|
|
Like this article? PLEASE +1 it! |  |
|
Importance of Terms When Buying or Selling A Business
| Guest post by: Andrew Rogerson |
Article Overview: Though the price is an imperative part of buying or selling a business, the terms of the deal are also crucial. This article shows some of the reasons why understanding the terms can help you when it comes to any business transaction.
 |
Free Download - How to sell a business By Andrew Rogerson |
Importance of Terms When Buying or Selling A Business
In the initial stages of listing a business for sale, all
the attention is placed on getting the business in shape so it presents as
strongly as possible, sometimes doing a business valuation to arrive at the
most appropriate listing price for the business and discussing the tax
implications to the seller of the business.
Tom West is the owner of Business Brokerage Press and he has a great saying
that most sellers and buyers don’t understand until they get into the
negotiations of the transaction and it is – You name the price and I’ll name
the terms.
In other words, price is important but the terms of the deal
are much more important. And here are
some thoughts why.
If a buyer made an offer for all cash and to close the sale
in 30 days and another buyer made the offer subject to getting a loan and to
close the sale in 60 to 75 days and you are the seller of the business, which
offer would you want to accept? If they
are both offering the same price for the business it would be a no-brainer to
accept the cash offer.
Using the same scenario as above, but the cash offer was 5%
less than the offer from the second buyer and you are the seller, which offer
would you accept? Your answer would
probably be – it depends. Some sellers
may be willing to accept the cash offer and close the sale. Some sellers may be willing to accept the
higher offer as the price difference of 5% could be more than enough to offset
waiting 60 to 75 days to close the sale.
Most sellers, I would think though, would include other factors into
their decision. Which buyer do they
think is more qualified to buy and operate the business? Which buyer would be able to get approval
from the landlord to take over the lease?
Probably the most important question the seller would want to know,
however, if they accepted the offer from the second buyer, is what are the
chances the buyer will get their loan application approved? If the seller is not sure the buyer would be
qualified, taking the cash offer at a 5% discount may be much more attractive.
In the current economy, the seller must be willing to carry
a note for part of the purchase price. Very
few buyers have the capacity to pay cash for a business. Also, in simple terms, it’s ‘good business’
for the buyer to use cash as a down payment on the business but then leverage
the rest of the purchase price via loans as any interest paid is tax
deductible. This also allows the buyer
to buy ‘more business’ which means if the business is performing well and
throwing off the right cash flow, the buyer can get more cash flow for each
dollar of down payment. This is
obviously attractive to the buyer.
The terms of a deal don’t just swing on the price and
whether or not the seller will carry a note.
These are both very critical questions but whether a deal works or
doesn’t work can include many things.
These include how much free training the seller is willing to provide,
if the seller is needed to provide paid training after the free training, what
costs are incurred for the business to change ownership and who pays them. For example, using a title company to handle
the escrow will incur fees, the landlord may charge a fee to process an
assignment of the lease, if the business involves a franchise there may be a
franchise transfer fee, how long should the covenant not to compete be in terms
of distance and time, and there are many other items.
Buying and selling a business involves many
complexities. The longer both parties take
to reach agreement on the complexities the greater the chance the negotiations
will fail as one or both parties burn out from the inability to reach an
agreement.
Market First, Sell Second to Increase Sales in 2011
In front of the customer - selling face-to-face
Selling is the Highest Paid Profession
Sales Training London: A Blatant Sales Pitch
Career Planning for Baby Boomers -- Starting, Buying or Selling a Business
Home Business Expert: Importance Of Video Social Networking
The Definition Game: name that concept
How to Bring Your Product to Costco
Buying a Business Non-Financial Strategies
Client Buying States
The Five Buying Motivators: How to Convert a Prospect Every Time
As an Affiliate Internet Business Owner Who Are You Branding?
A Time To Sell?
Change Your Sales Role and Become an Assistant to the Buyer, Your Prospect
The \"Canned Sales Pitch\" Myth
Wait until the Buying Decision Team is in place to visit or pitch
15 Techniques for Winning Negotiations
Up-Selling - Do you want Fries with that Burger?
"I'm a Relationship Salesperson"
Is Selling Simple or Complicated?
|
About the Author: Andrew Rogerson RSS for Andrew's articles - Visit Andrew's website Andrew Rogerson is a 5-time business owner that loves helping entrepreneurs sell or buy a business. Andrew currently holds the Certified Business Intermediary (CBI) designation from the International Business Brokers Association (IBBA), the highest designation awarded by the IBBA. Andrew has also earned the Certified Business Broker (CBB) designation from the California Association of Business Brokers (CABB.) He holds a Certified Machinery and Equipment designation (CMEA) from the NEBB Institute and is a Certified Senior Business Analyst (CSBA) with the Society of Business Analysts. Andrew is a member of the Sacramento Metro Chamber of Commerce and past Chair of the Sacramento Chapter of the California Association of Business Brokers. Andrew is also the author on a series of four books: Successfully Sell Your Business, Successfully Buy Your Business, Successfully Buy Your Franchise and Successfully Start Your Business. For more information go to http://www.businesstransactionbooks.com Click here to visit Andrew's website   Successfully buy a business |
Related Forum Posts
Blog pinging
- Thanks Martin - yes, I do ping and it has been very effective. I'm currently on the first page of Google for Mastermind Group and on the second page for Selling to Small Business.
My entry
- 1. The Best Business Books Ever: The 100 Most Influential Business Books You'll Never Have Time to Read
- this is a fascinating book about the history of Business theory, and I'd recommend it to anybody.
2. The Big Book of Small Business: You Don't Have to Run Your Business by the Seat of Your Pants, by Tom Gegax. Ditto.
3. PADI: The Business of Diving Book
Okay, so this book won't be of use to anyone who doesn't want to start a scuba store, but I did, and this book was of course invaluable to me in reaching that goal.
Exclusive: Interview with Results
- Hi Forum Members,
I'm helping start up a Business Coaching and Consulting company here in Toronto, Ontario, Canada (a Subsidiary of RSC Business in Los Angeles).
As a Research and Development Intern I am required to practice my listening and interview skills by surveying Small and Medium Businesses on thier Business.
This Survey is designed by RSC Business to also assist the Business being interviewed more insight into their own business.
I am looking to interview about 30 businesses across North America over the span of 3 months.
At the end of these interviews I will be publishing a report of the results and they will be made available for free to the Interviewees. The Report data will include responses from a minimum of 100 interviews.
I would like to extend this opportunity to members of the Forum.
If you would like to have this short 20-30 minute interview conducted on your Business and you reside in North America please send me an email or PM.
Please contact me at andy[at]jvprosperity[dot]com to arrange our interview and to get free access to the results when they are published.
Re: Kevin's Case Study #10 - When to become an entrepreneur?
- When the bug bite you. A lot of successful entrepreneurs started in their teens or at school. Selling sweets to fellow students or lemonade to firends in the neighbourhood.
Re: This is Marketing Warfare!
- Hey GT,
I guess this was from a while back, and it'll test your memory a bit but could you possibly elaborate on Unique Selling Proposition?
Can you give us some examples of good USPs?
Share this article with your friends. Fund someone's dream.
Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.
by: 
Build Your List with Joint Venture Giveaway Events
May 2012 Top 100 Social Media Experts to Follow on Twitter
What to measure to be phenomenally successful in business
10 mistakes of media relations
Making Money Blogging Can Be Tons Of Fun 
Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!
Are You Fulfilled
Five keys to business success
Ten Steps to Go from Idea to E-book for Sale
Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.