Business Seller FAQs

A business is a combination of physical assets, like furniture, fixtures and equipment, and intangible assets, like customer lists or more importantly customer relationships.  Another name for intangible assets is goodwill.  What are those factors about a business that drives the economic success of that business?  There are many factors that determine the value of a business, including the economic condition of the market it serves.  Business Valuations provide a comprehensive look at your company with a systematic review of the myriad of factors, both internal and external to the business, that drive business value.  The value of a small breakfast and lunch restaurant can be reasonably estimated by an experienced broker in an hour or two.  The value of a larger business, with a complex financial structure, serving a diverse market, takes many hours of careful analysis by a trained professional.  The goal is a determination of maximum value that will hold up in the marketplace of buyers.  Buyers seek to minimize risk and yet expect a maximum return on their investment. We highly recommend Sellers invest in a professional assessment of the fair market value of their business.  Such an assessment is indispensable for a successful sale on terms that best benefit the Seller. 

Candidly, many of our listings and engagements follow from a period of time where our clients tried selling on their own.  Many business owners have had buyers approach them directly with offers to buy.  Some of these deals are successful.  But all too often they are not, and lead to frustration and stress.  Many of our clients have dealt with such buyers for months and even years without a successful conclusion.  Haggling over price is often an issue that never gets resolved.  At George & Company we have the expertise and experience to defend the asking price while shouldering the busy work that comes with managing the process.  As such, our clients can concentrate on running their business, while we handle the day-to-day process of getting the job of selling the business done.

You will need an accountant to review the taxes associated with selling your business.  Taxes owed to both the State and the Federal Governments will vary depending on a number of factors. There will be closing costs incurred and capital gains taxes due with the sale. How the sale of the business is structured will affect the amount of taxes that will be due with the sale.  An accountant familiar with structuring the sale of a business to minimize such taxes is important.  A ‘transaction’ attorney with expertise in business transaction law, as well as with direct experience representing clients with the sale of businesses, is highly recommended.  The success of any business transfer is dependent on the Team effort put forth. We can provide a list of attorneys with experience in M&A transactions and other types of business transfers of ownership. We are familiar with tax minimizing strategies that a CPA in general practice may not be aware of.  At George & Company, we work with both our client’s attorney and CPA to facilitate a deal structure in the best interest of our client Seller.

According to the Business Brokerage Press, published annually, the average time for the sale of a small business is 212 days.  That doesn’t mean all businesses sell in 212 days!  At George & Company, some deals come together within 90 days, others can take a year or more.  Some industry sectors are in high demand, while others have a smaller pool of potential buyers.  The strength of the financial structure of the business, as well as the industry sector of the business, both affect the demand or salability of a business.  Due to these considerations our contracts run from a minimum of 6 months to 12 months.

The answer to this question is yes.  That said, it is a valid concern.  It’s been said that the job of a business broker is to sell their client’s business in the shortest possible time, for the highest possible price, and without anyone knowing it’s for sale…including the buyer (not).  Of course, prospective buyers must be engaged in a dialog, but one that maintains strict non-disclosure and confidentiality.  Business brokerage is in some sense a stealth profession.  We market our clients very carefully using procedures that minimize unauthorized knowledge the business is for sale.  A legally enforceable business confidentiality agreement, also called a non-disclosure agreement, is first  executed.  All marketing activities are implemented with the discretion necessary to keep the secret.  For example, a general generic flyer, sometimes called a teaser, can be sent to a carefully selected list of potential buyers.  Buyers who have been pre-qualified for appropriate industry experience, business acumen, and financial ability.  At our company, we like to say Confidentiality is the Operative Word.

Many businesses carry large amounts of inventory.  Inventory is an important asset, especially in the retail sector, that drives sales.  With the sale of a business, the value of such inventory is counted at wholesale cost and quantified in the allocation of the total purchase price.  Whether the deal structure is that of an asset sale or stock sale, the Seller receives the value of the inventory in the sale. There is some confusion with regard to including the value of inventory in the asking price of the business for sale. For example, should the asking price of a retail liquor store be priced including inventory, or marketed as a base price for the business plus inventory. It is routine with the sale of larger middle market companies, to include the value of inventory in the asking price. Many retail businesses, for example liquor stores, are marketed with a price for the business plus inventory.  There is really in the end no difference, as the Seller receives compensation for the cost value of that inventory in the final selling price of the business.

The simple answer is the buyer purchases the receivables at closing, and then collects the debts as they are paid to the business.  If there are receivables that may be questionable in terms of collecting their value, the Buyer may not want to pay for them.  Typically, receivables due within a normal billing cycle, are paid for as a segment of the total purchase price.

Business purchases are either financed through third party lending, or with Seller financing.  The size and type of business is an important factor.  Micro-sized businesses with a value under $200-300,000 often require Seller financing.  Most Banks will not consider them.  Many Sellers do not want to finance the sale of their business, unless there is no possibility of third-party financing.  For the Seller to finance, the Buyer will be required in most cases to inject a 50% down payment.  The Buyer must have a very strong credit rating, as well as direct business experience.

For larger businesses, the purchase can be financed through a third-party lender, typically a bank.  Most banks doing loans for business acquisitions do so utilizing the federal government’s SBA (Small Business Administration) guaranteed lending program.  The SBA limits the risk for the bank by guaranteeing a significant portion of the loan.   Historically this has been 75% of the amount of the loan.  Historically the buyer would inject 20% of the purchase price to satisfy the down payment requirement, and pay certain other closing costs associated with the SBA loan.  An obvious benefit to a buyer is the ability to leverage the purchase.  Whereas a Seller would want a 50% down payment, the down payment utilizing SBA is much lower (20%).  With Seller financing the term of the loan may be at a maximum of 5 years, and with SBA financing the term can be up to 10 years.

Currently the SBA has increased the incentives for these business purchase loans.  They have lowered the down payment requirement to 10%.  They have waived the Buyers SBA Guarantee Fee, which can be $5,000 to $15,000 depending on the size of the loan.  The SBA will also, for businesses under agreement in 2021 through September 30, 2021, make the first six months of amortized monthly payments to the lender.  These are very positive incentives in response to the current COVID 19 economic downturn.