owner wants to sell their business they normally want the help of an expert such as Ney Grant who works at Woodbridge International. It’s a different world with the types of buyer that would be eligible and the fact they could be an international company, the finance needs, the selling process that uses an approach more like an auction and so Ney and I spoke about the skills and processes he follows when selling a business with an annual net income of $1 million or more.
Correctly compiling and then interpreting the internal financial statements of a company with his CPA training has been the work Mark Denning has done in the capacity of a CFO or Chief Financial Officer for most of his working life. The financial statements of a business condense the management, operations, sales and marketing, finance, technology and its other aspects into a set of numbers that show the performance of a business that tell a story. Taking the skills and experiences Mark’s learned in ‘the driver’s seat’ as a CFO, he now owns and operates his own business with its core focus of setting the financial direction and tone of a business. To help communicate what Mark has learned and how he can help a business he’s written a book called ‘Drive your business to financial success.’ Mark and I had an intriguing conversation around his analogy of using financial statements and the data it presents to being similar to driving a car and using the rear view mirror, the dashboard and more importantly, looking through the windshield to drive the business in the right direction to success based on the financial numbers.
Angel Investing is not something many entrepreneurs know about or are too sure how it works. However, Graeme Plant knows the Angel Investing industry and spoke with me about Angel Investing, how it works, who uses it and why and more. Angel Investing is a great option for the right business owner that wants to grow their business fast. Graeme also works at Woodbridge International and like Ney Grant, has been around business acquisitions and specializes in Mergers and Acquisitions.
Taxes or paying too much tax is probably the least favorite thing a business owner likes to do. Donna Sauter has a Masters in Taxation and works at Ueltzen and Co where the focus of her work heading up the tax department is advising business owners what they can do to eliminate or lower their taxes. Donna and I spoke in detail about the mistakes she sees business owners making so if you would like some free suggestions on steps you can take to lower the amount of taxes you pay, listen to my conversation with Donna.

The conversation with the eight guests above is available to listen to on my website. Each guest talks about their area of expertise and so provides great knowledge and information; all for free. If you would like to hear my conversation, simply click the following link and it will take you to the page on my website where the recording is available and ready to go: Money 2.0 with Andrew Rogerson.

Are you looking for an SBA loan?

Are you looking for an SBA loan but not sure which banks to approach? For business buyers who want third party finance to buy a business, an SBA loan is probably the second and only place to start. The first place is family and friends and if you have unsuccessfully tried that option you are probably looking for a good SBA lender.

The SBA lenders are approving loans. The loans are not approved quickly and easily and this is for many reasons. I recently spoke to an SBA lender and he advised that for every 12 applications he receives he’ll approve one loan.

Why is it so difficult? The reasons are many. Here are a few.

Different lenders have different interests in different industries. Some lenders do not like lending for a buyer to buy a restaurant, gas station or the construction industry to give a few examples. The reasons include they may have approved loans previously and had bad loan default experiences.
The credit score or credit report of many lenders has been damaged recently due to the recession. A default on re-paying a home loan that had a tax payer guarantee will preclude a buyer from getting an SBA loan as the SBA loan is also taxpayer guaranteed and by law an SBA lender cannot ask the taxpayer to take a loan risk on the same person twice.
I recently closed an SBA loan that took about 6 months to approve. One of the borrowers had a criminal conviction from their earlier years and this required a special review and then final approval from the SBA in Washington, DC.
As a result of the collapse of the bank system in 2008 there is a raft of new bank regulations. The FDIC, SBA and other regulators are much more aggressive with their review of a bank and any underperforming loans they may experience. The regulators are tougher and as a result, the banks are slower and more cautious approving loans as they do not want to draw attention to themselves.
This tougher approach of the regulators has put more banks and in particular their underwriter under pressure. If an underwriter is concerned they may get it wrong it’s just easier to decline the loan.

If you are looking for an SBA loan and want to know which banks are lending, the following link will take you to a report from the SBA Regional Office in Citrus Heights – SBA loan by bank for 2013.

Bear in mind there is a 7(A) loan to buy a business and 504 loan to buy real estate. 7(A) loans for a business are harder and may require bank shopping to see if you can get approval. If you are looking for a 504 loan, the following link will take you to a report from the SBA Regional Office in Citrus Heights – 504 SBA loans by bank for 2013.

If you would like more information about selling a business, buying a business, buying a franchise or a related service such as valuing a business, please visit my webpage Services and choose from the drop down menu the information you would like. If you would like more immediate help, you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

Is an AAMCO franchise right for you?

AAMCO Transmissions and Total Car Care is recognized as one of if not the leader in the transmission business. It may have something to do with the fact they have been doing it for over 50 years and operate about 875 facilities in North America.

The general automotive repair aftermarket business is about $200 billion. The auto industry is now in full recovery mode after almost collapsing in 2009 and 2010 when GM and Chevrolet virtually closed their doors and filed for bankruptcy. To be successful in this competitive industry you need a recognized brand that provides customer loyalty and recognition and this is where AAMCO franchise comes in.

Would you like to own your own business in the auto industry and want to partner with a dominant market player to increase your chances of success?



If an AAMCO franchise is of interest to you, here’s some additional information for you.

AAMCO franchise enjoys number one status in the transmission niche of the automotive aftermarket industry.
A little over five years ago they expanded to include TOTAL CAR CARE not only covers the transmission but also every aspect of repairs to a car which includes the AAMCO franchise national repair warranty
The expectation is the market will continue to grow by $5 Billion per year
The number of cars has increased from 256 million light vehicles in 2010 to 267 million light vehicles in 2012
The average age of cars continues to increase from 9.9 years in 2008, 10.1 in 2010, to 10.4 years in 2012
The number of bays to service vehicles in the US has dropped by over 50,000 between 1999 and 2009, resulting in an average of 216 cars per bay per year in 2010, and expected to climb to 226 cars per bay in 2012 while the average AAMCO center has 6 bays
The AAMCO franchise model is a 5 ½ day work week making for a great work/life balance.
In addition to offering a comprehensive 3 week owner’s training school at our Franchise Support Center, AAMCO offers a 5 week Grand Opening development program where we put a seasoned AAMCO employee in the new AAMCO center for on the job training and business development startup.
Benefits of the AAMCO franchise concept include:

Low inventory levels
Growing consumer demand
Few employees to supervise
Excellent training
Strong support system
Recruiting support
Franchisee manages a staff of 3 – 5 employees

To be an ideal candidate for an AAMCO franchise, the applicant would need to bring:

High integrity
Strong business acumen
Desire to be actively involved in managing the business
Committed and passionate about the brand
Good background check and strong credit rating
Minimum net worth of $250,000
Minimum unencumbered cash of $65,000 (approximately 30% of total investment)
Demonstrated ability to manage/supervise employees
Strong communication skills
Documented success in work history
Cannot own or operate other direct or indirect competitive businesses

Total investment in an AAMCO franchise

The total investment range, excluding real estate is between $232,000 and $299,000

Is an AAMCO franchise right for you?

If you would like more information about buying a franchise please visit my webpage Buy a franchise or buy a copy of my book Successfully buy your franchise. If you would like more immediate help with buying a franchise you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

How the founders of Ulink Network started their business

How to start a business with the founders of Ulink Network. Starting a business is never easy. In 2008 the Great Financial Recession hit the US economy with full force and not only took down Wall Street and Main Street but like a tsunami, flowed around the world. It’s only some five years later that the memory of this 75 year event is now starting to fade as the economy continues to grow and get stronger.

If you therefore go back to 2010, no right thinking person would be thinking about starting a new business. However, that wasn’t the case with two entrepreneurs who decided to come together and start a brand new business which they called Ulink Network. These two entrepreneurs were Jim Pelley and Adam Frick. If you’ve met Jim you’ll know he has a sense of humor which he no doubt needed starting his new venture. If you haven’t met Jim he definitely has a sense of humor because in an earlier life he was a writer for Saturday Night Live. As for his partner, Adam Frick, who knows what he was thinking as at the time he was the one that was supposed to have the common sense of the two. Regardless, they both made a decision to start a new business and obviously the words ‘no’ or ‘fear’ or ‘uncertain’ were not part of their vocabulary.

As a result of knowing no fear or lacking the ability to distinguish between success and failure, they agreed to start their new business with its core focus of helping business owners come together and not only network but network so much more strongly. The name of their company is appropriately called Ulink Network and as they like to say, Welcome to 21st Century Networking.

Jim and Adam were guests on my radio show on 105.5FM and Money 2.0 on May 07, 2013, and we had a conversation about starting a new business including the vision, work and effort it takes. To stand out from their competition and therefore attract new members, Jim and Adam decided to create some differences and highlight these in their marketing. One of the major differentiators they came up with is using technology or an app on each member’s cell phone. The app on the member’s cell phone allows them to send, in real time, a referral to a member when they come across someone they meet that needs help or a service from another member of Ulink Network.

Not only does the app allow members to send a referral but it also means each member carries the name and contact for all the members of not only those in their Chapter but the entire Ulink Network membership. This allows them to find a person that provides a service they need or if they aren’t sure if the member is the right option for them, to call someone that knows that person and get some feedback. The technology Ulink Network uses includes QR codes to easily scan and get information about the members they meet; no more need for the old fashioned business card.

My conversation with Jim and Adam was around starting a business. If you would like to hear my interview with Jim and Adam, please click the following link Jim Pelley and Adam Frick from Ulink Network. Jim and Adam were the first guests for the show and my conversation with them starts about 4 minutes into the show.

Health insurance changes for business owners with Kevin Knauss

Health insurance changes for business owners with Kevin Knauss is a conversation about changes to health insurance as part of the Affordable Healthcare Act.

Health insurance is in turmoil with the rolling out of the Affordable Healthcare Act or often referred to as Obamacare. Kevin Knauss is a Health Insurance Agent and obviously specializes in the health insurance market, what’s happening to insurance rates and policies and how this will affect families and small businesses.

As a guest on my radio show on 105.5FM and Money 2.0, Kevin and I spoke for the full show on what’s happening to health insurance at a national, state and local level. In addition, Kevin and I covered a number of topics. These topics include the following:

Will the changes mainly affect individuals & families or businesses or both?
California is one of the States leading a lot of change and they are implementing a way for people to get health insurance quotes. What are some of the changes you see flowing from this?
What is the role of the new exchange and how will it operate in California?
Will the changes affect the Sacramento health insurance market?
What types of cover will it offer? Medical and Hospital only or other products?
When will the exchange be in operation?
How will the exchange work?
Does the exchange eliminate the need for health insurance agents?
Health insurance seems complicated. Can you explain what copays, contributions and deductibles mean?

During my conversation with Kevin I also asked him to focus on how these changes will affect small businesses. Topics that were part of our conversation were:

If I own a business in California, will it be mandatory to offer health insurance to my employees?
Are there penalties if I don’t offer health insurance and I own a business?
Does it matter the size of my business or company?
What is a small Group Health Insurance Plan?
What health insurance packages should I offer my employees?

Vision
Dental
Hospital


Does the Federal or State government offer any incentive to offer health insurance to their employees?

If you would like to hear my conversation with Kevin, you are welcome to listen by clicking on the following link Kevin Knauss.

Ready to sell your business but it’s not ready?

Ready to sell your business but it’s not ready? Last week I spoke to a business owner about selling her business and it’s typical of many calls I am now getting from business owners. They are ready to sell their business but they don’t think the business is ready. Some still want to sell and some want the business to be doing better. So how do you decide?

Selling a business and indeed buying a business is difficult for both parties. This recession has been long and deep and as a result the recovery is slower than normal. In spite of this, life continues to happen. Business owners continue to have health issues that affect their enthusiasm to own and operate their business.  In the example in my first paragraph above the business owner that I spoke with was the wife of the original business owner who had died about 18 months ago. The business was continuing to perform well but as she said, “I have zero interest in running and operating the business.”

So at its simplest level, many business owners are ready to sell their business because of what happens with life, that is, health issues, divorce, death and just plain burnout. What seems to characterize most of the calls I receive is the lack of enthusiasm the business owners have to run their business and equally, the lack of enthusiasm to make a decision and at least head in one direction as opposed to doing nothing and as a result, head in no direction at all or simply drift.



A business is a living and breathing entity. It requires sustenance, nurturing and hard work or it will wither and die. If you own a business and see yourself in this situation how do you decide next steps? Here are some suggestions.

In a normal market a seller expects:

All Cash
One Week of Transition
One Day Due Diligence
Quick Close of Escrow in 2 Weeks
Buyer takes over liabilities and building
Sells at 1X Gross Revenues

In a normal market a buyer expects:

No Money Down
4 Months Transition, Free of Charge
8 Weeks of Due Diligence
Interview the Clients and Employees before agreeing on the Terms
Purchase based upon periodic payments
A percentage of retained revenues

Where they end up meeting in the current economy:

Some buyer cash (For example, 3 to 4% of Gross Revenue or $60,000 to $80,000)
For smaller transactions it could be as little as $15,000
Transition terms that both seller and buyer negotiate strongly but in the end allow a deal to get done.
May include an employment agreement for the seller.
The Fixtures, Furniture and Equipment may be optional depending on its age. (If the buyer comes from the same industry he may already have what they need.)
Two weeks of Due Diligence for the buyer.
Another 15 to 60 Days to navigate and close escrow.
Seller finance payments to the owner based on a percentage of Gross Revenues

One of the biggest challenges I still see sellers creating for themselves is not clearly presenting their business for sale with the necessary documents and being clear what is for sale. Almost without exception, buyers are worried about making a mistake and being caught and losing their money. If a buyer does not feel comfortable with the transaction they can take the easiest option which is to simply do nothing and put their dream of business ownership on hold for the moment.

Selling a business involves many steps. Buying a business involves many steps. Having a professional business broker that just specializes in business transaction increases the chances of success. Sellers should be clear and comfortable about getting what’s important to them and buyers should do the same. If there is a willingness to create a win for the seller and a win for the buyer then the chances are high. I continue to close transactions because I help each party work out what’s important to them.

If you would like more information about selling your business please visit my webpage Sell a business or buy a copy of my book Successfully sell your business. If you would like more immediate help with selling your business you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.

What is bulk sale when selling or buying a business?

The bulk sale process applies when a business is being sold and the assets move from the owner or seller to a new owner or buyer. In California, the sale of a business from one party to another is considered a personal property transfer or transaction. This type of transaction is governed or proceeds if it is a general business under the Uniform Commercial Code of California or UCC or if the business being sold includes the transfer of a liquor license under the Business and Professions Code or B & P with the Department of Alcoholic Beverage Control.

Although the UCC is not a federal law it applies in different ways in each state and each state government has their own interpretations and requirements.

A key requirement of these codes is that all monies in a bulk sale including sales price and inventory must be transferred through an escrow process and additionally, no funds or money can be released to the seller prior to the close of escrow.



Some other points to note include:

The bulk sale process in California applies when a business proposes to sell more than half of its inventory and equipment.
Notification to the market takes place through a record of notice at the county recorders office where the assets are located.

For example, if the business being sold is located in Sacramento County then that’s the county where the recording is made with the county recorder.
In addition, as well as notifying the county recorder, a notice must be published once in a newspaper with general circulation where the assets are sold.
The law requires these notifications to be made a minimum number of days before the close of escrow. The amount of time varies with each county but can range from 12 business days to 20 or more. The key word here is business days. If you want to close an escrow by say December 31 and the recording or notification is not thought of until December 19 or later then the escrow won’t close until the next year as public holidays such as Christmas Day and New Year’s Day will prevent this happening.

At a simple level, the bulk sale process is primarily designed to protect the creditors who are owed money for inventory or equipment. For example, if a photocopier company sold a new machine to a business and the purchase is being financed by a bank or third party lender, the lender obviously wants to be paid and receive notification if the owner of the equipment decides to sell the business. Similarly, if a manufacturer sells a bunch of parts or goods to a retail business so they can sell to their customers, the manufacturer wants to know if the business is about to change hands.

The escrow process also offers a buyer of a business some protection. Their protection comes in that any deposit or earnest money deposit should not go directly to the seller but to a third party or escrow company who holds all the money until all the contingencies and third party actions are complete so the business and its assets can safely move from the seller to the buyer. In a business transaction there can be third party actions from a landlord if a lease is involved, a lender such as a bank if an SBA loan is part of the transaction, clearance from the franchisor if the business is a franchise, approval of the buyer for any special type of license or permit if the business and therefore the buyer requires it and more.

Often a seller feels disadvantaged that they can’t get access to any money until the escrow process concludes. This makes perfect sense but if the buyer cannot get one or more important contingency, condition or requirement removed, the buyer could waste a lot of time waiting for the issue to resolve or more frustratingly, it may never resolve reducing the income or gross sales the business was able to generate under the new ownership of the buyer.

Just as the buyer gets this bulk sale protection, a place where I see anxious sellers trying to encourage a buyer to buy the business is by allowing them to work in the business before escrow closes. I don’t know how often this happens but I do know it happens too many times where the seller agrees to let the buyer ‘test drive” the business by working in it for a month or week prior to close of escrow and then the buyer uses a clause in their purchase to say they can no longer get an approval they were sure they had and can therefore no longer buy the business. Allowing the buyer to work in the business before escrow closes is called allowing early possession. If you own a business and the buyer asks if they can do this I would every time say no, that this is not an option. The reason you say no is that there are too many ways it can have a negative impact on the business. If the buyer starts working in the business the employees will find out, customers will now know, suppliers will hear and so the list goes on. Any of these events and more could create a follow on situation that distracts the seller whose primary focus should be to run the business in the same way as it has been run.

If you would like more information about buying a business please visit my webpage Buy a business or buy a copy of my book Successfully buy your business. If you would like more immediate help with buying a business you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.