A to Ω steps to Buying, Selling or Transferring a Business

This year’s iteration of the International Business Brokers Association conference was held virtually as a result of the coronavirus pandemic. The month-long event featured a number of the top speakers in the industry presenting webinars, workshops and interactive learning forums.

One of these webinars was led by Roman Al Basi, the president of The Center for Financial Legal and Tax Planning. His presentation titled ” A to Ω steps to Buying, Selling or Transferring a Business” discussed the process by which he and his firm work with clients on selling their businesses.

As an attorney, CPA, real estate broker and title insurance agent, Basi has a very unique combination of background and skills that help his clients properly prepare for selling their business. A large majority of Basi’s practice involves mergers and acquisitions of privately-held companies across the United States, with most of them coming in the “Main Street” industry.

On an annual basis, his firm conducts roughly 100 to 150 business evaluations. Basi himself also serves as an expert witness in court cases involving valuations of companies all over the United States.

Basi said the best way to prepare a business for sale is to follow a simple yet complex blueprint that involves, in this order:

• Properly valuing the company
• Preparing a marketing plan and prospectus for the company
• Conducting a comprehensive tax and cash flow analysis of the transaction
• Preparing and executing a Letter of Intent
• Conducting due diligence, if necessary
• Executing the finalized documents

Determining the Company’s Value

Basi says that most people know that the final sale price of a business is dependent on its independent valuation. But coming to a proper valuation that determines a business’ fair market value is more in-depth than just looking at one or two metrics.

There are four different methods by which Basi will determine the proper valuation of a company. He will use each of these methods to come to a value in most cases, and then use them all in combination to come up with a final weighted valuation.

Marketing the Company for Sale

Once the final valuation has been determined, Basi says the next step is create a marketing plan for the sale. At this point, business owners must decide what information and data will be disclosed to prospective buyers, and what information and data will be held in confidence.

At this stage, interested buyers should be required to sign a non-disclosure agreement before they are given access to any private company information. This is to protect the current business owner from information getting out before a sale is executed.

For his clients, Basi says he’ll stress that it’s important for them to clearly lay out what, if anything, will be excluded from the sale so that buyers know what they’d be getting. For example, if the current owner doesn’t want to sell property he owns through the business, then they’ll need to disclose that as part of the marketing plan.

Performing a Tax and Cash Flow Analysis

This exercise is one of the most important ones for owners selling a business. It will show his clients what they should expect in their pockets after all liabilities and taxes are paid.

Basi said that clients need to understand that all liabilities in a transaction must be paid before a sale can be official. They also need to understand the tax implications that go along with a business sale.

To help his clients make quicker decisions as price negotiations are taking place, Basi constantly updates the tax and cash flow analysis as a running calculation. That way, the business owner has a benchmark goal for what price they’d like to sell the business for.

Signing a Letter of Intent

While it’s possible for business sales to skip a Letter of Intent and go straight to a Purchase Agreement, Basi doesn’t recommend this. He says a Letter of Intent, while not binding in all forms, will clearly lay out the purchase price and terms of a transaction for all parties involved.

Where an LOI will be binding is in terms of confidentiality — protecting this information from getting out to employees, customers and vendors. A signed LOI will also give the buyer exclusivity for a certain period of time so that the transaction can proceed.

Completing Due Diligence

The last step before completing the deal is going through due diligence. Basi explained this is an investigation, audit or review that is performed to confirm the facts of the matter under consideration. It’s a full examination of financial records before entering into a proposed transaction with another party.

There are two types of due diligence, he explained. “Hard” due diligence will look at just the numbers, while “soft” due diligence will look at people within the company as well as the customer base.

Internal Transactions

Business brokers can also help with internal transactions such as the sale to an employee or group of employees, or the passing of the business from one generation to the next.

Even though this will be considered more a succession plan than a traditional sale, Basi said it’s still important to value the company, and do the tax and cash flow analysis for the owner. While there most likely won’t be a formal marketing plan created, the parties may still sign an LOI and complete due diligence.

These internal transactions and succession plans are important to help provide control of the business, minimize liabilities, preserve the going concern of the business and provide liquidity.

Whether you are an established business owner nearing retirement and looking to sell, or an ambitious entrepreneur seeking your next investment opportunity, there is no reason to look beyond Sunbelt Business Brokers. Visit us at 800 Village Square Crossing, Suite 216 Palm Beach Gardens, FL 33410 or contact us at (561) 832-9222.