The closing is a pivotal moment in the history of a business as it marks the formal transfer of a business from one party to the next. Behind every successful closing is months of focus and hard work. Simply stated, a successful closing doesn’t just happen, but is instead the byproduct of extensive negotiations. 

One key document to utilize in the closing process is the Purchase and Sales Agreement. There are four key aspects to this document. 

1. First are the terms of the agreement, which typically cover the price as well as detailed terms on how the business is to be paid. In the Purchase and Sales Agreement, you will find the status of any management that will be staying with the business. 
2. This document also should contain conditions and covenants which include non-competes as well as agreements on what to do and what not to do moving forward. 
3. Any good Purchase and Sales Agreement will, of course, include a description of the transaction. In other words, is the transaction a stock or asset sale? 
4. Finally, the agreement will cover representations and warranties. This is typically negotiated after the Letter of Intent is agreed upon. In short, the warranties will provide that everything is as it has been represented.

Now, let’s look at the four key steps that are a must before the sale of a business can close. 

1. Topping the list, is that the seller must provide satisfactory evidence that they have the full legal right to act on the behalf of the selling company. Additionally, the seller must show evidence that they have full legal authority to sell the business. 
2. Secondly, all representations and warranties must be in place. Importantly, this will also include clearly stated remedies that are available to the buyer in the case of a seller’s breach. 
3. Third, the buyer’s representative should have completed the due diligence process. A key part of the due diligence process is that any claims and representations made by the seller have been clearly substantiated and addressed. 
4. Last, but certainly not least, necessary financing should have been secured. A critical part of the process is that all of the proper paperwork, as well as the appropriate liens, should be in place, as no funds can be released until these conditions have been met.

It is also important to note that there are two significant elements of closing that will take place simultaneously. 

1. The first is the corporate closing which is the actual transfer of the corporate stock or assets. This step is based on the provisions set forth in the Purchase and Sales Agreement. All the paperwork that was carefully laid out in the Purchase and Sales Agreement has been completed. 
2. The second major element is the financial closing. In the financial closing all the paperwork, as well as the legal documents needed to provide funding have successfully been executed.

While there is no doubt that closing is a joyous time, it is also vital to remember that the period leading up to closing is the time to have a laser-like focus. This is the most important time to avoid mistakes. Working with a business broker or M&A advisor can dramatically reduce your chances of experiencing mistakes during the all-important closing process.

Copyright: Business Brokerage Press, Inc.

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No business owner will be able to stay with their business indefinitely. For this reason, you will either have to eventually sell or hand your business off to the next generation. Let’s take a closer look at the concept of handing a business over to a family member and how you can make sure that the business is in optimal shape when the time comes. 

If you want your business to be prepared for succession and the next generation, you’ll want to repair any key problems before handing it over. Some experts advise putting your focus on evolving the business. One key recommendation is to focus on sales, marketing and distribution in the coming years, so that troublesome issues, such as sales plateaus, are properly addressed and hopefully circumvented.

Also, you’ll want to consider boosting communication with key employees so that current management understands where all the employees stand. Skilled and motivated employees are rare commodities, and they are absolutely critical to the future success of any business. For any business owner considering handing over their business to their children, employee skill level, motivation and commitment will be essential to the success of the business during a potential transition period.

Some people see their business as a form of job creation for their children, instead of being what it truly is, a business. For a wide variety of reasons, it may not be feasible for your descendants and relatives to take over the business. They may not be capable of the demands or they may simply have no interest. But if you are able to successfully pass it down, you’ll want to optimize their chances for success. 

Just as buying or selling a business involves preparation, the same holds true for handing the baton to the next generation. There is no replacement for advance planning. The sooner that you begin thinking about, and taking tangible steps to prepare for the next generation taking over the reins, the better off everyone will be.

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There are many different strategies that will likely be deployed during the sales process. In this article, we’ll focus on how to utilize the Confidential Business Review CBR and/or CIM. Frequently, the Confidential Business Review is also referred to as a Confidential Information Memorandum. But no matter what name is used, the CBR/CIM provides a pathway for obtaining the highest selling price possible.

It is important to understand that the CBR/CIM must be factual at its core. Yet simultaneously, the CBR/CIM can function as a promotional and sales tool. The CBR/CIM can be integrated with an Executive Summary in the document, which allows prospective buyers a way to learn more about the business.

Through the Executive Summary section of the CBR/CIM, prospective buyers can quickly gain insight into the key highlights of a given company. The outline should include key factors, such as an overview of the ownership and management structure as well as a description of both the business and financial highlights. The company’s products and services should also be covered in detail. Importantly, the CBR/CIM should include why the business is for sale and some information about the market.

A well-constructed Executive Summary helps to both guide and motivate a prospective buyer so that they become motivated to learn more and take action. The Executive Summary should grab hold of anyone who reads the high points and illuminate why your business is valuable.

Many variables can be included in the CBR/CIM. Everything from the history of your company and what it does for the markets it serves and the products it creates can all be found in this document. Other topics such as the current state of competition, your key customers, management, your growth strategies, various financial information and other important variables can all be included in a CBR/CIM.

The creation of a coherent and persuasive CBR/CIM, one that motivates a prospective buyer or their representative to take action, is an artform. Much like it is prudent to invest both time and resources to the creation of an excellent confidentiality agreement, the same holds true for the creation of a CBR/CIM.

Business Brokers and M&A Advisors are experts in the creation of key sales documents, such as the CBR/CIM. One of the quickest and easiest ways to create an excellent CBR/CIM is to work with an experienced Business Broker as they understand exactly what should be in an offering memorandum. This document may very well be the first important contact point with a prospective buyer. For this reason, it should be designed to work to your benefit in a variety of ways.

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In the day-to-day routine of running your business, it is easy to forget that eventually the day will come when you need to sell. The last thing that any business owner wishes to discover is that they are ready to exit, but they are hopelessly underprepared. One of the key ways to prevent this from happening is to prepare for the sale of your business as far in the future as possible. 

1. Always Look Ahead to the Future

Many experts consider not having an exit strategy to be a risky endeavor. 

So, what are some of the most important steps that business owners need in preparation for selling their business? The first step is thinking about your exit strategy on the day you found your company. 

If you build your business while keeping an eye on the fact that you will one day be seeking to be acquired, then you will adjust your plans and strategies accordingly. All of this means understanding the market and knowing exactly what prospective buyers want from a business. In other words, the sale of your business should be built into its very foundation.

2. Think About Prospective Buyers 

There are a variety of reasons why acquisitions occur. For example, sometimes it is an entrepreneur looking for opportunities, and sometimes it is a business in the same industry that is looking to expand. The more you can learn about the motivating factors that cause individuals and entities to buy businesses, the better positioned you will be. 

3. Constantly Network 

Another good idea is to constantly network and make connections. The more people you know, the better off you will be. You may be running and developing your business for decades. During this time, get to know as many people in the industry as possible. 

While it may be necessary to modify the exit strategy in the future, having one in place serves to create an invaluable framework for when the time comes to sell. A savvy business owner will have a well thought out exit strategy in place at the very beginning.   

When you work with a business broker or M&A advisor, you will also benefit from their professional connections and years of networking with buyers. Selling a business is all about preparation, making connections, and finding the right advisors and partners.

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Deciding how the purchase of a business should be structured is no small task. If you are planning to help finance the sale of your business, you’ll want to tackle this issue very early in the sale process. When it comes to small business sales, a high percentage of deals include some seller financing. Here are some of the most important things you’ll want to think about beforehand.

Interest Rates

The simple fact is that interest rates cannot be overlooked. In an era where interest rates continue to climb, the future rates are far from certain. That’s why it is critically important to factor in interest rates to your buying decision. In the event that you find a buyer, you’ll need to decide what is the acceptable interest rate for a seller financed sale.

The Buyer and Debt

It is also quite important to know whether or not a buyer will assume any long-term debt or secured debt. Early in the process, you’ll want to address this topic and come to a conclusion regarding the optimal path forward. If there are favorable terms, this usually means a higher sales price.

Taxes

There will, of course, be tax implications to the sale. It is only prudent to work well in advance with a tax professional, to understand every tax implication. You should gain an understanding of how the taxes will work long before a sale takes place. You’ll also want to talk to an experienced attorney to understand the legal implications of seller financing.

Without a doubt, there will be tax implications that affect your sale. That’s why you’ll need to understand what those implications are and what it will mean for you.

Additional Costs

Just as taxes can throw a curveball into the mix, this fact holds true for additional costs. You’ll want to consider if there are any unsecured creditors that still need to be paid in full. Closing costs are another commonly overlooked issue. It is prudent to determine whether or not the seller plans on paying for part of the closing costs. Closing costs, just like taxes, can be sizable and should not be overlooked.

Knowing Your Lowest Price

Before walking into any negotiation, you need to know what is your lowest price. It can take months or even years for a business to sell. You need to know what your lowest price is for when the day comes that an offer is made. 

Working with a business broker or M&A advisor is a savvy way to address all of these issues well in advance. There are many factors that go into the sale of a business and having an experienced professional by your side is simply invaluable.

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If you’re selling a business for the first time, you might have a preconceived notion of the type of buyer that’s most likely to purchase your business. However, the truth is that sellers often get competitive and attractive offers from buyers that they were not expecting to have an interest in their business. Let’s take a look at some of the variety of buyers you might encounter on the path to selling your business.

Your Family Members

One common buyer would be a member or members of your family. One of the advantages to selling to family members is they already may have a deep understanding of what it means to own and operate your business. As a result, they may feel more prepared. 

On the other hand, just because someone is your family member does not mean they have the chops to actually run your business. Further, if you sell to a family member, you may end up dealing with someone who has less cash available to buy.

Competitors and Synergistic Buyers

You may not have warm fuzzy feelings towards your competitors, but the truth is that you need to be open to the idea of receiving offers from them. In fact, many competitors immediately look to their competition first when they decide they are going to expand their business. Your competitors make a lot of sense as good candidates because they understand your industry. Purchasing your business represents a viable way to rapidly expand their own offering with products and/or geographical reach.

Along similar lines, synergistic buyers acquire new companies in order to leverage their existing operations. You will find these buyers are typically larger entities in the same or related industries. In buying your business, their goal is to support and quickly add value to their current organization.

Individual Owner Operators

Many sellers end up with a deal on the table from an individual buyer. There are definite advantages associated with this type of buyer including the fact that it can streamline the sales process when you are dealing with one person rather than a group. Individual buyers oftentimes have corporate experience that helps them to effectively take over and manage a business. Another advantage to the individual buyer is that he or she oftentimes has a personal interest in the business and plans to successfully operate and improve it. 

Financial Buyers

A financial buyer is most interested in their ROI. They will zero in on finding out about the cash flow and long-term exit strategies. These investors are typically only interested in very solid companies that are generating solid revenue. They will be less likely to want to take the time to make changes and improvements, so they will expect healthy returns on their investment on day one. 

Your business broker or M&A advisor will help you understand the pros and cons of various buyers when it comes to your unique situation. Ultimately, you’ll find the type of buyer that is best suited to buy your business and that fulfills your needs and goals simultaneously. 

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Experts recommend that sellers prepare years before they plan to put their businesses up for sale, and there are many good reasons why they make this recommendation. A wide range of factors can interfere with the sale of a business, ranging from life changes like divorce and burnout to a new competitor moving into town. Preparing to sell your business in advance will help prepare you for the day you need to sell, whenever that day may be. Now, let’s take a look at a few of the surprises that sellers may face when selling their company.

Time Commitments

Topping the list of surprises that sellers often face is the time commitment involved. As almost any business owner will tell you, it takes a tremendous amount of time and effort just to run a business. Adding the additional variable of putting a business up for sale can be a real strain on a business owner’s time and resources. The idea that one can simply put a business up for sale and “the rest will take care of itself” is very rarely the case. 

Most businesses take many months or even years to sell even with considerable effort put into the process by both the business owner and brokerage professionals. Prospective buyers can take up a considerable amount of time to deal with, and this is one of the many reasons it is important to work with a business broker or M&A advisor. A competent brokerage professional has expertise in determining if a potential buyer is worth the time, effort and money it will cost by you and licensed Deal Team professionals such as attorneys and CPAs – vetting a buyer’s ability to close on the sale of your business – saving you a great deal of time and aggravation.

Documentary Requirements 

Sellers are often unaware of just how much documentation must be compiled for the Confidential Business Review (CBR) alone. However, the CBR is key in the selling process. If you’re selling your business in the near future, be prepared to compile, create and review a lot of documents. 

Shared Decision Making

Of course, there are many other variables that must be considered when a seller makes the decision to sell their business. Minority stockholders or family members with an interest in the business must be taken into consideration. 

Typically, sellers are accustomed to handling most of the key decisions regarding their business. This approach might work for running a business, but it can be quite challenging when it comes time to sell. Everyone from members of the management team to lawyers, accountants, and, of course, business brokers or M&A advisors, must be involved in the process. 

Owners simply cannot realistically handle every aspect of getting a business ready to be sold. Usually, the requirements of the sale process are too diverse and complex to be handled effectively by one individual.

While the above-mentioned surprises are often the most common, a wide range of other factors can often be unexpected. These factors range from sellers accidentally decreasing the value of their businesses due to failing to maintain normal business operations during the sale which can decrease the value of the business to confidentiality leaks. 

Selling a business is a complex process. Many business owners feel that since they are accustomed to the complexities of operating a business that they can handle the complexities of selling a business. The reality of the situation is quite different. 

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No business is perfect, but when you are preparing your business to be sold, it is imperative that you lead with your strengths. That’s why it is important to work with a business broker or M&A advisor to identify, catalog and work to remedy any weaknesses. When presenting your business to prospective buyers, focus on your key selling points first and what makes you really stand out from the crowd. You want to sell a prospective buyer on the value of your business and its long-term potential before addressing any shortcomings or areas that need to be improved. 

Most business owners who are selling a business are doing so for the first time. If you’ve never sold a business before then there are many mistakes and traps that can befall you. Selling a business is typically not a fast and easy process, but can instead take many months or even years. 

Working with a business broker is one way to ensure that the process goes smoothly, but there are other steps that you can take to help ensure that your business sells. At the top of the list of steps business owners can take to help their business sell is to maintain normal operations. Again, it is very unlikely that your business will sell as soon as it hits the market. To protect the value of your business and to avoid financial trouble, you have to maintain normal business operations throughout the sales process.

The next key step to take is to get your business ready. It likely took years, or even decades, to get your business to where it is today. You shouldn’t expect that preparing your business to be placed on the market should be an overnight process. One of the best ways to properly present your business is to inspect every aspect of your business and its operations. In this way, you’ll discover what areas need work and what strengths are best to promote. 

Brokerage professionals know where the competitive advantages of businesses reside and have an understanding of what buyers really want. An incorrectly priced business can scare away otherwise excellent potential buyers. The same holds true for poorly organized paperwork and financial records. In short, the preparation you make now to sell your business later can be invaluable for achieving the results you seek.

At the end of the day, you must remember that selling your business is a financial transaction. Like all kinds of sales, you must understand not only what the buyer needs but what they want as well. Not every business is right for every buyer. 

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If you’re buying a business, you might be feeling overwhelmed about all the details that are involved, especially if it’s your first business. Buying a business is certainly no small task, and that’s why you’ll want to dive into the process headfirst and make sure that you’ve carefully examined the business. 

Here are some of the most important elements to consider. While some of these aspects don’t immediately come to buyer’s minds, they should be high on your list of considerations. 

Legal Documents

Reviewing legal documents might not seem like the most enjoyable task, but this activity should be one of the first things you will want to do before buying a business. Most worthwhile businesses will have a long list of legal documents to show, ranging from documents showing trademarks and copyrights to consulting agreements.

Tax Documents

When it comes to paperwork, tax documents are obviously also a necessary element to review. Some things that you should be watching for are forms that do not adhere to the IRS rules. It goes without saying that you don’t want to be the one taking responsibility for a previous owner’s error. 

Business & Retirement Documents

The list of documents you’ll want to review doesn’t end there, as you’ll also want to check into retirement documents such as balance sheets, investment statements, and income statements. You’ll want to ensure that all of the qualified and non-qualified retirement programs run by the business are up to date. You might need to check the parameters of the Department of Labor’s rules. 

Work with a Business Brokerage Professional

Your business broker or M&A advisor will take you through the due diligence process to help you make sure that all aspects of the business have been reviewed thoroughly before you sign on the dotted line. Be sure to work with an experienced individual who is proactive when it comes to making sure all of your questions have been answered to your satisfaction. 

The items on your to-do list might seem overwhelming at first, but remember that a lot of focus and effort now will save you a ton of hassles and issues later. And you might end up dodging a bullet by spotting a serious issue that causes you to change your mind about a business. Always be sure to protect yourself and your best interests. 

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