sell my business - buying a business - selling a restaurant

Why should I buy a business rather than start one? 

• Buying an existing business can significantly reduce the risks associated with starting from scratch. Many small businesses fail during the startup phase and within the first three years, largely because they are still testing whether a real market exists. An established business has already proven there is demand for its product or service in a specific location.
• In addition, financial records and operating history are available, allowing a buyer to evaluate performance, cash flow, and potential problems before committing. Most sellers are also willing to stay on for a transition period to train the new owner, which can be invaluable for learning the day-to-day realities of the business. Many will even provide seller financing, making the purchase more accessible.
• Having someone who knows the business inside and out, is motivated to see you succeed, and is willing to help finance the deal can dramatically increase your chances of long-term success.

Why should I go to a Business Broker? 

• Going to a business broker can greatly improve your chances of finding the right business and completing a successful purchase. The key is selecting an experienced broker who is the right fit for you. A good broker takes the time to understand your strengths and weaknesses, background, financial situation, goals, and personal preferences. Based on that insight, they can present businesses that truly match you—often including opportunities you would not be able to find on your own.
• Business brokers are also an excellent source of information about both individual businesses and the buying process as a whole. They understand current market conditions and can advise you on pricing, trends, and what is happening locally. In addition, your broker manages the many details involved in a business sale and helps guide you through each step, reducing risk and keeping the process on track.
• In short, a qualified business broker acts as advisor, matchmaker, and guide—helping you make informed decisions and move forward with confidence.

How Are Businesses Valued? 

• Businesses are valued using a variety of methods—there are dozens of formulas in use—but most valuations are based on three primary components.
• First is the fair market value of the business’s assets, including inventory, equipment, furniture, leasehold improvements and other tangible items.
• Second is the business’s ability to generate earnings. To accurately measure this, it is often necessary to determine the true earning power of the business by adjusting the income statement for discretionary or non-recurring expenses paid by the seller. This revised figure, commonly referred to as “Adjusted Profit,” provides a clearer picture of the income a new owner can reasonably expect.
• Third is demand. Market demand plays a major role in valuation, as certain types of businesses—such as manufacturing companies—typically command higher purchase prices than others, like retail firms, even when earnings are similar.
• Together, these three factors form the foundation for determining a business’s value and help buyers and sellers arrive at a fair and realistic price.

Goodwill Sale 

• A goodwill sale refers to the sale of a business that is valued based on its proven sales and profitability. In most cases, fixtures and equipment are included in the sale unless otherwise specified.
• The seller must be able to substantiate the business’s sales and profits by providing accurate books and records for the buyer’s review. It is the seller’s responsibility to supply this documentation so the buyer can verify the business’s financial performance.
• In a goodwill sale, profits are often presented as an adjusted amount. Many business owners charge personal or discretionary expenses to the business that are not necessary for its ongoing operation. These expenses, known as “add-backs,” are added back to the reported net profit to arrive at an adjusted net profit. This figure better reflects the true earning potential of the business for a new owner.
• Most goodwill sales are priced using a multiple of the adjusted net profit. The multiple applied will vary depending on factors such as the quality of the business, consistency of earnings, and the strength of its ongoing track record. 

Asset Sale F/F/E (Asset - Furniture, Fixtures, Equipment) 

• An asset sale, often referred to as F/F/E (Furniture, Fixtures, and Equipment), applies to businesses where the seller is unable to document profits, where there is little or no profit, or where the business is operating at break-even.
• These offerings can represent excellent value for buyers who have the vision and ability to improve or turn around a business. In many cases, the asking price for an F/F/E sale is significantly lower than the cost of purchasing new fixtures and equipment, completing a build-out, and starting a business from scratch. Buyers may also benefit from some ongoing sales and existing customer activity from the previous owner.
• It is important to note that in an asset sale there is typically no review of books and records. The business is being purchased “as is,” and the buyer is relying primarily on the value of the assets and their own plans for future performance.

Books & Records Review

• The books and records review are the most critical component of any business being sold as a goodwill sale. It is the current owner’s responsibility to substantiate the business’s stated profit and adjusted profit to the buyer.
• This review typically takes place after the buyer and seller have agreed upon price and terms. Conducting the review at this stage helps ensure the buyer can qualify to purchase the business under terms and conditions acceptable to the seller. No escrow is opened and no buyer deposit is at risk until the books and records contingency has been removed.
• Books and records may include federal and state tax returns, state sales tax returns, prepared financial statements, check registers, and bank statements related to the business. The seller must provide sufficient documentation to support reported sales and profitability, while the buyer is responsible for performing due diligence to their own satisfaction.
• The broker or agent will assist in ensuring that the appropriate documents are provided, but does not participate in the buyer’s due diligence or verify the accuracy of the information.

What Happens When There is A Buyer for My Business? 

• When a buyer is identified for your business, it is critical to continue operating the company in an aggressive, growth-oriented manner. Do not ease up on day-to-day operations during the marketing or negotiation period. All decisions should be made in the best interest of the long-term health and performance of the business.
• Maintaining accurate and up-to-date financial information is essential. Work closely with your accountant to produce monthly financial statements with year-to-date figures. Serious buyers expect reliable data that is current—typically no more than 60 days old.
• Once the buyer and seller reach an agreement on price and terms, buyers generally want to move toward closing as quickly as possible. Throughout this process, it is extremely important to keep all matters related to the sale strictly confidential. Premature disclosure can disrupt operations, create uncertainty among employees, and negatively impact relationships with customers, suppliers, or competitors.

Why is Seller Financing So Important? 

• Seller financing is often a critical factor in successfully selling a small business. In many cases, businesses listed as all-cash transactions simply do not sell. Sellers who require all cash should expect offers discounted by as much as 10 to 30 percent. Offering reasonable financing terms dramatically increases the pool of qualified buyers and improves the likelihood of a sale.
• Because very few lenders are willing to finance the purchase of a small business, seller financing is frequently the only practical way to complete a transaction. In addition, the seller earns interest on the financed portion of the sale, which can significantly increase the total proceeds over time.
• Most importantly, seller financing sends a powerful message to buyers: the seller has confidence in the business’s ability to generate sufficient cash flow to make the payments. That confidence can be the difference between hesitation and commitment.

What Can I Do to Help Sell My Business? 

• To help sell your business, be prepared to actively participate once a buyer comes forward. We will assist in preparing the offer using our standard purchase contract, which clearly outlines the buyer’s proposed price, terms, and any contingencies. These contingencies typically specify the due diligence the buyer intends to perform.
• You should expect to be asked to provide documentation such as tax returns, bank statements, sales tax reports, and other records necessary to verify the financial performance of the business—usually covering at least the past three years. Buyers will also want to review any agreements that affect the business after the sale, including leases, franchise agreements, and other material contracts.
• All offers will be presented to you for your review and consideration. You always have the right to accept an offer, submit a counterproposal, or reject it entirely. However, it is important to understand that if an offer is not accepted, the buyer may withdraw at any time.
• Be prepared to invest time and effort at this stage of the process. Buyers come from many different backgrounds, cultures, and parts of the world, and negotiation styles can vary widely. Take the time to evaluate each offer carefully and objectively. An offer may contain both strengths and weaknesses, and thoughtful negotiation can often address concerns and improve overall terms. In many cases, the first serious buyer ultimately proves to be the best.

How are businesses priced? 

• Business pricing is ultimately influenced by supply and demand, but there are established “rules of thumb” and valuation formulas used to determine a realistic market value. Before a price—or a price range—can be suggested, your business broker will need to review the company’s financial information.
• Most sellers have an idea of what they believe their business is worth, and that perspective is always considered. However, an experienced business broker understands current market conditions and, after reviewing the financials, can recommend a price range that reflects what the market is likely to support. This range typically includes both a high and a low asking price.
• Because many business sales involve seller financing, the structure of the transaction is often just as important as the selling price itself. The amount of the down payment, the length of the term, and other financing conditions can significantly impact buyer interest and the likelihood of a successful sale. In some cases, how the deal is structured matters more than the headline price.