Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

January 21, 2020

How to find quality buyers your business

By Achim Neumann

When selling a business, there are a few significant considerations to keep in mind when looking to gain maximum value for an exit from securing a professional business appraisal to a seller’s note – and everything in between.

Finding Suitable Buyers for Your Business

Finding one or more strong buyers with the finances and operational resources to acquire your business is paramount. Multiple buyers will give you leverage to negotiate on prices and terms. Even with a single buyer, however, understanding your options can aid you in enhancing the final sale price.

Creating Mutually Beneficial Buyer-Seller Outcomes

Any deal should be structured in a way that takes the best interests of both the buyer and the seller into consideration. Stand firm on issues that are important to you. Most buyers will understand and respect this approach. All-cash deals statistically are worth at least 20% less than those which combine cash and clauses. Remember that more than two-thirds of deals include clauses for structured future payments. However, even all-cash deals will have important terms attached.

Key Terms Commonly Included in Offers:

  1. Taxes and Asset Allocations – In an asset deal, different pieces of the business, such as fixed assets, inventory, and non-physical assets, are taxed at different rates. These rates are often negotiated due to their high impact on both the business seller and buyer. Your tax advisor or business intermediary run you through the ins and outs of the different tax allocations.
  2. A Seller Note – The seller carries a part of the total offer in the form of a note with interest paid out over a certain number of months/years. Although sellers are often not in favor of a seller note, it can sometimes bring advantages. A seller note reassures both buyer and lender that the seller believes in the business, which can result in a higher potential asking price.
  3. Non-Competes and Employment Agreements – An employment agreement ranging in time from a few months up to several years is sometimes negotiated by a buyer on the understanding that the business seller knows the business best, maintains good relationships with employees, customers, and vendors, and can therefore ensure vital continuity after the sale has gone through. Regarding non-competes, the buyer will want assurances that the previous owner will not set up a business in the same field that poses a threat for a set number of years following the sale.
  4. Net Working Capital – Net working capital constitutes the delta between current assets and current liabilities of the business (although cash is often excluded). The buyer will often require that a certain amount of working capital remains in the company so the business can continue running without interruption.
  5. Tangible or Hard Assets – This typically encompasses fixed assets like equipment, machinery, and inventory. Buyers will examine these assets thoroughly as part of the due-diligence phase. Obsolete equipment that is in need of replacement can emerge as contentious points in negotiation if and when they affect the buyer’s perception of value.
  6. Leasing Assets – In cases where the buyer is incapable of or has no desire to buy all the business’s assets, the seller may choose to lease some assets as a means of reducing the money necessary to close the deal. Leasing of assets can happen in cases where a business has expensive, underused equipment, or the business is generating poor cash flow.
  7. Stock in the New Company – Some buyers will desire that the previous owner remains an active part of the company going forward. As a result, they may offer stock in the company after the sale as part of the deal, however such is not possible if the buyer uses SBA financing.
  8. Earn-outs – Earn-outs are sometimes offered as part of the asking price. They consist of a structured performance-based pay-out plan over a defined future time period, for example, the earn-out could be a percentage of gross revenues. In cases where the business may be in trouble or there is a high probability of an upturn in fortunes in the near future, the buyer may offer an earn-out that gives both buyer and seller the chance to share in growth.

This list of general options for terms in business sale transactions is by no means exhaustive. It is important to be aware of every eventuality when selling your business. Find an M&A Advisor that has experience in structuring offers and working with buyers. Your advisor’s knowledge will help you maximize the profit that you can generate from the sale. Often times, when there are multiple offers on the table, the structure of the deal and the terms it includes will make all the difference. Whether you’re looking to sell a business in Connecticut or have a professional business valuation in North Carolina, we at A. Neumann & Associates LLC are located all along the East Coast to answer any of your questions at any time.

 

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 info@neumannassociates.com

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Daniel Coates, Buyer

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William Klemens, Buyer

“I utilized A. Neumann & Associates to assist in an M&A process. They are VERY thorough in using their time-tested process to calculate the value of investment opportunities, a process which provided a very detailed explanation for the value of the potential opportunity. Additionally, they also went above and beyond to extend other services including connecting with others who specialize in your industry and can assist with necessary steps including legal and accounting. Highly recommended!”

Edward Lane , Business Owner

“I recently contacted A. Neumann and Associates about getting a valuation of my business done. I spoke with Achim, who explained the process in detail. He had his colleague Gary come to my office 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 when the time comes for me to sell my business for max value. They gave me great insight into the steps I need to take now to get the best deal in the future. I highly recommend this firm to anybody who wants to sell now or down the road. They not only know their stuff, their actually just real nice guys.”

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