Why should I use a Business Broker?
Selling or buying a business is one of the most important financial decisions that you will make. A business broker has the training and experience to guide you through the process in a comfortable and efficient manner. He is a team player who will coordinate the efforts of your professional advisors, such as attorneys and accountants. He has handled many transactions and understands the complexities of selling and buying businesses.
During the process, the seller’s job is to do what he does best, which is to run the business as if he were going to keep it. The broker’s job is to confidentially market the business, find and screen the buyers, educate them, negotiate the terms of the sale and provide a buffer for the emotional highs and lows that we all experience. The buyer benefits because the broker has already pre-qualified a business before he lists it and he has psychologically prepared the seller for the sale. He has also done a lot of the legwork to assemble the financial information and background of the business. This helps to reduce some of the uncertainty for the buyer and make his search more efficient.
How do you handle confidentiality?
Transactions handled by Front Range Business, Inc., are held in the strictest of confidence to protect the interests of all parties. We require that a prospective buyer review and sign a Confidentiality Agreement outlining his responsibility in having access to a seller’s confidential information. This occurs before any detailed information concerning a specific opportunity is released. We are 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. We also want to safeguard the employment status of a potential buyer while he considers a very important change for his future.
Why buy a business instead of starting one?
It may take more money than time to buy a business. It often takes more time than money to start one. 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 an established business, you have income from the day you take over. You already know what can be accomplished by the business. If you start a business, you face a lot of uncertainty over the success and desirability of your product, service or location. Buying a business takes a lot of the risk out of your decision.
What is the best business to own?
Beauty is in the eye of the beholder. 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 or improvement potential, where they can apply their special skills. In general, there is no industry that is particularly better than another. However, there are specific businesses that are more successful than others – even in the same industry!
For instance, two dry cleaners can be located in the same shopping center, but 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. It may have friendlier employees. It may provide better customer service or offer more competitive prices. It may pay less rent. It may have newer and more efficient equipment. It may pay less for supplies. It may have higher profits! The only way to find out which one is better is to compare the two and select the more desirable one.
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 or through other resources. 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.
What kind of financing is available?
Businesses can be financed from a variety of sources, all of which may be used in the same transaction. Financing sources typically include: the buyer’s own cash or funds obtained from equity in real property, securities or retirement funds; loans from banks and lending institutions; or seller financing. It is expected that the buyer will have a vested interest in the business by investing his own monies. Seller financing is usually the cheapest and quickest to obtain, and it tells the buyer that the seller has confidence in his business. There are no loan fees, but the term of the loan is often short, and sellers are usually reluctant to offer it without substantial collateral. Banks will loan money on businesses that show a strong earnings history on the tax returns. However, they require extensive documentation and the payment of upfront fees. The most common type of bank loans that FRB encounters are those guaranteed by the Small Business Administration. While many lenders participate in the SBA loan guarantee program, it can be volatile and funds are not always available. Finally, family members or investment partners are also sources of investment funds, which may be the only way a buyer can get into his own business.
How long does it take to sell a business?
It usually takes longer to sell a business than a house or a commercial building. Because of the confidential nature of a business sale, a business broker cannot put a For Sale sign in the window. The average time to sell a business is usually between six to eighteen months. However, 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. A business broker seeks out and talks to buyers constantly. The next one may be just right for a particular business.
How do you advertise a business for sale?
Every business is unique, so the marketing campaign will be designed to fit the specific business. We typically advertise businesses online through our website and through prominent national online databases such as BizBuySell.com and BusinessesForSale.com. We also advertise in the local newspapers; place ads in journals and publications that target particular industries; and, mail confidential “For Sale” flyers to owners of similar businesses. Industry trade journal advertising or a direct marketing campaign to businesses that are horizontally or vertically integrated into the business’ industry may be appropriate. We also network nationally and locally with members of trade associations such as the International Business Brokers Association, the Colorado Association of Business Intermediaries, the Denver Metro Commercial Association of Realtors, the Commercial Brokers of Boulder and the Boulder Chamber of Commerce. We receive many referrals from attorneys, accountants and real estate professionals. We are positioned to show up in searches on all of the major search engines, such as Google and Yahoo. We are listed in the Yellow Pages book and online. In short, if someone is looking for a business in Colorado, we will find them or they will find us.
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