Frequently Asked Questions

Buying or selling a business takes dedicated, professional attention. Marketing and facilitating a business transfer is a full-time job, and you deserve someone who will work as hard as you do. Business brokers know the market from evaluating many businesses. A qualified broker saves buyers and owners money by helping them avoid costly mistakes, marketing the seller's business effectively, and maximizing exposure to serious, qualified buyers, all with complete confidentiality.

For example, ask yourself how you would:

• Reach qualified buyers, possibly including competitors, without revealing that you intend to sell?
• Evaluate your business objectively, so you get top dollar and avoid costly negotiating tactics?
• Prepare the information a prospective buyer needs to choose your business over other options?
• Arrive at the best price and terms, including the intangible and goodwill value of your business?
• Maximize your exposure to offers while minimizing exposure to customers, competitors, employees and suppliers?
• Market your business in all the right places, efficiently, effectively and confidentially?
• Screen and pre-qualify buyers for motivation, management ability and financial strength?
• Put significant time and effort into selling, while continuing to run your business well?

The sale of your business demands a professional, just as running it does. Beltway has the expertise, tools and connections to market and sell your business successfully. We work hard to protect your investment and maximize your net after-tax proceeds, and it is to our advantage and yours to get the best price a reasonable buyer will pay. We pledge to maintain high ethical standards and open, honest communication in all our relationships.

Most critical are price and terms. When a business is overpriced, or the owner won't offer reasonable terms, few buyers, if any, will be interested. When it's priced realistically with proper terms, several buyers are likely to pursue it, and competition among buyers creates higher prices. A buyer who knows others are interested is highly motivated to offer the asking price rather than lose the business to a better offer.

Second, the quality of the information you provide is critical. Complete, accurate financial information removes doubt and makes a buyer far more comfortable with the business and the terms. The value of the assets and the cash flow must be provable and verifiable.

Sellers who finance part of the sale should consider these protections for a worst-case scenario:

• Background check: research the buyer's credit, personal assets, work experience and references.
• Life insurance: require the buyer to keep a life insurance policy naming the seller as beneficiary.
• Additional collateral: if the buyer has home equity, commercial real estate or other investments, ask for them as collateral.
• Personal guarantee: require the buyer to personally guarantee the seller's loan.
• Asset restrictions: restrict acquisitions, expansions and sales of assets until the seller's note is paid in full.

The down payment may matter more to a successful sale than the price. The size of the down payment, the interest rate and the length of repayment all contribute. Over eighty percent of businesses sold above $100,000 sell with one-third or less down, with the owner financing the balance. Asking for half down reduces the price by roughly twenty percent; asking for all cash reduces it to forty to sixty percent of the one-third-down price.

A buyer is trying to buy as much business as possible with the cash they have. Ask for $200,000 down on a $400,000 business, and the buyer may keep looking until they find a $600,000 business whose owner accepts $200,000 down and finances the rest. An owner who asks for all cash generally won't sell, because buyers know they can buy three times as much business with the same investment.

In every case, though, we recommend a down payment: a buyer with a serious stake is less likely to default if difficulties arise. Banks typically require 25–30% down to approve a business purchase loan, and a seller should set the minimum at least that high. Sellers also have expenses after the sale to consider:

• Transaction taxes: sales tax, stock transfer tax, real estate stamp tax and others due at the transaction.
• Income taxes: substantial income tax may be due on any gain on the sale.
• Loans: after-tax cash to pay off business loans the buyer doesn't assume.
• Fees: appraiser, attorney and accountant fees, and any broker's commission.

Regardless of how much a seller needs at closing, Beltway recommends requiring a down payment of 25–35%.

Unless the buyer has experience in your type of business, they'll probably want you to stay on for a short period while they get comfortable.

Except in the rare all-cash sale, the seller stays tied to the business to some extent until the buyer pays off the seller's note. So it's not only fair for the buyer to ask you to advise and consult in the short term; it's in your interest to help the new owner learn the ropes. It may even help the business sell faster and for more money.

The SBA has underwriting criteria for business acquisition loans. When any portion of the loan will finance a change of ownership, lenders must determine that:

• the change of ownership is an arm's-length transaction;
• the lender, or a qualified independent individual, determines the value of the business; and
• the loan file is well documented regarding the valuation, including the supporting analysis.

In addition, if the change of ownership comes less than three years after a previous change of ownership, the lender must obtain two formal business appraisals.

A broker can't really "sell" your business, because the broker doesn't know how your business operates the way you do. A professional broker's first job is to get your business listed at the best obtainable price with realistic terms. The next is to qualify buyers, so you don't waste time on people who can't meet your requirements.

Qualified buyers see your business profile only after signing a confidentiality agreement. The broker then schedules a meeting where you explain the business to the buyer. Afterward, the broker works to get a written offer, presents it, and once it's accepted, coordinates the due diligence process that leads to closing.