Why Use a CBI Professional When Buying or Selling a Business?
If you are a business owner you certainly know that the day will come when you will walk away from your company’s operations. Selling your business will likely be one of the biggest decisions of your professional life.
No doubt you have a good idea of what your business is worth. But there are many factors to consider when putting your company on the market. Is now the best time to sell? Should I look for a cash deal or should I consider certain terms? What about confidentiality?
If you are considering the purchase of a business, you also have many questions such as how the value of a business is determined, what financing options are available currently, how can a search for a suitable business to purchase be performed, and how should the information provided by the seller about a business be verified?
A Certified Business Intermediary, or CBI, is the designation awarded by the International Business Brokers Association (IBBA) to members that have met certain educational requirements and ethical standards.
IBBA, with over 1,100 members worldwide, is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of business brokerage and mergers and acquisitions, and approximately 500 of its members hold the distinguished CBI designation.
In many states, no license is required to become a business broker. The best objective indication to the public of the competence of a business broker, also called a business intermediary, is if they hold the CBI designation.
A CBI is an experienced, proven professional whose claim of competence is supported and documented. With the skills necessary to handle the marketing, negotiations and complex details involved, a CBI can successfully help complete the purchase or sale of a business.
To earn the CBI designation, an IBBA intermediary must meet the following requirements:
- Education – Minimum of 60 class hours of business brokerage courses offered through IBBA and must demonstrate an ongoing commitment to professional development through continuing education and recertification.
- Experience – Must demonstrate competence in the application of knowledge gained through practical experience with a combined minimum of three years experience and education in business brokerage.
- Knowledge – Must demonstrate a high degree of knowledge garnered through the successful completion of required courses and evidenced by passing the rigorous CBI examination.
- Ethics – A CBI must thoroughly understand the IBBA’s Code of Ethics and apply the code to his or her business practices.
A higher level of education and training, and membership in the IBBA, means that a CBI will have more access to people and information than other business brokers. A CBI has professional affiliations with hundreds of other intermediaries in addition to the most current industry information regarding taxes, government and legislation.
A CBI’s preparation, experience and knowledge of current marketplace conditions, and the skill, care and judgment they bring to a project is critically important for anyone looking to buy or sell a business.
Why Use a Professional to Sell Your Business
Selling their business is one of the most momentous events in the life of a business owner.
The net proceeds from the sale and the amount of protection provided to the seller during the selling process can in large part determine the quality of the rest of their life.
Every business owner realizes that, when it is time for an ownership transfer, they only have one chance to get it right. For that reason, it is wise to hire a professional team to handle the details of the sale:
- An attorney experienced in business sale transactions;
- A competent accountant to assist with the details of deal structure and due diligence;
- A financial planner or wealth manager to assist with the investment of the proceeds from the sale;
- A professional business intermediary to market the business to the largest possible pool of buyers, in order to receive the highest possible price and best possible terms for the seller, while helping ensure that employees and customers and competitors and suppliers and lenders do not learn of the business being for sale.
More Money at Closing
A business seller will always walk away with more money after the sale by using a business intermediary, also called a business broker or investment banker, for these reasons:
- They have the tools and resources to reach many more interested buyers than could the seller on their own.
- They are knowledgeable about all the possible structures of business sales, and their tax implications.
- They are skilled at negotiating favorable terms of a business sale, including the all-important asset allocations.
- They are experts at managing the selling process and coordinating the efforts of the other team members to accomplish the goal of a timely sale with the best possible price and terms for the seller.
Consider this example
An owner selling a business on their own could sell it for perhaps $500,000. But if they had hired a professional business intermediary who got them $600,000 for their business, they would still have walked away with substantially more money in their pocket, even after paying the broker’s success fee. And the broker would probably have helped save the seller some money in the structure of the deal and in the resulting tax consequences as well.
According to Michelle Seiler-Tucker in her book Sell Your Business for More Than It’s Worth, an experienced business broker can and should be able to sell a business for 20-40 percent more than the business owner could on their own.
A well-trained, competent business intermediary will:
- Help maintain confidentiality throughout the process. Even prospective buyers can lose interest if they discover confidentiality has been breached.
- Value the business properly, to determine a price that can be justified and supported to buyers and lenders. Every business has its own unique value drivers, which affect its value. Business intermediaries have valuation methods and access to business transaction databases which can help determine a particular business’ most probable selling price with precision. However, the best way to ensure that a business is sold for its maximum value is to have several financially qualified parties bidding on the purchase of the business, which can much more likely be achieved by a business intermediary.
- Provide the necessary financial analyses to present an accurate, complete picture of all the benefits of owning the business. The seller’s accountant’s job has been to show the least amount of profitability possible on the financials, to reduce taxes. The business intermediary’s job is to show the maximum amount of actual owner benefit the business has been providing the seller, in order to increase the sales price.
- Help the seller position the business and its financial records and assets and operations to make it more attractive to buyers and lenders.
- Market the business confidentially to the broadest possible number of buyers.
- Develop a professional Confidential Business Review to present to buyers, their advisors, and to lenders, which presents the business in the most appropriate way to maximize the sales price.
- Screen the hundreds of buyers that typically respond to the broad, confidential advertising campaign placed and paid for by the business intermediary, and obtain their legally-bound agreement to not disclose the fact that the business is for sale.
- Level the playing field for the seller. Many corporate buyers have acquired multiple businesses, while a seller often sells only one business in their lifetime. A business intermediary can help ensure the seller is not taken advantage of.
- Assist the seller in organizing the information buyers and lenders will require when they are evaluating the business.
- Schedule all buyer conference calls, meetings with the seller, site visits, and meetings with the buyer’s and seller’s attorneys and accountants.
- Present offers to the seller and assists in developing counter-offer strategies.
- Be a buffer between buyer and seller. They need to be on good terms after the closing. Manage the due diligence process to a successful completion, rather than having the process cause the buyer to withdraw from the transaction. Assist the buyer in surmounting all the hurdles necessary in order to obtain financing.
- Oversee and expedite the activities of the attorneys, accountants, and lenders, while putting out all the fires that occur with agonizing frequency along the way to a closing. There is a saying that ‘all deals die three times before they close’. All business intermediaries would swear to its truth.
- Track the contingency removal process to ensure it proceeds in an orderly fashion.
- Manage the closing so that it occurs timely, safely, and with no surprises. The faster the sale concludes, the less risk there is of employee problems, damage by competitors, or customer defection.
- Monitor and assist with the post-closing processes and agreements.
The business intermediary performs one more very important functions – they allow the business owner to continue to focus all their attention on managing the business while the business is for sale.
Selling a business is a full-time job. If the business owner tries to perform all the selling tasks themselves, confidentiality is usually lost, and the business can suffer at a time when it needs to be operating at its absolute maximum potential. Nothing extinguishes a buyer’s flame of interest more than learning that the business has not been doing as well recently as in the past.
Selling a business is a difficult, risky, complicated undertaking, with lots of potential pitfalls. Engaging a professional team to guide the business seller through the process will be one of the best business decisions they ever make.
Why Use VR When Buying or Selling a Business
Twelve Advantages of Using the Proprietary VR System to Sell a Business
The key in selling a business is showing it to the right person. A larger number of interested buyers means a higher price for your business. Because of the VR Network dominance in the marketplace, we have hundreds of buyers contacting us, and a database of thousands of prospects searching for businesses.
We know how, when, and where to advertise your business in order to attract the right kinds of buyers, while keeping the name and location of your business confidential. We advertise our engagements on over 100 business for sale websites, as well as our own VR website and our corporate website (www.VRBB.com), and in other mediums depending on the type of business. Each website charges a fee for their use, of course, but we pay for all advertising so there is no cost to you.
The sale of your business will be handled confidentially. If your employees, competitors, customers or suppliers find out you are selling, your business could be damaged. We have developed a successful strategy to protect your confidentiality. We never disclose the name or location of your business until a buyer has been screened and has signed a confidentiality agreement. We never send buyers out to your business unescorted. We never put the name of your business in a multiple listing service for every part-time real estate agent to see. To help maintain confidentiality, we will schedule meetings before or after working hours if necessary. Everything we do is designed to protect your business and your confidentiality.
It takes a great deal of time sifting through all of the inquiries and finding a good buyer. We do that for you so you can spend your time running your business. If you did find an interested buyer on your own, you would spend a tremendous amount of time showing them your records and operation. We allow you to protect your business’ value by spending full time running it.
Advertising alone doesn’t sell businesses. You need competent business brokers to get people interested in your business. Even experienced buyers often buy a different type of business than the one they initially inquire about! According to the International Business Brokers Association, only about 1% of buyers buy the business which they initially inquire about, and less than 30% even buy the same type of business they inquire about. We always get a good cross section of buyers, and then conduct in-depth interviews with them to determine their strengths and interests. When we find someone who is a good fit for your business, we steer them toward it. This way you get the benefit of every ad we run for every business we represent! The money you would have to spend in advertising to attract just the right buyer for your business would be significant.
6. Proven Results
VR has sold more businesses than any other business sales organization. No one else can compare with our experienced network of professionally trained, full-time associates. Because of our experience, we have the knowledge to anticipate and solve many problems before they ever arise.
7. Follow Up
We follow up with buyers after they have inquired about your business, pointing out the suitability of the business for them and the advisability of their making an offer. We report buyers’ reactions to keep you posted on how your business compares with others on the market. Our follow-up after an offer is signed includes setting up due diligence, assisting in arranging the financing, removing contingencies, and coordinating both party’s legal, accounting, and other advisors, to ensure a higher probability of the transaction closing smoothly and in a timely manner.
8. Negotiating Power
We can pursue a buyer without damaging a seller’s negotiating position. Any time a seller contacts a buyer directly, it weakens their negotiating power. As a third party intermediary we can encourage a buyer to make a decision without implying in any way that the seller is anxious to sell. All of our associates are experienced negotiators; even if a seller is a seasoned negotiator, it really helps to have an intermediary between them and the buyer to preserve the good relations between them. Every buyer has advisors, relatives, etc. that may have negative feelings about the proposed purchase. We know how to spot this and handle these situations.
9. Risk Free – No Upfront Fees
We research your business and help get it ready for sale. This includes advising you on pricing and structuring the terms of sale, preparing a marketing package of information about the business, advertising your business, interviewing buyers, negotiating on your behalf, and doing everything necessary for a smooth sale. We do all this with no fee at all unless a buyer is found at the price and terms you agree upon.
Our exclusive database of businesses sold nationwide by VR offices gives us extensive statistics to assist in pricing a business. We know what buyers look for and what they are willing to pay. We make sure you don’t overprice and scare off good buyers or under price and leave money on the table. We use our database and expertise to convince buyers that your asking price is fair.
11. Structuring Offers
We know how to structure transactions to minimize the chance of a problem. We use our experience from thousands of sales to develop terms that work for everyone. We prepare the offer using the appropriate documents and clauses. The offer, accompanied by an earnest money deposit and information about the buyer, will be explained to you. We will counsel you on your options of accepting, countering or rejecting the offer and on what has to be completed before closing can take place. We will coordinate with all parties to keep the process moving to a closing in a timely manner.
12. Closing and Post-Closing Services
We’ll help make sure the closing occurs timely and that all details are handled properly. After the closing, we assist with attending to any details necessary to insure that buyer and seller remain satisfied with the transaction they have just concluded.