Does Size Matter? (When selling a Business?)

Well, this question often comes up as there are quite a few one-man business brokerage firms that sell small businesses. These one-man shows are all about trying to list and sell businesses anywhere from very small (100k sell price) businesses up to $5 to $10 million in sale price. This can be a very confusing process.  Sometimes these “one-man” firms have a nice website and come across very competent. So does it really matter if it is a one-man firm or a firm that has 5, 10 or even more professionals?

Candidly, let me explain why a one-man show is not typically the right solution for most businesses. First let me be honest. I sold my business with a small business brokerage firm and what I’ve learned since I’ve got into actually selling businesses is I got Screwed. Sorry to be so crude but bottom line is I literally got half of what I should have received when I sold my business through a one-man business brokerage firm. Why? Well it’s very simple. He had no resources.

Industry statistics show that Business Brokerage offices with only one broker on average sell just a little over one business per year. When a business brokerage firm that has an average of five brokers per office will sell 20 businesses per year! Think about that! That’s four businesses per broker. What is the difference? Well it’s certainly resources. I’m not talking about financial resources as much as I’m talking about people resources. There is something very powerful about having five people sitting around a conference table discovering the best customized strategy to sell your business. Not just selling a generic business but a business sales firm that understands the complexities of your company. Just as every person has a different finger print, also every business is different. Even if a firm has sold 10 businesses in your industry, they have never sold YOUR particular business. Therefore, there are complexities about your business that require a customize sales process. This means it is critical that you have multiple people strategizing and searching to find the right buyer for your business.

I believe that you’re wasting your time, wasting your efforts, wasting everything that you’ve put in your business if you go with a one-man show.  I’m sorry to be so passionate but I did when I sold my business and I got screwed and I would hate for you to as well. In my opinion, there is no doubt that you are going to get a “bad deal” if you go with a one-man business brokerage firm that only has one agent or one broker in the entire office. It is actually doing you the business owner a big disservice. After you’ve put your blood, sweat and tears into this business you run the risk of throwing money in the trash. So my concern can be boiled down to one statement… Don’t put all of your eggs into one basket!

When you are looking to sell a business there are a number of areas that you should focus on when interviewing a business broker.  Hint Price is NOT one of them.  But I digress.  While there are MANY business brokers that have the education that is required to sell a business.  Most do not have the expertise to be successful at actually the art of selling a business.

In a recent team planning meeting we discussed the topic of the common characteristics that are required for a good business broker (M&A guy, Business intermediary or whatever your preferred terminology). While the top business brokers (based on actual productivity) in the country were in that room, you might be surprised at what the FINAL list was:  

1. Honesty and Integrity – Yes this is a given but we couldn’t have made a list without at least putting this on it. But to be honest there are unsuccessful business brokers that are Honest.
2. Candidness – It is crucial for a good business intermediary that can confront either the business purchaser or the business seller on issue that will ultimately kill the deal. The process of selling a business is complicated and there is good news and there is bad news.  If you don’t have a business broker that can tell you the bad news then you don’t have a business broker that can sell your business.
3. Manage Expectations – As I mentioned it earlier if you are ONLY focused on finding a business broker that will tell you a price that you want to hear you are headed down the wrong track.  A good business sales professional will ALWAYS tell you the truth and not give you promises that they can’t deliver on.
4. Creative Problem Solver – There is certainly a trend in this list SO far.  But understand that there is no such thing as a easy sell of a business. There are always problems.  In fact,  the saying goes “every deal dies 3 times”. This is often the reason why For Sale by Owner is never successful.  If every deal dies 3 times (or more) then you need someone that has been here before that can have a team of professionals that will pull from their other experiences and creative thinking to develop strategies to get the deal back on track.
5. Understands Team Concept – I recently wrote an article on “Does Size Matter” “One Man Shows”.  In this article you can clearly see why having a team approach is critical to your success.
6. Good Listener – If your business sales professional doesn’t hear you or the buyer when they talk… How can you expect to have a business transaction that meets your goals?  The don’t even know what your goals are….
7. Follow thru & Work Ethic – The sell of a business is a long process and to be successful you must have a business intermediary to follow-up with every buyer and follow the process tirelessly.  If your business broker works 3 days a week then you maybe should find someone that is sells businesses for a living instead of one that is doing this job in place of working at Walmart.
8. Has the Seller and Buyer’s best interest at heart – If the business broker is just after the commission check then they will never be able to focus on the important aspects of getting a deal done.
9. Understanding the Psychology of the “Deal” – Well I am sorry to say that you will have to wait on the book for this one.  This is a topic that is one of our trade secrets that sets us apart from the other brokers.  I am even talking about the other good brokers that are successful.  Let’s just say that the Psychology of the deal means that the sell of a business is more than numbers. More than a P&L and Balance Sheet. YOU MUST UNDERSTAND this point.

Buying a business and selling a business is a very complicated process.  This is why not many people are successful at the task. If you can find someone that can help you that First understands the principles and has the education and the Second has the above 9 characteristics.  Then you have found the right team to help you sell your business.

Business owners, upon entering into a formal purchase agreement with a buyer to sell his/her business, will immediately be introduced to a process known as due diligence.  Due diligence is the activity that a buyer performs consisting primarily of an investigation of the seller’s records to ensure a complete understanding of the transaction before it is consummated.  It can create a high level of anxiety amongst sellers due to the vast amount of information buyers generally seek.  Sellers are often presented with a checklist consisting of several pages that will encompass an extensive array of requested documents/information (e.g., financial statements, customer/product/competition detail, sales and marketing data, employee/payroll information, etc.) and its chief objective is to provide the buyer with the information necessary to fully assess the risk of the acquisition before concluding the transaction.

Huntington Business Group has long recognized that sellers have little appetite for such overwhelming projects.  We therefore, in the early stages of the engagement and well ahead of any of any interaction with a buyer, educate those sellers who have not experienced the due diligence process.  Huntington Business Group, in fact, works with the buyer and his/her advisors in order to mitigate the time consuming impact that due diligence can have upon sellers.  Furthermore, we assist the seller in collecting and organizing the information requested by the buyer.  If certain requests are deemed to be unreasonable then we communicate with the buyer and/or the advisors to explain and justify our position.  Many of the checklists that a buyer will present to the seller are downloaded and, as such, are not tailored for the size or type of the business that our client is selling.  We have, in fact, seen due diligence requests for small businesses that are more comprehensive than those that are submitted in connection with $25 million plus transactions.

Mindful of  the potential frustration that can be associated with due diligence and the consumption of time required to fulfill due diligence requests we, as noted above, advise our clients how to be prepare for the process.  The VentureXchange™ system, designed and created by Huntington Business Group and available exclusively to our clients, outlines every detail of selling a business to include navigating through this often lengthy due diligence process.  Specific tools are available to guide our clients through a preliminary procedure wherein our clients are able to put their company through a review process that anticipates what a buyer will be evaluating during due diligence.  A review of operational, marketing, personnel, technology, legal, regulatory, environmental, insurance, contractual, credit and financial/accounting issues before a buyer enlists his professional advisors to do the same is the focus of this exercise and is an immensely valuable undertaking.  It will not only ease the future burden, but will also demonstrate to the buyer that he/she will be taking over a business that is well organized and efficiently operated.

FOR IMMEDIATE RELEASE

DALLAS, Tex. – VR Business Sales, Mergers & Acquisitions announced today that Dallas-based Huntington Business Group, Inc. finished 2010 ranked as the No.1 VR office in the world.

Annual office rankings are based on total gross revenue for the calendar year, and of the 125 VR offices worldwide, HBG has achieved rankings of 3rd in 2009 and 4th in the three years prior to that, but this is its first No.1 ranking.

HBG president Scot Cockroft has enjoyed his share of individual accolades over the years, being named VR’s Most Valuable Intermediary in 2008 and a Dallas Business Journal Dealmaker of the Year in 2010, but the overall No.1 office ranking is a goal that has eluded him up to this point.

“I’m absolutely thrilled with this honor because it represents the collective effort and success of everyone in our organization, not just the owner or an individual agent,” Cockroft said. “Those individual awards are great, but this office achievement is something we can all hang our hats on and be proud of together.”

For VR president Peter King, Dallas’ No.1 ranking came as no surprise. Ever since meeting Cockroft for the first time in 2004, he has expected great things out of the Dallas office.

“Scot burst on to the scene with success right out of the gate,” King said. “He had a fresh and unique way of looking at this industry and how businesses changed hands, and implemented new ideas and strategies that made Dallas an immediate top office. Under his leadership, Huntington has been on an unprecedented streak of success over the past several years, so it’s fitting they finally landed at No.1.”

Cockroft is the first to admit that the past few years have proved challenging due to the recessionary issues facing businesses in Dallas and across the country. However, he credits his organization’s dedication to the core principles of their proprietary VentureXchange™ system with excelling during these difficult times.

“VentureXchange™ is all about understanding our clients’ true objectives and motivations, and then using our own unique processes to achieve the results that make the most sense for them,” Cockroft explained. “The nature of the world we’re operating in today has forced business owners to take a much harder look at major decisions like selling their companies – we understand this, which is why our entire process is built around helping shed light on that decision for our clients and then assisting them in whatever direction they determine is best to take.

“Without question, it’s this commitment to our clients that has been the foundation to our success, not only in 2010 but ever since we opened this office almost a decade ago.”

Huntington Business Group, Inc. (www.vrbigd.com) has consistently been recognized as one of the top business sales organizations in the world. Since 2005, HBG has finished as a top-five office six times and been home to 14 top-10 agents. HBG specializes in assisting the owners of privately-held companies to value, market and sell their businesses, as well as assisting buyers with locating suitable acquisition opportunities.

VR Business Sales, Mergers & Acquisitions (www.vrbusinessbrokers.com) has sold more businesses in the world than anyone®. Its principle office is located in Ft. Lauderdale, Fla. There are approximately 125 VR offices worldwide, making it one of the largest global business sales organizations in the world.

Business intermediaries are not typically licensed to provide tax guidance on transactions involving the sale of a business, however, it remains important that he or she possess a working knowledge of all of the intricacies that surround a business sale. Included amongst the most critical elements of the sale of a business is the impact of federal taxes upon a transaction.

Since most business sales in which professional business intermediaries have been engaged are those of non-public entities and, as such most likely take the form of an asset sale (as opposed to a stock sale), it is this type of sale upon which we will focus. The IRS has established guidelines for the allocation of purchase price for asset based transactions under Section 1060 of the Internal Revenue Code.

Allocating the purchase price to the entity’s assets in a business sale/acquisition is both science and art. The science aspects dictate that the rules established by the Internal Revenue Service be followed, along with documenting the underlying assumptions that are used. Art comes into play in the actual identification of the intangible assets and allocating value to these intangible assets.

It is important that the seller and buyer seek direction from their tax advisors when purchase price allocation is being negotiated. Failure to do so can have a significant affect upon the economics of a sale/acquisition. The allocation of purchase price is often overlooked while price, terms and other conditions of the sale are being negotiated. It is not uncommon, in fact, for the buyer and seller to have agreed upon these terms before discussing the purchase price allocation and its corresponding tax effects. Therefore, itshould be evident that the purchase price allocation, and the potential cash implications following close of the transaction, can assume such a critical role that the inability to mutually agree upon the allocation can cause a deal to fall apart. The intermediary, knowing that the seller seeks to maximize the after tax proceeds from the sale and the buyer desires to maximize the after tax cash flow of future operations, should be prepared to bring the parties together at the appropriate time to incorporate the discussion of purchase price allocation during the discussions and negotiations of other terms.

Once the parties have agreed upon the purchase price allocation and the transaction closes then IRS Form 8594 must be filed by each of the parties. The allocation of purchase price reported on IRS Form 8594 is binding unless the IRS determines it is not appropriate.

The sale includes all the assets of the business not specifically excluded and may include equipment, inventory, work in progress, trade fixtures, leasehold improvements, contractual rights, business records, licenses, franchises, customer lists, goodwill, covenant not to compete, trade secrets, trade names, telephone numbers and supplies. Other intangibles and intellectual property could include patents, trademarks, secret formulas, etc.

The allocation discussed above is based on what is referred to as the “Residual Method” and, pursuant to IRS guidelines, must be determined in the sequence outlined below:

• Step One: Value all identifiable assets
• Step Two: Determine total amount to be allocated (certain non-specific transaction costs such as employment/non-compete agreements must be considered)
• Step Three: Assign to respective classes of assets in the following order:

o Class I – Cash
o Class II – Marketable Securities
o Class III – Accounts Receivable
o Class IV – Inventory
o Class V – Assets Not Otherwise Classified
o Class VI – Section 197 Intangibles (i.e., specifically identifiable intangible assets other than Goodwill)
o Class VII – Goodwill

The total value allocated to the assets must equal the purchase/sales price. Some tax implications of the purchase price allocation are shown below.

Amount allocated to Tangible Personal Property (e.g., buildings, leasehold improvements, trade fixtures, furniture, and equipment):

• Seller: If held more than one year, gains in excess of depreciation are long-term capital gains; otherwise ordinary income
• Buyer: Depreciates new basis per IRS schedules

Amount allocated to Covenant Not to Compete/Customer List and similar Intangibles:

• Seller: Ordinary income
• Buyer: Amortize over 15 years

Amount allocated to Training/Consulting:

• Seller: Ordinary income
• Buyer: Expense as incurred

Amount allocated to Goodwill:

• Seller: If held for more than one year, long-term capital gain
• Buyer: Amortize over 15 years

Amount allocated to Land:

• Seller: If held more than one year, long-term capital gain; otherwise ordinary income
• Buyer: No immediate tax impact

Amount allocated to Inventory:

• Seller: Ordinary income, to the extent over basis
• Buyer: Treated as cost of goods sold upon sale of inventory

In summary, Huntington Business Group, Inc. highly recommends that the seller and buyer address the allocation of purchase price in connection with negotiations of the other terms of the transaction. Licensed and/or accredited brokers, CPA’s and attorneys should be consulted.

Mike Derrick is a Senior Business Intermediary with VR Huntington Business Group Inc. a VR Business Sales firm in Dallas (www.vrbigd.com).

VR Huntington Business Group is the leading business brokerage firm in North Texas and the Dallas/Fort Worth Metroplex. Our firm is comprised of professional business intermediaries that specialize in Business Brokerage, Mergers & Acquisitions, Business Valuation and Consulting services focusing on small businesses and mid-market companies.

While millions of small business owners have tucked the memories of 2009 into a distant corner, many others who have endured, and in some case prospered during the recent economic downturn, are looking to 2010 and asking “Is now the time to sell my business?” The answer is yes.

With the reinvigorated mindset of the market place and the recent announcement from the SBA about additional funding to support small business lending, it is increasingly clear that 2010 is an ideal time for business owners to sell.

The decision to sell, however, is a difficult one and is driven by a number of factors. Personal timing must be considered. Owner burn-out and a desire for change often influences the decision to sell – retirement, illness and a host of other issues can also be motivating factors. But these items should NOT be the only factors considered. Proper timing should also be considered in order to maximize the economic benefits of the sale. Although no one can advise a business owner as to the best personal time to sell their business, allowing personal issues to determine when to sell can only lower the value of a business.

Once you’ve eliminated any personal obstacles, you must then consider selling from a business standpoint. Unfortunately, few business owners decide to sell when everything is going great. However, this can be and most times is the best time to consider selling your business. It is important to recognize that this is the precise point in time that buyer interest will be at its peak and your premium price will be most achievable. On the other hand, if an owner attempts to sell their business after a period when revenue is off, after losing a key employee or losing a significant customer then the ability to sell becomes problematic at best. The best time for an owner to sell is when his or her business is efficiently staffed and growing. Businesses with these characteristics are very attractive, can be financed and are, therefore, saleable.

Now that we understand what motivates business owners to sell, what appeals to the marketplace and how timing can impact the value of one’s business during the sales process, we can now focus on why 2010 is an ideal time to sell.

Capital Gains Tax Rates Will Increase

This is an if but rather a when. Given the current state of the economy and circumstances at the national level, the federal government will need to raise additional revenue in order to finance the various governmental programs it enacted during 2009. Much of these revenues will be generated from an increase in the Capital Gains Tax rate legislated during 2010. Of concern is whether an increase in these rates will be retroactive – at a minimum it appears that effective January 2011 any taxable transaction will be subject to an increased capital gains rate. The new rate will be higher than the current rate which is approximately 15%.

The sale of a business is complicated and can require several months to finalize – some transactions require 8 to 12 months to complete. Delays can, therefore, be very costly – especially in light of an imminent tax rate increase. For example, a mere increase to 25% from the existing 15% capital gains rate could cost a business owner $100,000 per $1 million of their sales price should the sale of their business not becompleted prior to enactment of any legislation that raises the capital gains tax rate.

Buyers Are Available

There are many individuals who have been unable to survive widespread corporate downsizing. On the surface this group may not appear to be candidates to buy a business, but let us drill down a bit further. Most of the recently unemployed are members of the prolific baby boomer generation and have had the opportunity to save substantial sums of money. Much of this wealth is stored away in 401(k) plans and other savings programs that the IRS now allows one to tap into without paying taxes or penalty. These funds are available to buy a business.

Other buyers also exist. Many companies have been hoarding cash and are seeking opportunities to take advantage of this abundant level of acquisition capital. This, along with low interest rates, offers a very broad base of buyers who are seeking investment opportunities to take advantage of economies of scale and to gain market share.

Financing

Traditional financing avenues remain narrow but many SBA lenders continue to exhibit a healthy appetite for lending and, as recent statistics reveal, have provided millions of dollars for qualified buyers. SBA lending is likely to increase as the current administration undertakes previously announced efforts to increase funding for small businesses.

Mike Derrick is a Senior Business Intermediary with VR Huntington Business Group Inc. a VR Business Sales firm in Dallas (www.vrbigd.com).

VR Huntington Business Group is the leading business brokerage firm in North Texas and the Dallas/Fort Worth Metroplex. Our firm is comprised of professional business intermediaries that specialize in Business Brokerage, Mergers & Acquisitions, Business Valuation and Consulting services focusing on small businesses and mid-market companies.

FOR IMMEDIATE RELEASE

Dallas, Texas – VR Huntington Business Group of Dallas assisted in the successful sale of Sweet Land Tree Farm last week from Wintters Realty, LLC to HHH Nurseries, LLC.

Todd Wintters, president of Wintters Realty, LLC, acquired the farm three years ago from the founder. Sweet Land became a division of his engineering company, but as his core business evolved, it became a priority to move away from the tree business and find a suitable buyer for the farm.

“When it came time to sell the farm, I had two routes to consider,” Wintters said. “I could list the property with a real estate broker or try using a professional business intermediary. In the end, choosing VR Huntington was the best decision I could have made. The farm benefitted greatly from being marketed as an operating business rather than just a piece of property.”

HHH Nurseries, LLC was formed by brothers Blake and Jason Hearnsberger, along with their father, Roy. The group has real estate interests in other parts of the state and Sweet Land provided them an opportunity to expand their operation into East Texas as well as into the wholesale tree business.

“Having acquired other agricultural properties previously, our objective was to expand those holdings with an income-producing opportunity,” said older brother Jason. “This business was a bit further from the Houston area than we were looking to go, but based on the quality of the operation and the amount of detail readily provided by VR Huntington, Sweet Land became a viable option for us.”

Wintters gives VR Huntington credit – not only for generating significant interest in his business and producing multiple offers but also for the expertise they provided in evaluating each buyer individually.

“VR produced four offers on my business,” Wintters said. “The buyers were all qualified and motivated to make the purchase, which puts a lot of pressure on the owner to make sure and choose the right person. With VR’s guidance I selected an offer, and it turned out to be the best buyer I could have hoped for.”

Sweet Land Tree Farm (www.sweetlandtreefarm.com) offers wholesale customers access to a variety of Texas’ most popular hardwood landscape trees, including red oak, live oak, Chinese pistachio, pond cypress, cedar elm, lacebark elm and many others. The farm sits on 20 acres of prime property in Grand Saline, Texas. Contact Sweet Land at 903.962.3986.

The sale was facilitated by Jeremy Furtick, Senior Business Intermediary, with VR Huntington Business Group Inc. a VR Business Sales firm in Dallas.

The VR network was established in 1979 and is the oldest professional business brokerage in the nation with more than 125 offices and 800 agents worldwide. VR Huntington Business Group (www.vrbigd.com) is based in Dallas and has finished the last four years as one of the top VR offices in the world. VR Huntington specializes in assisting the owners of privately-held companies to value, market and sell their businesses, as well as representing buyers interested in professional assistance in their business searches.

FOR IMMEDIATE RELEASE

DALLAS, Texas – VR Huntington Business Group of Dallas assisted in the successful sale of two Pump It Up franchise locations from Advanced Cycling Concepts, Inc. to John D. Ruchman Enterprises, LLC.

Carol Welch, president of Advanced Cycling Concepts, Inc. opened her first Pump It Up location in Dallas in 2004. Then in 2007 she started a second location in Plano under the “Junior” concept, which caters to smaller children. After dedicating countless hours to opening and operating the two locations, Welch decided it was time to move on and let a new owner with new enthusiasm take over the business.

“I loved every minute of starting and operating both Pump It Up locations,” Welch said, “but there finally came a time where I decided it was a good idea to move on – I was burnt out. So we started interviewing business sales professionals, and ultimately chose VR Huntington out of several options.”

John D. Ruchman Enterprises president, John Ruchman, first became interested in Pump It Up four years ago while attending a birthday party at the Dallas location with his family. Years later when he became aware that the operation was available for acquisition, he dedicated himself to making this venture the next move of his professional career.

“I can still remember being at the Dallas location and my wife telling me, ‘You ought to buy this business someday’,” Ruchman said. “I was absolutely thrilled when I saw this listing go on the market and came to find out the Dallas location was available.”

Welch and Ruchman both had high praise for VR Huntington.

“It’s no secret that the past year has been difficult for good businesses to find qualified buyers,” Welch said. “We are extremely grateful to VR for sticking with us through this tough year and also for being able to negotiate a deal for our business that we never thought we would be able to get in this economy.”

“VR Huntington did a great job of helping me through this process,” Ruchman said. “I felt like I was working with people who actually cared about more than the ‘sale’.”

Pump It Up (www.pumpitupparty.com) is an indoor inflatable party center franchise operation with more than 175 locations nationwide, including 10 locations in Dallas/Ft. Worth. The Dallas location is at 9201 Forest Ln., and Plano is at 4101 E. Park Blvd. Both locations can be reached by dialing 972.792.9663.

The sale was facilitated by Jeremy Furtick, Senior Business Intermediary, with VR Huntington Business Group Inc. a VR Business Sales firm in Dallas.

The VR network was established in 1979 and is the oldest professional business brokerage in the nation with more than 125 offices and 800 agents worldwide. VR Huntington Business Group (www.vrbigd.com) is based in Dallas and has finished the last four years as one of the top VR offices in the world. VR Huntington specializes in assisting the owners of privately-held companies to value, market and sell their businesses, as well as representing buyers interested in professional assistance in their business searches.

Everyday, I’m asked this question by business owners who are looking to sell their business. It’s good question. Why do you need to hire a business broker? The answer is simple – expertise.

As a business owner, you understand that you need to hire experts to handle certain aspects of your business to protect your investment and its continued success. That’s why you don’t think twice about hiring a CPA or an attorney. The principal is the same when hiring a business broker.

Typically, business owners hire a broker because:

• You have spent a great deal of time and energy building your business
• Your business may be your largest financial asset
• You are uncertain how to protect your confidentiality
• You have no real idea of what the business is worth
• You don’t know how to find and qualify buyers
• You may not have negotiating skills
• You don’t want to take your eyes off the business while it’s being sold
• You may not even be certain of what the first steps are to sell your business

Just like hiring a CPA or an attorney, you need to do your homework when hiring a business broker. A good broker is a skilled professional who will manage the sales process for you and handle all of the complications so you can continue to grow your business!

A member of the VR network which has been providing sell-side services since 1979, VR Huntington Business Group in Dallas has been recognized on numerous occasions as a leading firm amongst all professional intermediaries and business brokers in North Texas.

What you should know before hiring a Business Broker

Prior to engaging a broker let us first begin with the skills and qualifications that your broker should possess and how to determine if you are selecting the right broker to represent you.

Seller Due Diligence: A prospective buyer will undertake due diligence – so should you. Review the broker’s experience, credentials and references. Visit their office to be certain they are not operating from their home. Check the BBB. Have they handled sales of your type of business before? How long have they been serving your market?

Check IBBA: The International Business Brokers Association® (IBBA) is a non-profit trade association of business brokers that provides a professional certification process after a rigid education program is completed. Are the leading members of your brokers’ firm certified?

Use a Specialist: A business broker who spends all their time selling businesses, as opposed to real estate agents for example or part-time business brokers, will add more value to your sales transaction.

Confidentiality: Selling one’s business is a highly confidential matter. Your business broker should ensure all measures are in place to protect your company. Any knowledge by your suppliers, employees, or customers that you are selling can have adverse repercussions.

Marketing Plan: Selling your business is all about strategic marketing. Properly positioning the sale of your company to attract as many buyers as possible is the objective. A skilled broker will have a detailed marketing plan with advertising strategies designed to attract a wide range of prospective buyers.

No Upfront Fee: A business broker’s fee ranges from 10 to 15% commission of the sale price of your company. Avoid any broker asking you for an upfront fee.

What a Good Business Broker Will do for You

Qualified brokers will meet the standards outlined above and will, in addition, be able to provide the following to ensure that your objectives are fully satisfied:

Value your business using several different methods and give you an idea of the price your business is likely to sell for. good broker will adjust your financial statements and recalculate the cash flow since it could be higher than what was disclosed to the IRS

Add a layer of confidentiality to the transaction thereby protecting the value of your business and helping you get the best possible sale price for your business.

Reach more buyers through channels that you may not be able to access directly on your own.

Negotiate with buyers and their advisors to get you the best price and sale terms for business.

Educate you about the sales process – Many sellers are not aware of what they have to disclose in documents such as the Non-Disclosure Agreement or Purchase Agreement

Manage the due diligence process. Selling a business can be a long and tedious process. A good business broker will help you by answering many of the typical questions that buyers have allowing you to focus on the daily operation of your business.

Complete the deal. An experienced business broker can work with you to structure the financing of the sale and help close the deal.

Remember – A good broker will allow you to get you a lot more money at the best terms (even after you have deducted their fees).

Mike Derrick is a Senior Business Intermediary with VR Huntington Business Group Inc. a VR Business Sales firm in Dallas (www.vrbigd.com).

VR Huntington Business Group, located in the heart of the DFW Metroplex, serves the entire Dallas-Fort Worth Metro area as well as North Texas. The company specializes in Business Brokerage, Mergers & Acquisitions, Business Valuation and Consulting services focusing on small businesses and mid-market companies.

While there are a few good and strategic reasons for the owners of a C Corporation (“C Corp”) to maintain C Corp status (e.g., plans to take the company public, preserving health care deductions, etc.) the owners MUST prepare in advance and develop an Exit Strategy in order to avoid the shock that typically comes when they receive the tax bill following the sale of their company.

We at VR Huntington Business Group often find that business owners have very little knowledge of the tax consequences that are triggered when they sell their business. These consequences are most especially severe for the owners of C Corporations.

C Corporations pay taxes on the income earned and, if the earnings and cash levels warrant, they then distribute the after-tax earnings in the form of dividends to the shareholders who will in turn pay taxes on those dividends. This is known as “double-taxation” and is the subject of much frustration for many C Corporation owners.

When a C Corp is sold it will generally take the form of an asset sale as opposed to a stock sale, which means the buyer will purchase the assets of the corporation and the proceeds will go to the corporation. The corporation will then pay taxes on any profits from the sale. What remains is then distributed to the owners who will in turn be taxed a second time – the “double-taxation” I mentioned earlier. Tax rates vary according to earnings and capital gains rates but, of critical importance, if the C Corp owners are not careful they will pay double taxes on the sale of the company.

If owners of a C Corp are considering the sale of their company in the next few years, they should meet with professional advisors to begin developing an Exit Strategy. The owners’ CPA and a professional business intermediary should be contacted to start developing an exit strategy well in advance of the sale. For example, it may be desirable to make an S Corp election and take advantage of favorable tax strategies now available under the American Recovery and Reinvestment Act of 2009.

We, VR Huntington Business Group, have on numerous occasions advised our clients to consult with their CPA regarding how they can minimize their tax burden by classifying the sale as one that predominately includes personal goodwill. This structure may be applicable and can substantially reduce the taxes on the sale of a C Corp. In other cases the owners’ CPA or other advisors may be able to develop alternative tax strategies to substantially reduce the tax liability. There are, as noted above, advantages to C Corporations but when selling a C Corp the owners must plan carefully and well in advance.

In summary, VR has often been contacted by owners of C Corporations that it most cases should have considered converting to an S Corp many years earlier. These owners are now presented with significant hurdles that advance planning could have avoided. We find that many middle-market business owners, unfortunately, do not understand the effects that a C Corp status has, not only on the eventual price the owner will receive for the business and the taxes to be paid on the sale, but also on the challenges that a C Corp status presents in marketing the business.

Focus should be on advance planning – VR Huntington Business Group offers consultative services to ensure against the pitfalls that many C Corp business owners should avoid before selling their business.

Mike Derrick is a Senior Business Intermediary with VR Huntington Business Group Inc. a VR Business Sales firm in Dallas (www.vrbigd.com).

VR Huntington Business Group, located in the heart of the DFW Metroplex, serves the entire Dallas-Fort Worth Metro area as well as North Texas. The company specializes in Business Brokerage, Mergers & Acquisitions, Business Valuation and Consulting services focusing on small businesses and mid-market companies.