Motivated Business Sellers

In this time of the Covid-19 pandemic, selling a business has taken a new turn.  Many business owners are motivated to sell their business and retire.  They have already experienced the 2008 recession and don’t want to go through the same pain again due to the recession of 2020 and the virus.

But what defines a motivated seller? Typically, the connotation with “motivated” implies selling a business below market value with inferior terms due to the business being semi-distressed or the technology systems outdated, or simply little access to lines of credit to expand the business.

However, the reality is that “motivated” in our trade refers to a seller who is truly willing to go through with a sale. “All too often we have business owners who think they would like to sell,” says Achim Neumann, President, A Neumann & Associates, a Merger & Acquisitions and business brokerage firm, headquartered in New Jersey, “whereas in reality, these folks have little perception of the reality what buyers are looking for and what typical transaction terms are in the market place. The outcome is that the business sale process is started with lots of energy, but then fizzles out towards a deal closing and ultimately is never completed.”

Furthermore, some business owners are highly concerned with the typical aspects and terms of selling their business, specifically, their concerns in finding a buyer that would like to expand by acquisition.  Whereas sellers generally like fast closings, they are concerned with the confidentiality being maintained throughout the sale, having to partially finance a sale, or the simple legacy desire to find a buyer to continue to run the business the way they have for years and to protect their employees.

How does the owner ensure that these concerns are addressed?

Firstly, the most important thing to do is to hire a professional M&A advisory firm to handle a transaction. The depth of transaction knowledge such a firm brings to a sale far exceeds the savings of a DIY attempt, as the previously raised concerns are very much known to the firm and can be addressed.

Generally, the first step in the process is to have an independent 3^rd party company perform an objective valuation of the business.  This gives the owner the power to control the process to ensure a fair value for the business.

Next is to have a professional marketing package prepared and to advertise the business with a blind profile (in a non-divulging way) to attract interest in the sale of the business.

Such marketing should include internet based advertisements as well as the use of proprietary client database information. For example, this firm has a proprietary database in place with close to 600,000 investor contacts, adding to such every month 150 to 250 buyer inquiries.

Only after a buyer is pre-qualified in a detailed four-step process and has signed an NDA, then any confidential information is disclosed. Confidentiality throughout the whole process is key to any transaction.

Once the documents have been reviewed and a site visits is arranged, an Offer-To-Purchase is then prepared and signed by both parties.  This document has all the parameters of the deal including amounts, terms, dates when each part of due diligence is to be completed and bank financing is to be finalized and what assets are included with the purchase.

Due diligence then commences and is coordinated by the advisor to ensure the buyer and the bank obtain all the data they need in order to close the transaction bringing both parties to a successful transfer of assets.

Advice to Motivated Business Owners?

It is important to ensure an experienced M&A Advisory firm like A. Neumann & Associates, LLC is utilized in order not to leave money on the table and that the transaction will indeed get to the closing table.  This will free-up time and allows the business owner to continue to run his/her business without a reduction in revenue/profits due to the sale of the business.

Now is a good time to consider the sale of your business.  Within the government’s Covid19 stimulus package, the SBA has changed its guidelines for 2021:

• The SBA is waiving all lender and borrower fees for both the 7(a) and 504 loan programs through September 30, 2021.
• For loans approved by the SBA between February 1 and September 30, 2021, the SBA will provide 6 months of P&I payments, capped at $9,000 per month per borrower.

Following the above will further stimulate the number of investors coming into the market to find a well-prepared business for sale – creating an excellent macro-economic environment for the business owner to sell his/her business.