Knowledge Base

Adjusting Financials for M&A

Buyer Meetings

When Should I Send my Financials to a Buyer of my Business?

I am selling my business, and a potential buyer requested a copy of my financial statements before meeting me. Is it customary to send them at this point? It’s common to send a potential buyer financial information about the company before a meeting takes place with the seller, provided there’s a signed non-disclosure agreement in […]

M&A Basics | Handling Buyer Meetings

What happens after the buyer receives a confidential information memorandum (CIM) about a business? Here’s the ideal sequence of steps in screening and meeting with a buyer: When meeting with a potential buyer, keep in mind the Golden Rule: Treat others how you want to be treated. Specifically: Let’s proceed … Table of Contents Set […]

Confidentiality in M&A

Confidentiality is critical when selling a company. This section explores the strategies you can use to keep your sale a secret and explains the role of non-disclosure agreements (NDAs) in M&A.

Deal Structure

M&A Reps & Warranties | A Complete Guide

What are reps and warranties, and why are they so important? When selling my mid-size business, what do I need to know before signing a purchase agreement containing representations and warranties? Reps (short for “representations”) and warranties are statements of facts regarding a company’s business, assets, liabilities, and operations. They can relate to the past, […]

Allocation of Purchase Price & Taxes When Selling a Business

Sometimes we find it amazing that deals get done at all, what with so many aspects of a transaction that have to be worked out and agreed to by both parties. Here’s one that often flies under the radar until very late in the process: allocation of the purchase price. Allocating the purchase price, or […]

Transferring the Lease When Selling or Buying a Business

Location, location, location. That’s a mantra that’s commonly heard when the discussion turns to home values. It’s also an important consideration when it comes to businesses. Don’t blow up your sales by giving short shrift to matters involving this key logistics. The lease is an integral part of the sale process. Dealing with the landlord […]

M&A Non-Compete Agreement | A Complete Guide

When a business changes hands, most buyers expect the seller to sign a non-competition agreement (non-compete) at closing. Few buyers will purchase a business without a commitment from the seller to not compete with them after the business is sold. Non-competes are more heavily negotiated in certain industries, such as professional practices or service-based businesses, […]

M&A Basics | Can I Sell Part of My Business?

I’m talking to a potential buyer who is interested in buying my business. We have talked about him purchasing the manufacturing portion of my business while I retain the wholesale division. Can you help us create a deal structure and asking price for each division separately? I’m not sure if this is the best plan, […]

How Does Entity Type Affect the Sale of My Business?

Does the type of entity I have (corporation, LLC, etc.) impact how the sale of my business is structured? Yes, the type of entity you have will impact the structure of the transaction and needs to be considered well in advance of starting the sales process. One of the primary considerations when determining how to […]

M&A Basics | Asset vs. Stock Sale

When buying or selling a business, an M&A transaction can generally take one of two forms: An asset sale or a stock sale. Fundamentally, there are few differences between the two transaction structures. In an asset sale, the entity (e.g., corporation, LLC, etc.) sells the individual assets it owns (furniture, fixtures, equipment, customer list, etc.) […]

Earnouts When Selling or Buying a Business | Complete Guide

News flash: Sometimes, buyers and sellers can’t agree on the value of a company. The seller is interested in getting the highest possible price, of course, while the buyer might be apprehensive about the company’s ability to grow as promised or keep customers and key employees. Enter the earnout. An earnout is a useful means […]

What Happens to Debt when Selling a Business?

It is essential to understand what happens to debt when a business is sold. In some instances, the debt is absorbed in the transaction as part of the sale. However, this is not the case most of the time. The fate of any debt in the sale of a business is largely determined by how […]

Escrow Holdbacks in M&A Transactions

On the heels of many seemingly smooth business deals, a buyer may have doubts. Sometimes they question whether certain details of the business meet regulatory standards. They may also be concerned with fraudulent issues. To quell their apprehension, a buyer will sometimes request a holdback. A holdback is a portion of the purchase price that […]

Due Diligence

Net Working Capital (NWC) for M&A – A Complete Guide

Who Should Read This Article If your business requires a significant amount of working capital to operate, then you must understand net working capital before you sell. NWC may constitute a significant percent of the purchase price, and any mistakes you make in the calculation or when negotiating terms will have a material impact on […]

Quality of Earnings in M&A – The Ultimate Guide

Introduction For decades, buyers have engaged professionals to conduct a quality of earnings (QoE) analysis of companies they plan on acquiring for the extra peace of mind these give. A buyer relies on insights from the QoE report when deciding if the price they will pay for a business is fair. Recently, sellers have taken […]

M&A Due Diligence | Checklist & Overview

After you accept an offer or letter of intent (LOI) on your business, the buyer will begin due diligence. Due diligence is the process of gathering and analyzing information to help the parties determine whether or not to proceed with a business transaction. This period of time normally lasts 30 days but can be extended […]

M&A Due Diligence Preparation

The Importance of Preparing for Due Diligence Due diligence is the buyer’s investigation of every aspect of your business. Due diligence is conducted in three primary areas: When a seller doesn’t prepare for due diligence, it can turn into an expensive and time-consuming undertaking. However, there are many advantages to preparing for due diligence, and […]

Financing

Can I Sell My Business for All Cash?

Introduction When selling my business, can I cash out at closing? Is it possible to sell my business for all cash? Or do I need to finance a portion of the purchase price? These are common questions from our clients. Many business owners want all cash when selling their businesses. No muss, no fuss. So, […]

M&A Seller Financing: A Complete Guide

Introduction One of the simplest ways to finance the acquisition of a business is to work with the seller to negotiate some form of seller financing, which is called a “seller note.” The vast majority of small business sales — 80%, according to industry statistics — include some form of seller financing. Most M&A transactions in the […]

M&A Seller Financing: Third-Party Loan Servicing

Introduction What is a third-party loan processor? If you have decided to finance the sale of your business, you should know that an experienced third-party loan processor can handle all aspects of collecting, crediting, and disbursing third party payments — they simplify the day-to-day management and process of collecting on your loan from the buyer. […]

Retirement Funds Financing When Buying or Selling a Business

Introduction Most small transactions are financed using an SBA loan, a bank, or the seller. One additional source of financing to acquire small businesses includes rollovers of retirement funds and seller financing. The buyer can avoid a small-business loan altogether and use their retirement funds to finance the purchase of a business. Because the buyer […]

SBA Financing When Buying or Selling a Business

Introduction Note: This article applies only to businesses valued at $5 million or less. That’s the maximum size of loans from the Small Business Administration (SBA). In larger transactions, companies use alternative sources of financing. Buying a business requires more than having in hand a sound business plan; it requires financing. Many buyers attempt to […]

Small Business Acquisition Financing

Introduction Read on as we explain the primary sources of financing buyers use to purchase small businesses. There are four major sources of funds: In the following article, we examine each source of financing in more detail, including the advantages and disadvantages of each and how different forms of financing can be combined into some […]

M&A Seller Financing: Handling a Buyer Default

Introduction Sometimes buyers start out with the best of intentions yet end up realizing they have overestimated their capabilities to pay. Needless to say, dealing with buyers who have defaulted on a seller note can be disappointing. As a seller, preparation is crucial. Knowing your options will spare you unnecessary conflicts should they arise. If […]

General

What’s a ‘Main Street’ vs. a Middle-Market Company?

Executive Summary Why does it matter if your business is Main Street vs. middle-market? Main Street vs. Middle Market Businesses Main Street = Small, “mom and pop” businesses. Restaurants, coffee shops, landscaping companies, repair shops, convenience stores, most franchises, and small agencies and service companies. Buyers perceive Main Street businesses as riskier, which is why […]

Can I Time the Sale of My Business?

Executive Summary When it comes to the question of timing the sale of your business, there are three phases you must take into account: The time required to sell your business, including all steps from start to finish, can vary from 8 months to 12 years. Most transactions take 1.5 years to 3 years to […]

How Long Does it Take to Sell a Business?

Executive Summary The average time to sell a business ranges from ten to twelve months.  Factors That Affect the Length of a Sale The following variables affect the time it takes to sell a business: A Timeline for Selling a Business Following is an overview of the steps to selling a business and the estimated […]

Why Do Some Businesses Not Sell?

Executive Summary When deals die, it’s usually for the following reasons: How can you stop deals from dying? If you’re serious about selling your business and would like to maximize its value, we recommend you prepare for the sale as early as possible. Hire a third party to perform an assessment of your business to […]

Why Do Business Owners Exit?

Executive Summary Small vs. Mid-Sized Businesses Common Reasons Business owners usually sell for one of three primary reasons: Advice to Sellers Advice to Buyers Introduction As a business owner looking to exit, you may be curious to know if your reason is unique or if it matches the general pattern laid down by your contemporaries.  […]

What Percentage of Businesses Sell?

You’ve seen multiple M&A success rates from brokers, M&A advisors, and investment bankers, but we believe reliable data can be found right here.

How Involved Will I Be in Selling My Business?

Executive Summary The Process Action Steps Introduction A critical question you should consider is how involved you must be in each stage of the process of selling your business. While this isn’t a question we commonly receive from sellers, it should be. There are moments in the transaction in which you must be closely involved […]

Why is Selling a Business so Hard?

Executive Summary Causes The Process The Market Buyers Sellers Sellers and Buyers Third Parties Action Steps Prepare for the Sale Doing the Deal FAQs Here’s a breakdown of how difficult most transactions are: Introduction On M&A Talk, we’ve hosted over a dozen entrepreneurs who’ve sold their businesses, several with exits well into the hundreds of […]

Selling a Business: A High-Level Overview 

Executive Summary Introduction “The end is where we start from.” – TS Eliot A lucrative exit from your business may have been the plan since the day you started trading, one that grew in tandem with your success, or was thrust upon you by an unexpected offer or cataclysmic event. Whatever your reason for selling, […]

Most Common Deal Killers When Selling Your Business

Did you ever get to the top of the diving board only to “chicken out”? That feeling of trepidation is not unlike what many buyers of small businesses experience, which often causes deals to fall through at the 11th hour, sometimes after months and months of information-gathering and other due diligence. In this article, we […]

The Fungibility of Businesses as an Investment

How do I maximize the value of my business? Start by making it appear less fungible. You can’t necessarily retool your product line overnight, but you can identify and promote specific aspects of your business that give you — and the new owner — an edge. Fungibility is the ability of individual units of a […]

7 Steps to Sell a Business Fast

What are the steps I’ll need to take to sell my business? It’s a complicated process but you can simplify the procedure with a plan and increase your chances for a successful sale by properly executing each step of that plan. The Process of Selling a Business — The Seven Steps For a complete overview […]

The Importance of Persistence When Selling a Business

Selling a business is ranked as one of the most stressful events in an entrepreneur’s life, somewhere below doing jail time and above getting into debt beyond your means. Why? Because the process often brings with it setbacks, frustrations, and major disappointments. Imagine working on the largest transaction of your lifetime, only to have it […]

M&A Basics | Why Do Business Owners Sell Their Business?

So, you’re thinking about selling your business. Why? Your answer will help determine how best to proceed, whether you’ve been in business for decades or just a couple of years. Why does the question of “why?” even matter? It’s a matter of trust. Is your motivation for selling unique, or does it fall into any […]

Why Don’t Some Businesses Sell?

Why don’t some businesses sell? Let us count the ways … Most deals die during one of the following stages: There are numerous reasons a deal may never make it to closing. In the article that follows, we examine and analyze more than 25 real-world case studies from past clients whose businesses did not sell. […]

Marketing for Buyers

Process for Screening Buyers When Selling a Business

Just as buyers perform due diligence on you and your business, performing due diligence on buyers is also paramount. One of the most time-consuming yet critical first steps in the sale process is screening potential buyers. The importance of screening buyers cannot be overstated. The major mistakes most entrepreneurs make during the early phases of […]

Should We Disclose our Revenue, SDE & EBITDA in Our Ads?

Should we include our revenue, SDE, or EBITDA in our ads when trying to sell our business? We have a great story to tell, though it seems that including the revenue and net profits precludes us from telling our story because buyers may dismiss our ads if they see the numbers before hearing our story. […]

Marketing a Small Business for Sale

If you’re near Google, go ahead and search for “businesses for sale.” What you’ll get in return in a fraction of a second is a myriad of web portals that exclusively list opportunities for prospective owners of small and mid-sized businesses. If your business is for sale and it isn’t already among the listings on […]

Additional Ways to Market Your Company for Sale

The steps that follow are necessary to consider only if the initial marketing campaigns to sell your business aren’t generating adequate results. So, if they’re not coming to you, you may need to go to them. There are four categories of buyers you can try to reach: individuals; financial buyers; strategic buyers, and people already […]

M&A Process | Using Targeted Campaigns to Sell Your Business

Is a targeted campaign right for you and your business? A key consideration for developing a marketing campaign is the size of your business. With a targeted campaign, we reach out directly to potential corporate buyers — many M&A advisors call this a private auction. This involves compiling a list of potential corporate buyers and […]

M&A Basics | Fishing vs. Hunting for Buyers of Your Company

Which is the right tool to use to sell your company: a fishing rod or a rifle? A fishing rod involves casting a line, dropping the bait, and waiting for a nibble. In the world of selling a business, the “fishing rod” approach entails confidentially marketing your business for sale using various media: online media, […]

Miscellaneous

Selling Your Business? Hire an Attorney to Increase the Bottom Line

Most people think hiring an attorney is only necessary when there is a problem. However, the best time to seek an attorney’s advice is when you are starting the process of selling your business, when you are thinking about buying or starting a business, and before there is ever a problem. That’s the advice of […]

3 Simple Things to Look for When Hiring a CPA

Certified Public Accountants come in many forms. Some focus purely on doing taxes at the end of the year, while others prepare financial statements, manage payroll, assist owners in preparing their businesses for sale, assist prospective buyers in obtaining loans to buy businesses, and more. Additionally, there are CPA firms that have become a one-stop […]

M&A Brokers & Adverse Incentives

You don’t have to search too long to find opinions alleging that M&A destroys value. NYU Professor Aswath Damodaran goes as far as to say that asking an investment bank to fairly value an acquisition target is akin to “asking a plastic surgeon to tell you your face is perfect.” When the so-called father of […]

How to Renegotiate the Lease for Your Business

Just as real estate prices rise and fall, so can rental rates. Have you tried negotiating your rent with your landlord to no success? Is your current rental amount above market rates? Do you own an unprofitable business in which it would not be feasible to continue operations without a concession from the landlord? If […]

M&A Case Study: Sale of a Creative Services Firm

Morgan & Westfield helped sell Imago Dei, a creative art service firm with stable revenue growth, using a combination of bank and seller financing. The company was positioned in the market to target non-industry buyers and corporate executives with management or marketing experience. This allowed Morgan & Westfield to widen its pool of potential buyers. […]

A Simple Recipe for an Efficient Business Sale

According to recent studies, the average seller has to talk to 40-plus buyers to sell their business. That’s a time-suck if there ever was one. Moreover, many sellers also quickly get frustrated when buyers do not return phone calls or emails or randomly just disappear during the sale process. Fortunately, there’s a better way. A […]

How Do I Sell my Amazon FBA Business?

Fun fact: In 2020, almost half of Amazon’s sales came not from Amazon directly but from third-party sellers. And two-thirds of those independent sellers — or more than two million retailers worldwide — used Amazon’s FBA (Fulfillment by Amazon) platform. With FBA, sellers of products are able to tap into Amazon’s order fulfillment and shipping […]

Tech & Software M&A Dynamics

A prerequisite to understanding how to value your company and how to increase the value of your business is understanding how buyers think. This article will take you into the mind of a potential buyer of a technology or software company and provide you with an overview for why they make acquisitions and what is […]

How to Sell an Online Business: A Case Study

Business Description: B2B Software for the Transportation Industry Let’s take a field trip! Today, we will look at the details and the decision-making process that went into preparing a specific company for sale in the competitive world of software providers. The subject company in this case study is a B2B software provider in the transportation […]

Top 5 M&A Value Drivers for Tech & Software Companies

In a recent survey, Consumer Reports found that a “modern/updated kitchen” still rules when it comes to ideal home features among home buyers. When it comes to shoppers of tech, software, or other online businesses, recurring revenue is the most attractive enticement. And just as there are any number of other actions you can take […]

Preparation

Business Exit Plan & Strategy Checklist | A Complete Guide

It’s not enough to merely hand over the keys at the closing. You need a strategy. An exit strategy. An exit strategy, as the term implies, is a plan to assist you in exiting your business. All exit plans will vary, but they all contain common elements. The three common elements that all business exit […]

Confidential Information Memorandum (CIM) | A Detailed Guide

A Confidential Information Memorandum (CIM) is a professionally prepared summary of your business that is presented to prescreened buyers who are interested in purchasing your business. The CIM addresses the buyer’s questions quickly and efficiently, saving countless hours. It includes information regarding company history, products, services, licensing, and competition. It also includes a financial summary, […]

8 Signs You Aren’t Ready to Sell Your Business

Making the decision to sell your business is one of the most important choices that you will have to make as a business owner. Selling prematurely can lead to unexpected surprises in due diligence, lower valuation by prospective buyers, and even an inability to close the sale. Here are eight signs that your business may […]

Tips on Preparing Your Business for Sale

Congratulations on the decision to sell your business. As with any complex multistep process, you should begin at the beginning — starting with preparation. Preparation makes execution look effortless. Considering that the sale of your business will likely be the largest sale you will ever make in business, it is foolish to neglect preparation. Unfortunately, […]

Should I Pay Off Equipment Leases Before I Sell my Business?

Deciding to Pay Off Equipment Leases Deciding to pay off your equipment lease before selling your business is primarily a mathematical decision with one unknown variable: the multiple. Let’s look at an example to illustrate the math behind the decision. Example: Conclusion: The bottom line is that if paying off your equipment leases will increase […]

Should I Buy New Equipment Before I Sell my Business?

Should I buy new equipment before I sell my business? As a general rule, you should not invest in new equipment or other hard assets when you are in the process of selling your business unless it immediately increases your SDE (seller’s discretionary earnings) or EBITDA. Why? Because you are unlikely to recoup your investment. […]

Preparing Financial Statements When Selling a Business

To enhance the value of your company, you must position it in the best light. Clearly organized and reconstructed financial statements can maximize the value of your business in the eyes of potential buyers. In our decades of experience, these are the most frequently asked questions we hear regarding financial statements and some tips for […]

Should I Sell My Business?

The decision to sell your company is challenging. You have invested years or decades painstakingly building your business and have made countless sacrifices along the way. It’s an emotional determination that should not be taken lightly. There are four important factors to consider when mulling over what to do with your business: We can provide […]

Crossroads: Deciding to Sell Your Business vs. Doubling Down

Should I sell my business, or should I double down? As a successful entrepreneur, you have learned to temper your optimism with realism. But what should prevail now — your optimism or realism? You’re concerned that if you don’t double down, your competition will put you out of business — for good — and you […]

Alternatives to Non-Competes with Employees

If your business is located in a state in which employee non-competition agreements are illegal (with California being the most notable example), you should know that there are two primary alternatives for protecting your interests: Collectively, a non-solicitation agreement and NDA serve as highly effective psychological deterrents. Often, deterrents are more effective than other means. […]

Informing & Retaining Employees When Selling a Business

Should I tell my employees about the plans to sell my business? There are no hard-and-fast rules regarding when you should tell your employees about your plans to sell your business. If your staff is large, we recommend keeping the sale a secret. It’s nearly impossible for a large group of people to keep mum. […]

Reducing Concentrations of Risk Before Selling Your Business

Concentrations of risk can have a significantly negative effect on the value of your business. The value of a business, or any financial asset, is a function of the relationship between potential return and risk. The higher the risk, the lower the value. The higher the return, the higher the value. One foolproof method for […]

M&A Basics: Building a Sellable Business

To maximize the value of your business, it’s critical to know what buyers of businesses want — and then make those things happen. Most buyers desire a company with infrastructure and a management team as opposed to a one-person show. Starting a business requires a different set of skills than growing a business. And different […]

Increasing the Value of Your Business | The RVD Model

How can you determine the best steps to take to increase the value of your business? The Return on Value Driver’s Model (RVD™ Model) is a proprietary tool developed by Morgan & Westfield that helps identify which aspects of your business to improve that will have the biggest impact on its value. The goal of […]

SDE & EBITDA

Calculating Cash Flow (SDE and EBITDA) – SDE and EBITDA are the two most common metrics to measure and value a company’s cash flow. You must calculate a business’s cash flow (i.e., SDE or EBITDA) before you can properly value it. In this section, we discuss how to normalize or adjust your financial statements to arrive at SDE or EBITDA, and whether to use SDE or EBITDA to value your business.

SDE vs. EBITDA

The Buyers

The Role of Family Offices in M&A

Introduction Many business owners assume they’ll sell their company to either a strategic buyer or a private equity firm. While these comprise the majority of buyers in the middle market, there’s another buyer whose presence in M&A is increasingly felt – the family office. For entrepreneurs looking to exit in the near future, deciding on […]

The Basics of Independent (Fundless) Sponsors in M&A

Introduction As a business owner looking to take your company to market and attract the right investor to acquire it, you’re likely considering all kinds of interested parties. One important type of investor that may come knocking is the independent sponsor (IS). In this article, we’ll help you navigate your relationship with independent sponsors and […]

M&A Guide | The 4 Types of Buyers of Businesses

One of the first lessons in Marketing 101 is this: know your audience. Who are they? Where are they? What buttons can be pushed? What incentives need to be dangled? If you’re not armed with this basic information (and more), it’s going to be a tough sell no matter what you’re offering, be it widgets […]

Why Do Buyers Disappear When Selling My Business?

Day #1 “I have a buyer who contacted me last week and is interested in buying my business. I want to see what happens with this buyer before I do anything.” (Seller talking to us) Day #5 Seller talks to the buyer, and they schedule a meeting for next week. Day #11 Seller and buyer […]

Selling a Business | How to Screen Individual Buyers

There’s an adage in journalism that holds, “If your mother says she loves you, check it out.” The idea behind this dictum is to caution reporters to always confirm the facts. The same principle holds true when it comes to dealing with prospective buyers of your business. A buyer might tell you they’re financially qualified […]

Dealing with Investors who Want to Buy Your Business

I am selling my business. A buyer replied with, “My father-in-law is the investor and has the cash. I can sign the NDA as long as you are aware that this is between me and my investor.” How should I respond to the buyer? For small businesses, we rarely see “investor deals” happen. For this […]

Can I Sell my Business to a Non-US Citizen or Foreigner?

Is it possible to sell my business to a non-U.S. citizen who is not in the United States? I recently put my business on the market and have been dealing with a potential buyer from China, but I’m not sure how feasible it is to sell my business to someone from outside the country. What […]

M&A Guide | Selling Your Business to Employees

Yesterday, a guy who works for us asked if we were interested in selling our business. He said his two brothers would like to go into business with him. Here’s the problem: he asked if we would sell and for how much. When I turned it around and asked how much he would pay, he […]

M&A Guide | Selling Your Business to a Competitor

A competitor recently approached me and inquired about buying my business. I’m interested in talking with them, but I’m nervous. I don’t know if they are fishing for information or if they have a legitimate interest. I am reluctant to accept the offer since I know I must share sensitive, confidential information with them. What […]

Why do Companies Acquire other Businesses?

The reasons companies make acquisitions vary widely and can be difficult to discern. Nonetheless, common patterns do emerge, and it’s possible to draw generalizations that assist in prioritizing your value drivers. Why does that matter? Knowing the reasons behind an acquisition will: Companies make acquisitions because doing so spurs innovation, increases the odds of success, […]

How Long do Buyers of Businesses Stay in the Market?

How long does a buyer keep looking for a business before they decide to either pull the trigger or give up their search — or, to use a technical phrase, “fish or cut bait”? There are two general types of buyers looking to buy a business: companies and individuals. Companies: Once a company decides to […]

The Closing

M&A Reps & Warranties

Executive Summary Representations and warranties (“reps & warranties” or R&W) are legal promises made by both buyer and seller. Reps & warranties are a foundational component of any purchase agreement, whether a stock purchase agreement or an asset purchase agreement. Following is a high-level outline of a typical purchase agreement and its various components: Key […]

Preparing Emotionally for the Closing

You’ve heard of buyer’s remorse and maybe even experienced it. Buyer’s remorse is a feeling of regret after making a purchase. It only stands to reason that seller’s remorse is a thing, too. Some business owners become stressed before the closing as the personal implications of the sale of their business start to sink in. […]

M&A Purchase Agreement | A Complete Guide

What is a Definitive Purchase Agreement (DPA)? A DPA transfers the ownership of a business and its assets. The DPA is called “definitive” because it is the final agreement signed between the parties. This replaces any previous agreements, such as a letter of intent or offer to purchase. The DPA is often signed before the […]

M&A Closing Process | A Complete Guide

The buyer has done their due diligence, and you’ve done yours. Terms of the transaction have been broadly agreed to — including the price. Next up: The closing. You’ve gotten this far; what could go wrong? Hold my beer… There’s no such thing as a perfect closing, but we can come close. This article addresses […]

The Letter of Intent

Should I Take my Business Off the Market When I Accept an Offer?

It ain’t over till it’s over.”  Yogi Berra (1967) Many sellers take their business off the market after accepting an offer. This is a critical mistake. We recommend keeping your business on the market until a definitive agreement is signed and all contingencies have been removed (unless you have signed a no-shop agreement with the buyer). If you want […]

Negotiating the Letter of Intent

The price and terms you ultimately receive are affected more by how strongly you negotiate the LOI than by how strongly you hammer out the purchase agreement. Let that sink in. For most sellers, how you negotiate the LOI is more important than how you negotiate the purchase agreement. Signing a strong LOI that protects […]

M&A Basics | The Letter of Intent

Key Points: In some cases, the parties may prepare a term sheet before preparing an LOI or offer. The LOI/offer doesn’t contain the necessary language for a closing (it’s replaced by a purchase agreement prior to the closing); however, it allows both parties to agree to the essential terms of the transaction so they can […]

M&A Negotiating Tactic #1 – Honesty

It was ancient Greek storyteller Aesop who said, “Honesty is the best policy.” It is Morgan & Westfield who says, “Honesty is the #1 weapon in M&A transactions.” Is it possible to conceal a few warts on your business from buyers during the sales process? If you hide a few material facts that you should […]

A Guide to M&A Negotiating Tactics

How important are negotiating skills during the sale process? High-level negotiating skills are not as crucial as you might think. And that’s good news for those of us not named Henry Kissinger, the former U.S. Secretary of State who’s widely considered one of the greatest negotiators in history. You’re not entirely off the hook, however. […]

Earnest Money Deposit | M&A Basics

Introduction Earnest money deposits are common in small-business sales and less common in middle-market transactions. They demonstrate good faith by the buyer to show that they are serious about purchasing your business. Private equity groups and sophisticated corporate buyers almost never provide an earnest money deposit. They view the time and effort they spend conducting […]

Letter of Intent

Introduction The letter of intent (LOI) is one of the most important documents in a transaction. For my money, the LOI is the most significant agreement in an M&A transaction, even eclipsing the importance of the purchase agreement. A buyer will typically submit an LOI after spending some time looking at the target and determining […]

M&A Basics | The Term Sheet

A term sheet is used to start negotiations by allowing the parties to focus on the key terms of a transaction. Its primary objective is to enable each party to focus on the key elements of the transaction before preparing a detailed letter of intent (LOI) or purchase agreement. The term sheet is a short […]

The Players

Business Broker and M&A Advisor Fees: A Comprehensive Guide

How much do most brokers and M&A advisors charge? What is the ideal fee structure so that the broker’s interests are aligned with yours? Can a broker’s or M&A advisor’s fee arrangement cause bias or misaligned interests with you, the business owner? Here’s an overview of typical fees charged for selling a business based on […]

The Role of a Landlord When Buying or Selling a Business

Don’t overlook the lease — it’s one of the most instrumental elements of the sale process. The assignment or transfer of your lease should be handled with care because having issues with leases or landlords is a common deal-killer. When Should I Contact the Landlord About Transferring the Lease? In general, the earlier, the better. […]

The Role of a Franchisor When Selling a Franchise

If you own a franchise, your franchisor will play a vital role in the process. In such cases, we recommend that you contact your franchisor as early as possible in the process to gain their cooperation. Here are some tips when dealing with your franchisor: Assistance: Contact your franchisor as early as possible in the […]

The Role of an Escrow Agent when Selling or Buying a Business

If you’ve bought or sold a house, you’re likely familiar with “escrow.” When it comes to buying or selling a business, however, an escrow is more than simply an account where money is held until the details of the sale are complete. Escrow serves several essential functions in the sale of a business. The decision […]

The Role of Accountants When Selling Your Business

The purpose of external advisors is to make you — the owner — and your entire management team look as credible as possible by anticipating issues and preparing disclosure in a professional manner. And who doesn’t want that? Your Accountant’s Role Review Your Financials We recommend you ask your accountant or CPA to review your […]

The Role of M&A Lawyers When Selling Your Business

Do I Need an M&A Attorney to Sell My Business? Having an Attorney Levels the Playing Field For middle-market transactions, the buyer often brings a team of dozens of staff and advisors to conduct due diligence. As a result of the imbalance, you should aim to at least achieve negotiating parity by hiring the best […]

Do I Need to Hire a Local Business Broker?

The world economy is evolving in ways no one could have predicted even a decade ago. Auto manufacturers, grocery chains, and most other companies that started as brick-and-mortar businesses are changing the way they operate to online models, especially when it comes to marketing and sales. Former Speaker of the U.S. House of Representatives Tip […]

Business Broker & M&A Advisor Agreements | A Complete Guide

So, you made the decision to sell your business. Now what? The first step after deciding to sell your business is to hire a business broker or M&A advisor. Brokers and M&A intermediaries offer various types of engagement agreements; how do you know which type is right for your business sale? There are three main […]

Can a Business Broker’s Success Rate be Accurately Measured?

“I recently talked to a business broker who claimed they were selling 90% of their listings. I doubt this claim, but I don’t want to discount it entirely. Is it possible for a broker to accurately measure their success rate? If so, is a 90% success rate possible?” Unfortunately, we believed this, too, at one […]

The Transition

The M&A Training & Transition Period

The period when business ownership transfers to the buyer is an often overlooked yet important phase of the sales transaction. In worst-case scenarios, the buyer can fail due to inadequate training, and the business can close down, resulting in significant financial damages. In best-case scenarios, the transition will go smoothly and help ensure the new […]

Valuation

Business Valuation Checklist: 3 Traps to Avoid

What are the three most common mistakes business owners make when valuing their business? Valuation Trap #1: The Unnecessarily Complex Valuation Trap Most business appraisals are written for those involved in litigation or other legal matters. These appraisals use complex language that is difficult to understand and include methods that are of little practical relevance […]

Business Valuation Basics: 9 Critical Concepts to Understand

There are nine critical valuation concepts you should understand before valuing your business: Fair Market Value vs. Strategic Value Most business appraisals use fair market value (FMV) as the standard of value. Strategic value is the value of a business to a specific buyer. It can represent a value in excess of FMV to a […]

Business Valuation Checklist: 4 Questions to Ask First

Getting divorced? Going bankrupt? Seeking a loan? Getting sued? Planning to sell your company? At some point, an event will likely occur during the time you own your business that will trigger the need for a business appraisal. Once you determine you need an appraisal, there are several important questions to ask yourself: The fact […]

Business Valuation Tips: 4 Tips Before Valuing Your Business

If you needed an operation, would you seek out a general practitioner or a surgeon who’s successfully done the procedure a thousand times? Yes, the GP might have a broad understanding of your medical issue and what it would take to get you on the mend, but when it comes to actually fixing what ails […]

A Guide to Valuing Tech, Software & Online Businesses

There are many factors to take into account when it comes to calculating the value of a company. The process gets even trickier if it’s a tech, software, or online business. The procedure for valuing any business is the same: calculate its SDE or EBITDA and then apply a multiple. In some cases, a tech […]

Business Valuation & Return on Investment (ROI)

One of the key factors to take into account when considering buying or selling a business is the return on investment (ROI). When valuing a business, ROI refers to the return on an investment divided by the investment amount. For example: $100,000 return /$1,000,000 investment = 10% return on investment Calculating ROI is quick and […]

Is a Third-Party Business Appraisal Needed to Sell My Business?

A third-party appraisal is just that — an appraisal performed by a third party. You pay the broker directly, and they subcontract out your business appraisal to a third-party appraiser, whom you never meet. Larger offices refer appraisals to a third party and mark up the cost by 100% to 500%. This is in addition […]

Can You Give me a Quick Opinion of the Value of my Business?

Can you look at my financials and give me a quick opinion of value? I don’t need a formal appraisal or valuation. I just want a quick number. Given your obvious expertise, I’m hoping you can look at my business and give me a ballpark number of what it’s worth. Is this possible? A valuation […]

Business Valuation Process: What is Your Process?

Our Process for Valuing a Business A valuation is based on both qualitative and quantitative factors. We must examine both sets of factors before arriving at the estimated value of your company. Properly determining the value or range of values for a company takes time because there are dozens of qualitative and quantitative factors that […]

Is there a Difference Between an Appraisal and a Valuation?

Is there a difference between a business appraisal for legal purposes and a valuation for a business sale? If my goal is to sell my company, should I have a business appraiser or a broker value my business? A “legal appraisal” is for legal purposes, such as a divorce, bankruptcy, estate or gift taxes, shareholder […]

Business Valuation Guide: Do I need a Valuation?

As a business owner, one of the most important questions you will face is: What is my business worth? To answer this question, most business owners pay a professional to value their business. Before you do the same, be sure you understand the following: When obtaining a valuation, you generally have three options: Which type […]

18 Differences Between Valuing Public and Private Businesses

What’s the difference between valuing public and private businesses? Are multiples for public companies applicable to small and mid-sized businesses? It’s helpful to understand the key differences in order to gain a clear understanding of the factors that have the greatest influence on the value of your company. Most public companies succumb to the fickle […]

Business Valuation: A List of Factors to Consider

It’s obvious that the more profitable your business is, the more valuable it is. However, there are many other factors that can affect the value of your business. Risk vs. Return The primary reason a buyer may be willing to pay a premium price for your business centers on their perception of risk and return. […]

Business Valuation Standards of Value & Fair Market Value

One of the most common ways to value your business is to calculate its fair market value (FMV). FMV is defined by the American Society of Appraisers as follows: “The amount at which a property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to […]

Do Buyers of Businesses Pay for Potential?

I have a small business that has significant potential. The business has a substantial amount of intellectual property, such as patents and trade secrets, and other forms of growth potential. Do buyers pay for this type of potential, or do they base their valuation strictly on the cash flow my business generates? Let’s explain what […]

Why is the Range of Possible Values so Wide for a Business?

Why is the range of possible values so broad for a business? Valuing a business is an inherently difficult undertaking, but it’s a critical step in planning the sale of your business. The essence of valuing a business is predicting the future cash flows of a business and then placing a value on those cash […]

Business Valuation Methods in a Nutshell

Pricing a business is based primarily on its profitability. Profit is the number one criteria buyers look for when buying a business and the number one factor that buyers use to value a business. There are other variables that buyers may consider, but the majority of buyers exclusively look for one thing: profit. Other terms […]