There are usually many questions
that arise when a business owner considers selling their business.
Venture Group Business Brokers can provide buyers and sellers with
answers that will help make the transaction smooth and successful.
Here
are some frequently asked questions:
What is a business broker?
Why should I use a business broker?
Are real estate agents also business brokers?
How do you advertise a business for sale?
How do you handle confidentiality?
Why buy a business instead of starting one?
What is the best business to own?
How is an offer structured?
What kind of financing is available?
How long does it take to sell a business?
What is a fair price for a business?
What is Cash Flow?
What
is a business broker?
A professional who assists people in buying and selling businesses.
This includes evaluating and pricing a business, working with prospective
buyers, negotiating and structuring the transaction.
Why should I use
a Business Broker?
A professional business broker has the training and experience to
guide you through the process in a comfortable and efficient manner.
He/she will coordinate the efforts of your professional advisors,
such as attorneys and accountants. He/she has handled many transactions
and understands the complexities of selling and buying businesses.
A professional business broker can save an owner time in searching
for and qualifying buyers as well as maximize exposure to numerous
qualified buyers.
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Are real estate
agents also business brokers?
No. Although they do share some similarities in how they operate.
Business brokers sell only privately-held companies while real estate
agents sell real estate. There are many differences between putting
together a business transaction and selling a piece a property.
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How do you
advertise a business for sale?
We advertise on the Internet through our website and through the prominent
national website database, BizBuySell.com.
We also advertise in the local newspapers and use direct mail marketing.
We network with local businesses and receive referrals from attorneys,
accountants and other professionals.
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How do
you handle confidentiality?
Venture Group Business Brokers handles all transactions in strict confidence
to protect the interests of all parties. Before any detailed information
concerning a specific opportunity is released ,we require that a prospective
Buyer review and sign a nondisclosure agreement
outlining his/her responsibility in having access to a Seller's confidential
information. VGBB is committed to protecting the confidentiality of the
business sale. We understand that public knowledge of a potential sale
can affect the attitudes and actions of customers, employees, competitors,
lenders, suppliers or investors, and thus the value of the company.
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Why buy a business
instead of starting one?
Buying a business will usually require more money than time while starting
one requires more time than money. The break-even point for buying versus
starting a business is the cost to buy equipment, rent a space, pay a
staff, pay for advertising, establish contractual relationships and support
yourself while you are building up a customer base. If you buy a business
that has already been established, you have income from the very first
day and you already know what can be accomplished by the business. If
you start a business, you face some uncertainty over the success and desirability
of your product or service. Buying a business takes a lot of the risk
out of your decision.
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What is the best business
to own?
In general, there is no industry that is particularly better than another.
Most Buyers want to own a profitable, well-managed business in an industry
that holds a personal interest for them. On the other hand, some Buyers
may look for opportunities that offer turnaround potential, where they
can apply their special skills.
Example: two restaurants are located in the same shopping
center, one is successful and the other is not. The successful one may
have a hands-on owner versus an absentee owner. It may have more effective
advertising, friendlier employees, better customer service or more competitive
prices. It may pay less rent, have more efficient equipment, pay less
for supplies and have higher profits. The only way to find out which one
is better is to compare the two and select the more desirable one.
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How
is an offer structured?
Most businesses sell for one-third to one-half cash down. The remainder
is financed by the Seller, by a bank, through family or friends. Sellers
generally prefer to receive all cash at closing and some Buyers are able
and willing to accommodate them. However, Buyers are usually trying to get
the most bang for their buck and will want to leverage their down payment
into the largest business they can buy. Although Buyers may want to make
a no-money or low-money down offer, it is very rare that they will succeed.
Usually a business cannot earn enough to both pay a salary to the owner
and service such a high level of debt. In addition, the lender, whether
it is the Seller or a bank, wants the Buyer to show his commitment to the
business by having a vested financial interest in its success.
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What kind of financing
is available?
Seller financing is usually the least expensive and easiest to obtain. It
also tells the Buyer that the Seller has confidence in the business. There
are no loan fees and the interest rate is usually lower than the bank rates,
but often the term of the loan is shorter. Seller notes make up the majority
of Buyer financing. Banks will loan money on businesses that show a strong
earnings history on the tax returns. They require a lot of documentation
and the payment of upfront fees. If all else fails, family or friends will
sometimes offer to help out by either providing funds or signing a guarantee
for a bank loan.
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How long does it take
to sell a business?
The average time to sell a business is usually between six to eighteen months
but there are exceptions. Some businesses may sell within a month of being
put on the market. Others may take several years to attract the right Buyer.
Selling a business takes longer than selling a house or a commercial building
because of the confidential nature of a business sale.
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What is a fair
price for a business?
As with any other product, supply and demand determines the value of a business.
If a business is especially desirable and there are few on the market, the
price will be much higher. A general rule of thumb is 2 to 3 times the owner's
benefit, with a 30% to 40% down payment and a note to the seller using the
assets of the business as collateral. If the business can pay you the income
you need and make the payments to the seller, then it's worth the price.
If the cash flow won't do this, then the deal needs to be restructured so
that it will.
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What is Cash Flow?
Cash Flow or owners benefit is calculated as profit before income tax, one
time expenses, depreciation, interest and owner's compensation & benefits.
This is the amount of money the owner has available to pay himself, buy
additional equipment, make note payments on the business and pay taxes.
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