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Whether you’re buying or selling a business it is never a neither simple nor straightforward process. Not only are there disclosures and laws to follow, but both parties are working with known other parties such as a lender, landlord, franchisor, accountant, financial planner or attorney to name a few and so it’s unknown how each of these parties will respond. The Golden Rule is to put your feet in the shoes of the other party. It won’t solve everything but hopefully it will allow you to understand “their view of the world.”
Selling and buying a business is rarely a simple and straightforward process. When I sit down and try to categorize each of those experiences, be it from my own personal experience as a Business Broker in Sacramento or the experiences I’ve heard from the 14 Business Brokers that are part of my office, the different experiences tend to fit into one of the categories below.
The seller expects to:
- Receive all cash up front;
- Provide one week of training;
- Provide the buyer with one day to do their due diligence;
- Close the offer the day after the completion of due diligence;
- Be paid five to six times the business earnings or discretionary earnings.
The buyer expects to:
- Buy a business with 10% down payment;
- Receive two months of training free of charge from the seller;
- Have four weeks to complete their due diligence;
- Work in the business for 30 days to "test drive" it;
- Pay no more than one year's worth of business earnings or discretionary earnings.
About where the seller and the buyer meet:
- The down payment from the buyer is about equal to the business earnings or discretionary earnings;
- Seller provides some financing;
- Seller provides two to three weeks of training;
- Buyer receives two weeks to complete their due diligence;
- It takes 45 to 60 days to close the transaction if things go smoothly;
- The business is sold between one to three times earnings with many factors affecting whether it’s one or three times earnings or something in between.
A Golden Rule that I stress to both buyers and sellers is that the best way to get a deal done is to put yourself in the shoes of the other party. If you think about how the transaction impacts your side of the deal you will more than likely convince yourself that the other party is not offering enough. If this happens you are not ready to buy or sell. For a transaction to occur, there has to be a willing buyer AND a willing seller.
If you would like more information about buying or selling a business, visit my website; http://www.Andrew-Rogerson.com. Alternatively, I’ve written a book on each subject and these books are available from my website or www.amazon.com – Successfully Buy Your Business: Expert Advice from a Business Broker and Successfully Sell Your Business: Expert Advice from a Business Broker.
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