Frequently Asked Questions

 

Why should I hire a business broker?

WE SELL BUSINESSES FOR A LIVING.  RMS and Company understands the market and knows the quickest path to achieving a closed transaction.

STAY FOCUSED ON RUNNING YOUR BUSINESS.  Having a third party involved enables you to keep an arms' length from the negotiations.

MARKETING AND ADVERTISING.  Designing a market plan targeted to the types of buyers most interested in your business is critical.  Business brokers use databases of buyer prospects from professional associations and investment groups.  Trade publications, direct mail and Internet sites for business transactions may also be used.

QUALIFYING BUYERS.  The business broker focuses on prospects who are financially qualified and who are genuinely interested in your type of business.

PRESENTING THE BUSINESS.  The business broker is experienced in handling negotiations, offering you the convenience of managing
your business while the selling process is underway.

MAINTAINING PRIVACY AND CONFIDENTIALITY.  A professional broker is skilled at protecting your confidentiality from employees, suppliers, creditors and customers of the business.

NEGOTIATING THE BUSINESS SALE TRANSACTION.  The business broker is a vital advisor during the sale transaction.  Experienced at negotiating price, terms and other key aspects of the sale, the broker guides the seller each step of the way.  The proper deal structure greatly affects the net amount the seller ends up keeping after selling the business.

How much is my business worth?

The value of your company depends on many factors.  What is the cash flow, asset values, financial history, condition of equipment and premises?  Are there favorable lease terms?  What are the competition, location and state of the industry?  The right analysis of your business and comparable sales in your industry is crucial. 
RMS and Company can advise you on eh proper pricing strategy, based on all of these factors.

The biggest mistake you can make is to over- or under-price your business.

Most financial institutions insist on a business valuation before they will consider financing.  In addition, businesses that have third party valuations sell more frequently at the asking price than those
that don't have one.  The valuation offers buyers the confidence they need that the business has been properly analyzed and priced.

Why not sell the business myself?

Most owners don't know how much time and expense is involved in marketing their business.  They often spend countless wasted hours working with unqualified buyers. Without access to a network of qualified buyers, business owners often end up selling for much less than they could have.  Also, it's very hard to maintain confidentiality as well as negotiate a deal when the business owner works directly with the buyer.  Using a broker can ensure the highest dollar.

When is the best time to sell?

The best to sell is at the business's peak.  Buyers put most of their focus on future prospects, but if your business has between a steady performer and buyers can see high growth potential, you can ask for (and get) a higher purchase price.

Why should I use RMS and Company and the BBN to sell my business?

RMS and Company saves money for both buyers and sellers by avoiding costly mistakes in the selling process.  Our national affiliation with the BBN Network enables us to use 450 affiliate offices worldwide to aid in selling our listings.

Bottom line?  By using us to sell your business, you get:

  • Maximum exposure
  • Confidentiality
  • Qualified buyers
  • Advertising and marketing
  • Financial guidance
  • Negotiating power
  • Ability to co-broker with 450 affiliates
  • Experience
  • Proven results

What items do I need to prepare in order to sell my business?

Gather documents for evaluation:

  • Three years of income statements or tax returns
  • Current balance sheet
  • Current asset list with replacement value
  • Copy of facilities lease agreement
  • Organizational chart

You are the expert in your business or the industry. The broker is the marketing expert.  Preparing a marketing package for your business requires that the owner and broker work together to determine the company’s strengths and weaknesses, and how together they can influence the marketing of your business.

When should I develop an exit strategy?

The sooner you develop an exit strategy for your business, the better.  The ideal time is when you start or purchase the business.  Industry statistics show that 85% of all business owners lack a defined exit strategy, although, on average, 75% of their net worth is tied up in their business.

Is my business ready for sale?

Your company’s financial records and operations must be evaluated and analyzed to determine its strengths and weaknesses.  Proper planning can help you address and hopefully minimize any operational or financial weaknesses before launching the marketing phase of the
disposition process.

What is my company worth?

Your company’s market price range is determined after consulting with all of your team members (accountant, valuation expert, M&A specialist) and evaluating your goals and objectives.  Timing
considerations, proposed transaction structure, industry conditions and lending market conditions are all key elements to consider in estimating the best market price range.

How long will it take to sell my company? 

The industry average for selling a business is 6-12 months.  The pricing structure and specific marketing strategy all directly affect how long the process takes.

How do I maintain confidentiality in the marketing process?

Confidentiality in dealing with internal personnel and external sources is critical to achieving a successful transaction.  For the seller’s protection, RMS and Company requires a Buyer’s Confidentiality
Agreement to be signed by the potential buyer before the release of the Business Memorandum.

How do I prepare to buy a company? 

Before the acquisition search begins, it is important to narrowly define and target a specific industry and business size, develop an integration plan (if applicable) and understand your financial purchasing parameters before exploring your financing options.

Will RMS and Company help me arrange for financing?

Yes.  We assist buyers in obtaining transaction financing through our extensive financial institution network.  We counsel you on a variety of transaction financing options and assist in evaluating these options as they relate to your specific potential business acquisition.

Does RMS and Company assist in strategic acquisitions? 

Yes.  We will formulate with you a definitive acquisition plan that targets both single and multiple acquisition candidates.  You can remain anonymous and maintain confidentiality until the appropriate time in the transaction.

What is a business valuation?

A business valuation is an estimate of the value of a business or of an interest in the business.

Should the value of a business have any relationship to the value in the marketplace?

A business valuation includes the market value that a buyer is reasonably expected to pay, and that a seller is reasonably expected to accept.

Why are valuations done?

A valuation may be necessary to sell a company, buy a company, sell shares of a company to key employees, or settle estates.  Valuations are also performed for divorce property settlements, insurance
purposes or so the owner can stay informed of the company’s value as growth takes place.

What information should be used to complete a valuation?

RMS and Company uses proprietary information such as tax returns and accountant-prepared financial statements for up to five fiscal years.  We also incorporate interviews with the principal and employees, tours of the business facility, reviews of customer lists, tangible business assets, general operating and management information, and other information concerning business operations.  We also analyze and compare the company’s financial performance to others in the same industry.

What’s done with all of this information?

The basis of any valuation should be the analysis and reconstruction of business earnings, an assessment and reconstruction of business earnings, an assessment of current business assets, and an opinion of the future of the business.  The valuation considers the continuity of
business income, market competitiveness, industry growth, company longevity and reputation, financial trends, management depth, customer mix, the quality of the products and services offered, and the general desirability of the business.

What’s more important—business earnings or business assets?

While it’s true that earnings must support the purchase of business assets, it’s also true that assets must be available to serve as financial or even “psychological” collateral.  The mix of assets and earnings varies considerably among businesses.  This mix must be judged accordingly for any specific business.

In most valuations it is necessary to reconstruct the tax oriented income statement and balance sheet to display the information as it would appear to a new owner.

For example, the income statement may need to be adjusted to better show the pre-tax earnings that a business can generate. This is necessary since an income statement is prepared for tax purposes and in general will attempt to lower taxable earnings. A business may show a non-cash expense such as depreciation, in excess of what would be necessary for a reasonable replacement fund. Also, an owner may receive a salary that is either too high or low for the work being performed. Both of these cases will require adjustment.

Another adjustment is usually required for interest expenses since a new owner’s debt and equity structure may be different than the current owner’s. Other adjustments may be needed on expense items which are not necessarily important for business operations but considered important to the owner as additional benefits or compensation.  

In addition, a company's balance sheet may display equipment that is
fully or almost fully depreciated, but that has a higher fair market value. The balance sheet may also display certain assets such as franchise fees or real property at cost, but they may actually have appreciated in value. Conversely, there may also be unrelated business assets that should be eliminated. These and other adjustments to a company's book value of assets need to be made in order to show the current fair market value.

Top 10 reasons why businesses don't sell

1. Priced too high
2. No justification for the price
3. Business cannot be financed
4. Poor record keeping (tax returns)
5. Not packaged correctly, need to explain full value of the company in
writing.
6. Buyers want to leverage their money.
7. Desirability (owner’s responsibility and hours required to operate
successfully)
8. Management and employee not staying on after the sale (family owned)
9. Outdated service and/or product (i.e., payphone business)
10. Too much working capital required

Some additional points to consider:

Asking Price Must be reasonable and fair to both seller and buyer.

Deal Structure and Financing  Is owner financing a consideration? Does this company have the potential for SBA approved financing?

Sales and Earnings  Are revenues going up, down, or flat? What are the trends in expenses and margins?

Company History  Is this business a start-up company or is there
a long, steady history?

Marketing Strategies  Can sales be improved through a more
aggressive marketing campaign?

Industry Trends  How are revenues trending in the industry
as a whole? Is there a consolidation movement within this industry?

Employees  Is there a stable workforce? Do the employees know the business is for sale? Is the owner willing to stay on as an employee?

Facilities  Is there a long-term lease? Is real estate included in the deal?

Assets and Liabilities  Exactly what assets and liabilities will be transferred with the sale of the company?  Should accounts receivable and accounts payable be included? Are there any assets or liabilities that should be excluded?