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A recent (August 2016) survey performed by Pepperdine Graziadio School of Business and the International Business Brokers Association suggests that manufacturing businesses are suddenly, very much in demand. Manufacturers with Revenues of between $1 million and $50 million per year are selling quickly and at higher relative prices than at any time in recent history. The successful sale of companies of this kind appears to be far faster and with better pricing than service operations and distributorships, which have historically outpaced manufacturing by a substantial margin. Restaurants and service businesses still have the lead for sales under $1 million in annual Revenue, perhaps simply because they are more affordable for the small business person.
 
Normally, in an election year, Buyers would appear to be hesitant, and our business brokerage activity slows dramatically, particularly during the six months leading up to electionday. But for whatever reason, this year we have found an extremely active Buyer market. Certainly, one of the big reasons is the low interest rates that are available.
 
We also represent two (2) small manufacturing-oriented operations for sale, and the demand for these has increased dramatically, compared to activity we have seen from our other listings. Liquor Stores are a particular favorite in the retail market, but these have been difficult to sell over the past two years, because of premium pricing demanded by the Sellers. Demand for other Retail-oriented stores has been somewhat lower this year, for a variety of reasons. Restaurant sales have – as always – been fairly brisk.
 
If you or anyone you know has a business of their own and are thinking about retiring, now could be an ideal time, before the market changes and interest rates begin to rise.
(The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Or, you may contact us at combroker@bafgroup.com. Thank you for your interest.)
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As you may or may not know, the SBA does not lend funds to anyone, for the purpose of purchasing Businesses.  Banks actually lend the money, while the SBA provides insurance of sorts, that it will put up to 80% of the amount loaned, should the Business fail.

This is a crucial thing for Business people to understand, for a couple of reasons.  First, it is important that any Buyer understands that he/she is going to need to qualify with both the Bank and the SBA.  It is a two-tiered process.  SBA Preferred Lenders are financial institutions that essentially make all the decisions right there at the Bank, because the SBA has given them permission to qualify once, according to the SBA’s guidelines and regulations.  Even though there is this two-tiered process, if the Buyer is dealing with an SBA Preferred Lender, it is not as though the application needs to be physically reviewed by the Bank, then processed over to the SBA for a second series of delays and qualification at another location.  With Preferred Lenders, all the qualification work is done at one time, and in one place.  There are multiple players involved, but it still streamlines the process.

That still does not mean that the two-tiered system is a piece of cake!  We were in the process of selling a very large Liquor Store, and the Buyer decided he wanted to use his own Bank – which certainly he has the right to try to do.  The Bank was a Preferred SBA Lender, but after five months of waiting, still had not given the Buyer a decision.  All they kept saying was, “This is a great deal!”  The Seller was obviously frustrated and demanded an answer, one way or the other, or he was going to terminate the contract.  The Buyer confronted his Bank, and after five months of jerking him around, the Bank, finally said, “We are sorry, but we do not lend money for the purchase of Liquor Stores!”

This was not an SBA decision.  This was strictly the bias of the Bank’s own Portfolio Manager, simply because she was personally, morally opposed to anyone drinking alcohol.  The Buyer happened to have a great deal of money on deposit in that particular Bank, and though the Bank did not want to lend him funds for the purpose of purchasing a Liquor Store, they delayed the process for five months because they did not want to decline him, and have him leave the Bank in anger!

When the Buyer told us about we immediately put him in contact with another SBA Preferred Lender with which we had worked on several occasions, and the deal was completely funded and settled in 45 days.  Once again, it had not been the SBA that was the holdup.

Many Business Sellers do not like the idea of selling their Businesses to someone who was going to use the SBA, to obtain funding for the acquisition.  Unfortunately, unless the Buyer has several hundreds or millions of dollars stuffed in his/her mattress at home, there is no other way to obtain funds to purchase a Business.  Commercial Banks will not do that, with Small Business purchases.

We are regularly asked by Sellers if we can find an “all cash” Buyer.  Sometimes, this can be done.  When we sell a Convenience Store, a Gas Station Dealership or other types of businesses, perhaps priced up to his much as $250,000, there are some circumstances where we find people with those kinds of funds.  But frankly, even if someone has $250,000 in their checking account, in most cases they would prefer to leverage that money by using it as a down payment and ultimately purchasing a Business for perhaps $750,000 or more, with an SBA loan.  It simply does not necessarily make good economic and financial sense to spend all of one’s money in buying something for cash, in that manner.

The resistance that Business Sellers have to the SBA comes from their fear or concern that such loans take an inordinate amount of time.  Buyers hate the thought of using the SBA because they say it requires a mammoth amount of paperwork, in order to complete the application.

But the truth of the matter is that the SBA does not take a huge of time, if the applicant or his/her Broker or CPA knows how to complete the forms in an efficient manner.  The vast majority of delays with SBA loans are because the application is provided inaccurately or incompletely.  When the Bank or SBA has to go back and forth with the Buyer in attempting to get the information done correctly, it will naturally take a tremendous amount of time, because the SBA and Banks are both bureaucratic institutions.  Because of the way we package SBA loans, we would normally get them through in about 45 days or even less; it can take a little more time if the purchase includes Real Estate.  Such a delay of that type is normally due to scheduling issues for Real Estate Appraisals and/or Environmental Surveys.

From the Buyer’s side, yes it does take a fair amount of paperwork, in order to complete the application.  But we are always amazed when people say that.  Do Buyers really believe that a Bank or the SBA is going to provide $500,000 or $1 million in loans, without any such documentation?  Without being asked specific questions about their ability to handle the funds?  About the ability of the Business to make timely payments?  Why does this seem so unreasonable?

Business Sellers, please do not fear the SBA.  Do make certain that the Buyer and/or the Brokers involved are knowledgeable in the application process, so as to have the best probability of a positive result, in the most efficient manner possible.  Ask where the Buyer plans to obtain his/her loan, and make certain that the Bank used is a Preferred SBA Lender.

And for your part, make certain that your books are in pristine shape.  Make certain that your Corporate Tax Returns are up to date and that you have signed copies of them for the Buyer to take to the Bank.  The Bank will want to see the last three (3) years of Company Tax Returns, plus current Financial Statements, (Profit and Loss Statements, and current Balance Sheet); they should be no more than 45 days old.  If you take a paycheck, principally because you are an S Corp. or a C Corp., you should include your W-2 forms, for each of the Tax Returns you provide.

When you think about it, none of these things are unreasonable requests.  All of these things can be done efficiently, particularly if you know about them in advance.  Your Broker or CPA should be able to take you through this process, very quickly.

Keep in mind one other thing:  Without the SBA, the only way to sell your Business is for you to act as the Bank, and take a note for the majority of the sale price.  Suddenly, the SBA looks pretty darned good, and doesn’t it?

(The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Or, you may contact us at combroker@bafgroup.com. Thank you for your interest.)

We do not mean, are you sick and tired of the Business?

What we mean is, are you and your business positioned for the maximum sale price, offering the best view of a prospective Buyer coming in for a look-see, and can you turn it over with confidence that you are giving the Buyer the best shot at succeeding?  That does not mean you are guaranteeing him/her success; but it does mean that you are providing the Buyer with a positive environment, both inside and outside your doors, and a workable foundation for him/her to take over.

For example, who is the face of the business?  If you are a micromanager, (or is you are simply a solo operator,) and every sale is due to your sole efforts, every problem is handled solely by you, and the Customers only know your name, when dealing with the company, you could be in trouble.  This could mean that anyone coming in behind you could fail before he/she starts, because the company really means very little to the Customers; it is YOU they feel that they deal with, not the ABC Corporation.

It is like when football start John Unitas left the BALTIMORE Colts, (yes, we are still bitter about the move to Indianapolis…)  No matter who the next quarterback was to be, no matter how good his prospects, Unitas was so beloved in Baltimore that the fans were ready to hate the next guy.  (You younger people can replace Favre with Unitas, andGreen Bay with Baltimore…)

Business can be exactly like that.  In some businesses, customers can get a comfort zone with one person, and when he/she leaves, they feel a personal sense of loss, perhaps even a betrayal.  This is particularly true when long term, repeat transactions are characteristic of the daily business routine.  People will frequently wait for the same person to cut their hair, whether the customer is a male or female; people will ask for the same auto mechanic; the same doctor.  When going to a Walmart or similar retail operation, the brand is the issue – you do not necessarily ask for the same cashier.  But if you are a Home Builder, you might ask for the same guy at the local Lumber Yard, because that guy knows your traditional needs and the transaction is viewed as more efficient and secure.

Similarly, populating the business with family members or people that are so, personally close to you that when you leave, so will they, is a huge mistake.  Ask yourself:  What will happen to the business when I walk out the door?  If the business fails after the sale because of the actions (or inaction) of the Buyer, that is not your problem.  But if your business is organized so the company cannot keep going without you, it is unsalable, or at least salable only at a very discounted Price.

Financial issues need to be addressed, before you can sell, as well.  One of the biggest things to bring to order is how expenses are expressed, in order to reduce Taxes.  The more you attempt to legitimately obscure or camouflage your Profits, the less the Bank or the Buyer is going to be willing to accept that Cash Flow as a function of the Price you demand.

And for those of you who just plain hide money – like the guy to accepts cash in his Retail store and simply does not report it to the IRS – God bless you!  But do not try to then use that as a part of the Cash Flow that will translate into a selling Price.  You profited from the fact that you cheated the IRS; do not think that you will get that same money reflected in the Price.  A Bank will simply not honor that kind of thinking, when considering a loan for your Buyer.

And speaking of Taxes, what terms will you need to employ in selling the business, or how should you structure the proceeds for the best tax advantage?  Making these decisions at the settlement table is a radical mistake.

Long term planning is best in other areas – sometimes, LOONNGG term planning means years in advance.  Making certain that your Clients are not too heavily concentrated takes enormous effort and time, to accomplish.  Having one Client that represents more than 20% of your business can heavily reduce interest in your business, or at least be used against you in negotiating Price.  (The 20% number is not engraved in stone, since some Buyers become alarmed when the number goes above 10%, while others will say it is not a problem until the number approaches 40%.)  The issue is that the sale of any business has the potential of a loss of some Clients; if there is a concentration of business in one Client, the threat of losing that one Customer can be catastrophic, and that will weigh heavily on the Buyer, one way or another.

Finally, most small Business Owners do not have a written Business Plan, or if they ever did, they forgot all about them once they got the loan to start or buy their businesses.  When selling a business, having an updated Business Plan can be an extraordinary plus, for the Seller.  It can be the most powerful tool with which to impress the Buyer about the business’ history, and its prospects for the future.  If you have one, use it.  If you do not, consider creating one.

There are many other issues that should be considered.  But these are the most vital, in our view.  As stated, these can make the difference between getting a maximum from your business, or being able to effectively sell it, at all.

(The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divesture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at http://www.bafgroup.com. Thank you for your interest.)