Pittsburgh Business Selling FAQs
We have been involved in so many transactions and learn something new in every transaction. Most people sell one business in their life and do not have the experience to avoid costly mistakes. We are here to lead you through the process, to avoid mistakes, and to make the process as simple and lucrative as possible. Some questions we have received are listed here for your benefit.
How can the sale of my business be kept confidential?
There are several approaches to maintain confidentiality. Confidentiality agreements are executed by interested buyers before they receive information on the business. Second, meetings with the buyer are held off-site and/or off-hours. Third, marketing, if any is done, with information that that hides the type and location of the specific business. We typically have enough buyers in our queue that no marketing program is necessary. Third, professionals (accountants, attorneys, bankers) are instructed on the need to maintain confidentiality.
In many cases, there is no benefit to employees being aware of a potential sale until very late (if not the end) in the process. Informing an employee can cause undue stress due to uncertainties.
We understand the need for confidentiality and have not had a client experience a problem with early disclosure of selling their business.
When is the best time to sell my business?
When you least feel the need. The best time to sell is when the business is performing is at its best, in terms of financial performance (sales and profits) and the outlook for the future. During tough times the business will be less attractive, but many people want to sell during the most challenging times. The business may be marketable during challenging times, but you likely will receive less money.
What should I expect when working with an Intermediary?
Many intermediary firms operate similar to real estate brokerages: seeking clients with businesses to sell, developing a write up of the business, listing the business, securing buyers, and then letting the process happen until a closing (might happen). The value these types of firms provide is identifying buyers.
Few firms serve as Advisor Intermediaries (AI). An AI provides all the services of a brokerage but leads and directs the entire process and serves as your expert Advisor until the end. A good Advisor thoroughly understands taxes and implications relating to business sales, must be completely knowledgeable in tax and GAAP accounting, fully understands all legal terms, concepts and documents in a sale, has owned and run their own businesses in order to understand your situation, and must be a completely trustworthy person who you are endearing what is arguably the most important transaction in your life. Good AIs also serve as a Business Coach during the entire process. AIs also aid in protecting you from potential lawsuits after the sale by working with you to develop correct and complete disclosure schedules.
TOG functions as an AI. There is no premium paid to AIs.
Can I engage your firm to sell my company without paying for a business valuation?
Yes. We do not charge upfront fees. Our opinion is that valuations paid for by business owners are worthless. Many accountants who perform valuations do so without comparable sales or knowledge of several important factors (owner involvement, customer concentration, specific industry) that affect value. Some professionals only look at financial statements. We believe our experience, combined with our understanding of all the factors that affect value, makes our recommended values much more realistic.
How long would it take to sell my business?
For the 1 in 5 listed businesses that are actually sold, according to Business Brokerage Press, statistics in the U.S. indicate the average time for 82% of businesses to be sold is four to 12 months. Less than 10% of businesses sell more quickly, and a little over 8% are on the market for more than 12 months.
How long should a brokerage firm hold an exclusive listing of my company?
The typical term is for a contract to last for six months to one year. We will let you out of a contract, as long as no letter of intent is in process, at any time. We won’t force a client to use us. We have never had a client terminate his/her relationship with us.
What are common reasons that a transaction doesn’t close?
The closings that don’t happen are typically due to some surprise that arrives during the due diligence process. For example, surprises that can occur (most can be prevented by working with the right firm) include:
issues – Sometimes a transactions doesn’t close after a buyer and
seller have “negotiated” a due to the landlord cannot come
to terms with the buyer. This issue should be discussed early in the
process to prevent any potential problem.
Financing issues – Most sellers wonder if financing can be obtained for the sale of their business. A buyer intending on putting a $200,000 down payment on a $2 Million business is unlikely to ever get financed. TOG has never had a transaction break down due to financing due to early vetting of the buyer and business.
Declining financial performance – If the financial performance declines during the transaction process, the business can lose value. It is important for sellers to continue to operate their business as though they’ll continue to own it for years.
Surprises in due diligence – It is important for negative characteristics, like having significant customer concentration or losing a key customer, to be disclosed early in the process, prior to the offer stage. The later a negative characteristic is released, the more of an impact it can have to the deal.
Do buyers want to buy the real estate or lease it from the seller?
There is no right answer. This varies on each situation. Sometimes the owner of the business can dictate whether the real estate is sold as part of the sale or retained by the seller and leased to the new owner of the business. Institutional buyers normally prefer to rent. For individuals, it depends on the financial position of the buyer.
How long does the owner of the business have to train the buyer?
Based on the experience of the buyer, the current owner typically stays on for a period of a few months, typically with declining time commitments (full time for a month or so and declining hours thereafter). Larger acquisitions may require a longer transition. This is discussed very early in the process, prior to a letter of intent, and is impacted by what involvement the seller wants to have post-closing.
What information do you need to perform a valuation analysis?
There are two categories of information we need. First, “intangible” information is needed. We need an understanding of the business and an overall grasp of the attributes that affect valuation. These attributes include the owner’s involvement in the day-to-day business, the products/services provided, the growth opportunities, an understanding of management, the profile of customers, etc. This can all be obtained in a few hours.
Second, financial data is needed for the past three to five years of:
- income statements,
- balance sheets, and
- tax returns
We need to spend time with you and gather some financial information and we’ll be able to inform you what to expect upon a sale of your business.
What type and size companies does TOG represent?
We represent small to mid-size businesses with gross revenues ranging from $500,000 to $100 Million. We primarily have worked with manufacturing, distribution, and service businesses. Recently we have also worked with several construction companies.
Can I hire TOG if I have buyer in place?
At least half of the engagements we are involved in are situations where the seller was already approached by a buyer. We handle the activities from that point until closing. It is believed that a primary value provided by brokers is to find a buyer. For true business brokers that is true. However, our vast experience allows us to add value at every step of the process.