Selling a California Business in the New Economy
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About this ebook
At this challenging time in California’s business for sale marketplace, it’s important that owners who want to sell: 1). have the most up-to-date information needed to prepare a company for sale, 2.) use the most effective methods to find the right buyer, 3). negotiate the best possible deal, and 4). make sure the transaction doesn’t get derailed prior to close of escrow. Today’s market is impacted by record numbers of businesses coming up for sale as Baby Boomer owners prepare to retire, and by the New Economy emerging from the Great Recession—a New Economy that requires owners to adapt to new strategies if they want their business sale campaigns to succeed. With the ideas and information found in Selling a California Business in the New Economy, sellers can proceed confidently into this difficult market, equipped to get what they need from what is likely one of the most important sales of their lives.
Peter Siegel, MBA
Peter Siegel, MBA, is the Founder and President of BizBen.com, niche online community serving buyers and sellers of small businesses throughout the California market since 1994. In addition to his syndicated blog posts and articles about all aspects of buying, selling and financing the purchase of small and mid-sized businesses, Siegel has authored seven books on these subjects. Through his frequent writings, online webinars and ongoing consulting practice, Siegel provides assistance for thousands of entrepreneurs and professionals involved in California’s business for sale marketplace.
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Selling a California Business in the New Economy - Peter Siegel, MBA
Selling a California Business
In The New Economy
(Fresh strategies to successfully sell companies, business
opportunities and franchises in California’s dramatically
changed small business-for-sale marketplace)
By
Peter Siegel, MBA
Published by:
Peter Siegel, MBA on Smashwords
Selling a California Business in the New Economy
Copyright 2013 by Peter Siegel, MBA
All Rights Reserved
This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to Smashwords.com and purchase your own copy. Thank you for respecting the hard work of this author.
~~~~~~~~~~
Reviews
Don’t put your business up for sale before you read Selling a California Business in the New Economy. The insights and ideas you will pick up from the ebook will save you thousands, or tens of thousands of dollars, and a lot of headaches. - M. Lanza, Business Owner/Seller, San Francisco Bay Area
This is a book every small business owner should read whether they plan to sell the business next month or ten years from now. - H. Robinson, Business Broker, Southern California
~~~~~~
Other titles by Peter Siegel, MBA
Buying a California Business in the New Economy
Financing the Purchase of a Small Business in the New Economy
Buying and Selling Small Businesses in the New Economy
Table of Contents
Introduction
This isn’t a business for sale market that we’ve seen before. Several factors have created an economic environment in which a business owner in California who wants to sell has got to be very resourceful in order to achieve success.
1. Welcome to the New Economy
• A Different Marketplace
• Profile of a Successful Seller
• Who Has the Money and Motivation to Buy
• Business Values and the Consequences
2. Winning Strategies for Selling a Small California Business in the New Economy – Preparation
• Pre-Qualify the Business for a Purchase Loan
• Prepare the Business to Compete in the 21 Century
• Providing Full Documentation About the Company - What really is needed?
• The Art of Disclosure
3. Winning Strategies for Selling a Small California Business in the New Economy – Flexibility
• Pro Sell Services
• Thinking Outside the BOX (Business Opportunities eXchanges)
• Partnering
• Seller Financing in the New Economy
4. Small Business Values in the New Economy
• Putting Expectations
Into a Valuation Formula
• Other Influencers
• Who is the Buyer
• Obvious Value Determinants
• Deal Structure
• Value Predictability
5. Deal Structure
• Seller Carry Back Financing
• Partnering Idea
• Fractional Sales
• Stock Deal
• Earn-Out Arrangements
6. Cashing Out
• Marketability of an All Cash Deal
• All Cash Discounts
• Tax Consequences
• Alternative Solutions
• Reselling a Promissory Note
• Include a Balloon Payment
7. Allocation of Price
• Bundle of Assets
• Goodwill
• Training
• Fixtures & Equipment
• Other assets (leasehold interest, patents, liquor license)
8. Salability Index
• San Francisco Newspaper Deal
• Ten Factors in Salability Index
9. Selling Team – Listing Broker/Agent
• Importance of Skills and Experience
• Listing Options
• Selecting the Best Professional to Help Sell
10. Selling Team – Loan, Legal, Tax, Escrow
• Niche Financial Advisor, Specialty Loan Broker Helps Offering to Stand Out
• Your Attorney: Make Sure Legal Professional Understand Assignment
• Tax Accountant: Important to Plan This Correctly
• Escrow Officer Professionals Can Make or Break a Transaction
Author End Note
Appendix – Answers to Frequently Asked Questions
About the Author
Introduction
Nearly all of the growing population of California’s small business owners who belong to the baby boomer generation and are ready to retire want to sell their companies. That includes everything from the smallest coffee kiosk in front of an office building, to a manufacturing firm with several employees and millions in annual revenues. But sellers face a cluster of challenges not seen in this market for more than sixty years. Among those problems is the sheer number of competitive business offerings coming on-stream, the difficulty getting money to complete deals and the mood of uncertainty that hangs over the economy like a grey cloud.
And how can a seller get what he or she knows the business is worth? That can be a problem because of the value gap.
An owner who has built the business over the years to generate increasing levels of revenues and profits may have noticed a dip in performance as a result of the recession. Because the market value of a business is related to its financial performance, the typical buyer looking at an offering will be most concerned with revenue and earnings figures generated over the past 12 or 24 months, and using that as the gauge to determine a fair price. But so many owners of California companies know that their businesses will quickly recover as the economy improves. Certainly, many are in recovery mode right now. Does a seller have to receive a price based on the period of interruption in business growth, even though business is improving?
Anyone who watches the figures announced by the BizBen Index knows how the business for sale market in California has slumped by a whopping one-third, from the 67,000 total sales in 2008 to the average of 40,000 completed deals per year ever since. That’s represents thousands of California business sellers, every year, who might have closed an escrow and retired before 2009, but since then have had to postpone their retirement plans--some now in their fourth or fifth year of waiting for the market to improve so they can get what their companies are worth.
Despite the slow down in the rate of closed business sales transactions in the state over the past few years, there still are plenty of buyers looking at advertised offerings and asking owners of businesses in their neighborhoods if they’d be interested in selling. Much of today’s population of purchasers is made up of white-, blue-, grey- and pink-collar workers who have lost their jobs. Or they’ve lost faith in the idea that you can build a solid financial future by getting and keeping a good job--even advancing up the ladder for many years. Other buyers populate the current generation of opportunists. They’re looking for deals by bringing low-ball offers to owners who are highly motivated to sell, and hoping to take over a business at a significant discount.
Even though the owner of a California business may be eager to find a buyer so he or she can move on to the next phase of life--either in retirement or in another business or activity--this does not seem like a good time to sell. And it’s impossible to know exactly when the market will improve.
Meanwhile, there is good news for people ready to exchange their California businesses for a fair amount of cash--or cash and an income stream generated by a buyer’s secured promissory note--and for the opportunity to do something else. A growing number of sellers, many assisted by skilled sales intermediaries (business brokers and agents), are learning to separate solid and serious buyers from those seeking to score a bargain deal with a naïve or ill-informed seller. And informed sellers are figuring out how to identify and then avoid an unqualified buyer--someone who either doesn’t have the money or who is so risk-wary that he or she will enjoy looking at businesses for sale, but never will actually sign a contract to buy one.
And innovative sellers are developing ways to prepare their businesses for sale, and ways to market effectively and even ways to structure a deal that gets both buyer and seller what they want, even though they started negotiating with considerable disagreements about price and terms.
I’ve had the opportunity, while dealing and communicating with hundreds of business sellers and business intermediaries over the past few yeas, to learn how their fresh approaches and smart strategies are overcoming many of the challenges that have so severely impacted the business for sale marketplace in California--and the rest of the country for that matter. I’m pleased to share many of these idea and successful strategies with readers in the electronic pages that follow.
1. Welcome to the New Economy
With tens of thousands of baby boomers who own small California’s businesses ready to retire, it would be reasonable to expect that we’d see a flood of office supply stores, convenience markets, service firms, food service companies and so many other kinds of small businesses on the market for sale. Some business for sale deals might be offered by a business sales intermediary (business broker or agent) or perhaps by the owner –an individual whom interested prospects would contact for more information. In any event it should be increasingly easy for a prospective buyer to locate a suitable acquisition candidate. What’s more, this process should be accelerated by the use of social media to announce what’s available and to facilitate effective communications between buyers and sellers, or between principals and their business sales intermediaries.
So, what happened? Well, there is an increase in the number of businesses being posted for sale. But it’s not at the level we would expect—not the quantity of business offerings that will be needed to effect a transition of ownership for all—or even