Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

April 3, 2011

Financial Aspects of Selling a Business

By Joseph Eneldas


What are some of the financial aspects of running a business while selling it? Most owners know more about running a business than selling it, which can be a daunting task by any measure. A business transfer is complicated endeavor, and if not executed properly, runs the risk of losing substantial value in the process. Several major concerns are consistent in each transfer— fair market value assessment of the business and consistent financial performance throughout the transfer process.

A fair market value must first be determined. This is typically the basis of the past three year’s tax returns. Too low an asking price will leave “money on the table”. An overstated asking price, however, will chase buyers away and the business remains unsold for an extended period of time.

Brokerage companies offer valuation services with fees ranging between $3,950 and $7,500 for businesses with $3-10 million in revenues. A business owner should engage only a national valuation firm with the experience of many valuations each year to secure the most current market trends, and the valuation should have a reputation that is being accepted by buyers.

Fair market value is key

As important as determining the fair market value is the consistent financial performance throughout the transfer process. Typically, businesses sell over a period of one year depending on general market conditions, the respective market segment, and viability of the business.

Thus, it is important for a business owner to recognize that any potential buyer will review not only the last three years of the business’ performance by way of income tax returns, but the buyer will also review the financial performance of the business subsequent to said period.

Value loss is a concern

Consequently, it is very important for an owner to continue focusing on the performance of the business and to manage the business at peak financial performance. All too often, business owners “lean back” once they have made a decision to sell their business and have hired a business broker, only to learn that a sale is not progressing as fast as anticipated. Subsequently, the financial performance of the business suffers and when a buyer is finally introduced, the value of the business has deteriorated (relative to the previous valuation).

Most significant in this context is a deterioration of the cash flow, EBITDA, gross margins or a decline in revenues per se. Some buyers also tend to look at changes in productivity ratios such as sales/employee or operating margin/employee.

The Business Broker’s unique role

This particular situation leaves all parties in a very difficult situation: the owner, insisting on the previously established value by the valuation firm confronted by a buyer insisting on a value based on the current performance of the business. The likely outcome will be that the owner will not sell the business.

Good business brokers will try to avert this situation by consistently discussing the business’ performance with the owner, by preparing all marketing materials and advising an owner on the best terms and conditions of a sale. Preferably, a business owner selects a national business brokerage firm that can draw nationwide buyers from many different regions.

3 aspects of selling a business

Selling a business is typically a three part process: the initial preparatory phase for collection of all relevant data, valuation of the business, preparation of a confidential prospectus and development of a marketing plan. During the second phase, the marketing plan is implemented, including financial pre-qualification of potential buyers, interviewing buyers and discussing specific concerns. In the third phase, an offer to purchase is prepared, terms negotiated, the Due Diligence phase initiated, and a final closing performed.

The most important advice, however, always remains the same: with the transparency of the internet today and a business valuation comparison only a click away, a business owner should never neglect running the business at peak performance during the sale period. Buyers will detect very fast if a business has been neglected and will substantially adjust the price offered, or simply shy away from a purchase.

Achim Neumann is president of
A.Neumann & Associates, LLC
Atlantic Highlands,
an affiliate of BBN, Dallas, Texas, with 450 offices nationwide.

Visit the firm at www.neumannassociates.test
or call 732-872-6777

About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or

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Client Testimonials

“I had been in touch with Karin and Gary from A Neumann & Associates regarding some opportunities and was looking forward to meeting with them. Hence, when they organized a seminar in Princeton, NJ, I was quick to sign up. The seminar was very informative as the team walked the attendees through various scenarios and referenced real life buying/selling situations they had been through. The sessions by Gary, Karin and Achim were crisp and focused and brought clarity to potential seller and buyers. I strongly recommend the team and look forward to continue working with them.”

Gaurav Tyagi

“Thank you for your Event on "How to value, Sell, and Buy A Business for Maximum Profit" and the insight into ANA’s approach on what is involved in the Business Exit for sellers. Garys Hervieiou's "Business Valuation", Achim's "Deal structure" presentation and Karin’s "Preparing the Package" are real street knowledge shared. They answered attendees questions which makes it more interesting for learning from others. Great for small businesses like us. The presentations were totally worth our time and travel for the event to Princeton, NJ from Rockville MD. Ravi Bhutani, President, CIPS”

Ravi Bhutani

“Gary, this is to thank you for an excellent job done in selling our business. We could never have done it without your professional expertise, dedication and time put in without reservation to make it happen. We will gladly and highly recommend you to anybody in our position.  It was a pleasure to work with you.”

Pat Iammatteo, Owner

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Eric H., Investor

“I recently contacted A. Neumann and Associates about getting a valuation of my business done. I spoke with Marc, who explained the process in detail. After meeting with Marc in order to get a clear understanding of my business, and what I was hoping to accomplish. His patience in answering all my questions and his knowledge of the proper way to market my business gave me great confidence that this is the firm I will be using to sell my business for max value. Working with Marc at A Neumann & Associates was very easy and professional. I did not know all that was going to be involved in selling my business but they helped me through the process. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. I highly recommend this firm to anybody who wants to sell now or down the road. Marc not only knows his stuff, but actually is a real nice guy.”

Double Diamond

“Used A Neumann & Associates to sale my business. could not imagine having done it with out the patience and experience Gary provided. Thanks Gary,”

Dennis Frazier

“Working with Marc and his company was a pleasure. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. Marc handled most of the interaction and he has one of the greatest demeanors. Again, it was a pleasure working with him and his firm.”

Douglas DiCeglio

“I recently completed an acquisition using A Neumann & Associates. Tony Valentino was very helpful and accessible during the entire process. They do a thorough job vetting both parties and got us to the finish line.”

Srini Mudambi

“Claus out of Florida helped us with the sale of our business. We had never done anything like this and him and his team walked us through the process from start to finish. We had some challenges through the process and Claus continued to show up even in the difficult conversations.”

Colby Harris, Co-Owner, Del Mar Designs

“Claus Madsen thoroughly helped us with selling our company. From the 1st introductory meeting explaining to us what was possible, to providing us with resources to assist with the sale. Claus was invaluable throughout the whole sales process. Claus was with us every step of the journey and always made himself available for any questions or issues that came up along the way. If you are interested in selling your business, I encourage you to reach out to Claus and the ANA team so that they can let you know what’s achievable. These guys will make it happen!”

Ron Harris, Co-Owner and Vice President, Del Mar Designs
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