There is so much to know about selling your business, and here on “Deal Talk,” we examine different pieces of the M&A process on each edition of the show. However, if you are waiting for a show that will lay out every stage of the business-selling-process step by step in a comprehensive, yet the easy-to-understand way in about 30 minutes, the wait is over. Host Jeff Allen welcomes back certified business broker Andrew Rogerson to the program for a quick walkthrough of the entire business-sales process, from the moment the owner knows they want to sell to the moment after the signatures are applied at the signing table.
I want to have a conversation with the buyer to make sure they're qualified persons as opposed to the competitor down the road who's just checking things out, or somebody who's got a wishful thinking to buy their own business but really has no capacity to do it. I want to have that conversation with the buyer.
- Andrew Rogerson
Jeff: That's okay. We don't allow just anyone back Andrew. We like to have guys on with Australian accents who have a lot of business savvy and experience. You have a lot of experience in your background. Also by the way I should say a business owner. In fact, I think you've owned five businesses if memory serves, is that correct?
Often the seller and the buyer may wish to do a deal in a certain way, but if the lender says, ‘I'm sorry, that's not happening, you've got to do it my way.’ Guess what? The lender wins out, because if the lender goes away, the deal goes away.
Jeff: Any by the way too, that leads us to speaking of confidence, preparing a confidential business review as well.
This is the purpose of escrow. Let's get everything cleaned up, crystal clear for everybody so that the seller walks away cleanly, and the buyer's got everything to operate the business as the seller's been running. And that's the purpose of the escrow process. Get everything organized, i's dotted and t's crossed.
Selling your business may be the most important business transaction you'll ever undertake so don't go it alone. Work with an organization that has made it their business to sell businesses and that's all they do. Morgan & Westfield at 888-693-7834. At Morgan & Westfield we know that selling your company is not something you should take lightly. It can be a stressful, difficult, even emotional process. That's why it's important to work with a team whose one and only specialty is selling businesses throughout the United States. And Morgan & Westfield will help you every step of the way. From helping you plan your exit strategy, to preparing a comprehensive appraisal, and locating the right buyers. Without the right team behind you, you could be leaving money on the table. So don't leave your most important business transaction to chance. Call Morgan & Westfield for a free consultation at 888-693-7834, 888-693-7834, or visit morganandwestfield.com.
You know, if you have any questions about any of the topics you hear us discuss here on Deal Talk all you need to do is ask us. We have an Ask Deal Talk info line set up just for at 888-693-7834 extension 350. Again, that number, 888-693-7834 extension 350. Leave your question and we'll try to furnish your question and our guest response on a future edition of Deal Talk.
Jeff: I'm Jeff Allen, back with Andrew Rogerson of Rogerson Business Services now. We're talking about the four stages involved in selling your business, and we're going through every step of this four-stage process. So Andrew, I'd like to go ahead and start with the third stage here, and that stage is deal making. And the first step in that stage is buyer visit and first meeting.
Andrew: What we're doing here is that we've gone through the planning and the search stage, and we've come across one or two buyers that have an interest in buying the business. And now it's time to get into the weeds a little bit more. And so the buyer has reviewed all the information being presented to them. Their interest is piqued and they want to know a bit more. And that includes meeting with the seller. The capitalist system is built on trust. And so if you bring a buyer and seller together and the trust isn't there we aren't getting the deal done. And so it's important for the buyer and the seller to come together. They're testing out each other and deciding their level of comfort with each other. And that's the opportunity of coming together for the first time either to see the business or to meet the buyer and the seller, and check through things and decide their next steps from there.
Jeff: That trust by the way, we all know takes time to develop. It's not just something that comes up after that first meeting as most people know. The next step in the process after that first buyer visit and meeting is actually the opportunity to tour the business.
Andrew: That's right, and that's if the business has got hard assets, the business to visit. We've moved now to the technology age where a lot of businesses are online. So if the business is online, looking at a website, that's the extent of the business. The buyer may like to come and see the back-end with the office where the business operates from and if there's employees that do certain tasks. They just want to get a feel for it. But touring the business is important because we're visual people. We like to see things and ask questions indirect. And so touring the business is an important part of the qualification process of the buyer and their level of comfort.
Jeff: And that too helps us get to stab the next step which is at that point after they've had a chance to tour the business they have a better idea of what they might be getting themselves into. And then you have to once again go in and establish buyer interest don't you?
Andrew: That's exactly right. The first two stages, we were doing the qualification process and the buyer had an interest and they've been looking at things from a theoretical perspective with all the documents and things they've been reading. We'll just take them and showing a tour of the business, so now they've got to combine the theoretical with the actual business itself. And they're saying to themselves, "Okay. I got to picture everything now. I've seen the financial statements. I've seen the business itself. Okay, what do I want to do now? Is this making sense to me to continue or maybe I should've drop out because there's something that come up that I'm not comfortable with. And if they’re uncomfortable that's part of my role because I'm talking with them, is it uncomfortable to the point that, "Hey, I'm out of here. I don't want to continue, or I'm feeling uncomfortable, can you get some more information for me, or can you answer these questions?" And so with me talking to the buyer to get their interest, that's an important step where we are right now.
As a broker, I'm not willing to present the thoughts of the buyer unless they're in writing. Because what's said in casual conversation, or whatever, it's got to be in writing, because that allows the seller to actually sit down, read it and then to go away and make their decisions on what's important.
Jeff: Your next move is to motivate the buyer to act in one way or the other.
Andrew: And that's a big step for the buyer because now they're moving from... I was thinking of buying a business to, oops, I could be buying a business here. This could go somewhere. And we're human, we're emotional. So their emotions are changing now because at this stage they could walk away and they don't need to hire any experts to help them through the buying process. But right now they've come to a fork on the road. It's either, "Okay, I'm doing this and I'm serious and I may start incurring some costs," Or, "Hey, I'm out of here. I don't feel comfortable doing this." And so the fork in the road is being defined and it's pretty simple. We need a yes when moving forward, or we need a no, we're not moving forward. If it's a maybe it's like, "Okay, why is there a maybe and we need to talk about that."
Jeff: And step number five at that point once you've made those determinations and the offer to purchase has been potentially extended facilitating the negotiations is next. That negotiation stage, very, very important.
Andrew: And that's where the fun part starts, that's where the stress kicks in, because now you have a motivated buyer, and because we're in the market with the seller's business we had a motivated seller, and now from a business brokerage perspective I've done what the motivated seller wanted me to do, I found the motivated buyer. I haven't closed the deal yet but I've got two motivated parties and that's what you need to be able to get a deal done. And so it's like, okay, the buyer has an interest but he wants to negotiate things. He's just not going to write a check out for what the seller said he's looking for, then the negotiations start. And it is what it is. It's a bit of fun but it's also very, very stressful. And it can be a short period of time or it can drag on and on and on. It is what is. It goes where it goes.
Jeff: The letter of intent or asset purchase agreement actually comes next after the negotiations.
Andrew: There's been conversations and things have been thrown out there and a whole bunch of words have been exchanged. But we really don't have things in writing. And for me as a broker I'm not willing to present the thoughts of the buyer unless they're in writing. Because what's said in casual conversation or whatever, it's got to be in writing because that allows the seller to actually sit down, read it, and then to go away and make their decisions on what's important to me, what do I want to go back and negotiate, or am I willing to accept what the buyers offer? Where's my head? And so having a written document, be it in the form of a letter of intent which the parties can walk away from, or it's in an asset purchase agreement. And the difference between a letter of intent... Letter of intent is high level, it has key details in it. An asset purchase agreement is a much more detailed document and different documents to use depending on the type of transaction. That's the deal making pieces we've just covered.
Jeff: There we go. We've identified and discussed the details of the first three stages and the final stage is the closing stage. And this should be the fun part really for everybody involved, open due diligence.
Andrew: You're exactly right Jeff. It's an important part. And the dynamics tend to change because previously the buyer and the seller had been adversarial to a certain extent because they're both working out what their level of comfort is with doing certain things. But now they've come to an agreement like the seller is made representations. And so the buyer says, "I've been accepting of the information you've been sharing with me but as Ronald Reagan says, show me and I'll trust you." Now, the buyer has the opportunity to bring in their CPA or their tax professional. I can talk with their attorney. They can bring in their experts to help them verify the representations of the seller. And that's the purpose of opening up due diligence.
Jeff: Very, very good. The next step in that process, apply for financing if needed. Now the money is starting to come in at some point here, and we're getting deeper into that closing phase.
Andrew: Exactly. And so the financing is an important piece because there would have been conversations previously. If the buyer needs to get finance, we want to have that conversation earlier than now. But this point now is actually formalizing the loan request. Because the lenders will give you verbal agreements or they'll give you pre-qualifications. We need to move from pre-qualification into pre-approval, which means the lenders are also doing their due diligence and they're doing their underwriting process to say, "Yes, we had an interest earlier, but now we definitely have an interest and we're willing to be part of the final closing process of making money available. And so dotting the i's and crossing the t's on the finance application, that's the piece we've just dealt with.
Jeff: And then the next step of course, obtaining those lender instructions from the bank.
Andrew: Yes, and the lenders do have rules, especially if it's for example an SBA loan. The SBA documents, it's a government program. They're about five phonebooks. They're incredibly detailed. And so often the seller and the buyer may wish to do a deal on a certain way, but if the lender says, "I'm sorry, that's not happening, you've got to do it my way." Guess what, the lender wins out because if the lender goes away the deal goes away." And so a buyer and a seller may think that they're in control of a situation but the lender has sometimes more say whether a deal gets done or not because of the loan underwriting requirements.
Jeff: And the escrow is opened up then at step number four.
Andrew: This is where the buyer is paid the deposit to show they're serious in buying the business. And now we need to help with the third party which is an escrow company because their job is to represent nobody. Their job is to talk to the seller, talk to the buyer, talk to the lender, talk to the landlord, talk to the government agencies to get clearances. We're in California so in California there's sales tax, there's health department requirements. If you have a liquor license, there's the ABC. There's different government agencies. And so part of my role as the broker is to make sure the business transfers from the seller to the buyer, and everything's done correctly because I don't want the buyer buying the business and a step they missed that puts them into a financial disadvantage or a time disadvantage. This is the purpose of escrow. Let's get everything cleaned up, crystal clear for everybody so that the seller walks away cleanly, and the buyer's got everything to operate the business as the seller's been running. And that's the purpose of the escrow process. Get everything organized, i's dotted and t's crossed.
Jeff: By the way, we know Andrew that not all states do require escrow agents involved in the closing of business transaction. So this particular step, maybe a little bit different depending on where you're located in the country listening to this program right now. The next step in the closing stage, we're coming up toward the end now. Start the bulk sale process.
Andrew: If you're selling a business in California Jeff and I do appreciate your previous comment. You're exactly right, I am in California, I have a California real estate license to do what I do. So my comments here are California specific and your comment about being different outside California is very, very appropriate. In California when you're selling inventory there's a requirement to go through about sell process because the logic is the suppliers of the inventory to the seller, they may be owed money, they may have accounts receivable or accounts payable outstanding with the seller who has the inventory. And so to protect the sellers we have a bulk sale process which allows them to be notified that the business is changing hands from the seller to the buyer. And the supplies should look to the seller to get their money because the seller is the person that ordered and has the responsibility to pay for those goods.
Jeff: And really, the final step in the closing process is meeting at that all too important signing table, that whether it be Starbucks or no matter where you agree to meet, you've got a bunch of documents you're going to have to sign.
Andrew: Yeah. And we have probably polar opposite emotions. So the seller is absolutely exhausted by now because of the process they've gone through and they're so delighted to be sitting there and signing this documents and saying, "I'm done. This is exciting." And conversely the buyer is saying, "What the heck am I doing? Shall I be doing this?" And so that's the joys of the signing document process where total fear on behalf of the buyer, and the seller is just completely exhausted and relieved. They'd finally get this thing done and move on with their lives.
Jeff: And Andrew, it's chapped like you who get to sit there and watch the emotions on both their faces and you just take it all in. And then you have a toast with your loved ones later on saying, "This was a good day."
Andrew: It's a big drink too I can tell you, it's a big drink.
Jeff: We've gone through the four stages today and I certainly hope that you listening to the program no matter where you are got a lot out of this. We tried to cover each of the steps of the process, the planning stage, search stage, deal-making stage, and closing stage. Don't forget if by chance we lost you along the way, or you want to go back and you want to listen to the program again, you're welcome to obviously. You can also read the transcript at morganandwestfield.com right underneath the podcast media player that you're listening to this program on right now. Andrew Rogerson what a delight. As always my friend I enjoyed having you back on the program. If folks would like to give you a call too. Maybe they've got some simple questions, maybe they like to talk to you about the sales process, or maybe they'd like you to talk to them a little bit about their particular business, their situation, how can they reach you?
Andrew: I'm happy to talk to them and my phone number is 916-570-2674. And the good news is they get to talk to me, and they also get an Australian accent at no additional cost. So there's absolutely no downside to giving me a call.
Jeff: Thank goodness for that, and you'll even throw another shrimp on the barbie there for you at some point perhaps. It's Andrew Rogerson again, my friend, I appreciate the time. I really enjoyed talking with you and thank you again for joining us on Deal Talk.
Andrew: Thanks Jeff.
Jeff: That's Andrew Rogerson, certified business broker and a business consultant at Rogerson Business Services in Sacramento, California. Tell a friend about Deal Talk won't you? In addition to morganandwestfield.com you can find us on iTunes, Stitcher, and Libsyn, so make sure that you take us with you. We fit very portably into any personal or mobile device that you have.
Deal Talk has been brought to you Morgan & Westfield, a nationwide leader in business sales and appraisals. Learn more at morganandwestfield.com. My name is Jeff Allen. Until next time, thanks again.
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