Mergers & Acquisitions

Selling a Business

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Selling a Business

We cannot make an adjustment that is larger than the original amount. For example, if your original P&L statement shows travel expenses of $50,000, we cannot make an adjustment of $80,000 because that is greater than the actual expense of $50,000 that shows on your P&L statement. Any adjustment we make must be tied to an actual expense on your P&L statement, and the adjustment cannot exceed the original amount on your P&L statement.

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This arrangement is quite common in the middle market, with businesses priced at over $5 million. However, it is rare for Main Street businesses that are priced at less than $5 million. Although this idea could work, you must be on the lookout for several pitfalls: A 10% to 20% ownership stake is difficult to sell to anyone other than the current business owner. We recommend considering this option only if you have a buy-sell agreement in place that would force the current owner to buy you out if you ever wish. Without a buy-sell agreement, you will be left...

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When you are planning to sell your business, one thing you need to consider is the type of customer you have. Does your business have one-time, repeat, or recurring customers? You may be surprised to know that the type of customer you have can have a dramatic impact on the value of your business. One-Time Customers As the name implies, one-time customers are those who find your business, make a purchase, and are never heard from again. One-time customers have no loyalty to your business. Further, it takes a lot of money to acquire a customer, and getting one in...

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In the complex world of buying and selling a business, coming to an agreement on the proper price for a business can be difficult. An earnout is one element that may be a factor, but it is a complex element. Earnouts are difficult to administer and are prone to litigation. You should give careful consideration to an earnout before you agree to one. What is an Earnout? An earnout is a useful tool in mergers & acquisitions and is commonly used by businesses in a variety of industries. An earnout is an arrangement where the buyer pays the seller additional...

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Let’s discuss the three general options you have: SBA Financing: We recommend getting your business pre-approved for an SBA loan if your business is worth less than $5 million. Yes, that means “your business” -- and not the buyer -- pre-approved for a loan. The most popular loan for purchasing a business is the 7(a) loan. This loan requires a 20% down payment. However, if you structure the sale properly, you can reduce this requirement to 10%. This requires that you take action. Once your business has been pre-approved, you may also have the buyer pre-approved as well. However, don’t...

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In general, you should avoid switching accounting systems if you are in the process of selling a business. Although there are some exceptions (which we will discuss later), the majority of the time we recommend staying with your current accounting system if you’re planning to sell in the near future. QuickBooks is currently the most popular accounting system for small businesses, but that is slowly changing with the introduction of more modern, streamlined cloud-based systems. Switching to a new accounting system is a major project and should only be undertaken with proper professional assistance. While software companies claim they can...

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