How would you like to buy a business using 401K funds--without any tax penalties? The purchase would leverage the government's taxable share of your 401K--therefore lowering your risk--and be effectively tax free on its operating profits. Should you want to know more, please contact me at 407-361-8886 or email me at fsimo@tworld.com. Also, please click here for more information on buying and selling a business in Orlando or Central Florida.

There is no doubt that a major topic of discussion (and concern) today for most of us is the economy.   One of the main issues regarding a market where unemployment nears ten (10) percent (or 20% for those who include workers who no longer submit claims or are simply working on a part-time basis, or simply gave up), is whether the recession and/or the recovery is underway. Based on two continuous GDP growth quarters, most economists would indicate that the recession is over—and has been since July 2009. Of course, many would argue that recovery without job creation is nothing but number crunching. In all of that confusion, I wanted to clarify what has been happening in the Business Brokerage world (in Florida) since July 2009. 

Ok, so you are lucky enough to have sold your business. Now what? One of the things sellers normally forget is the closing process. In one of my previous articles I mentioned that among the many things Business Brokers do for sellers and Buyers is to manage the closing process once a Purchase Agreement (sale) has been made. As brokers, we normally manage three (3) key areas after a Purchase Agreement has been signed: The Due Diligence, Lease Assignment and Closing Process.

During Due Diligence, we help both buyers and sellers (yes, sellers, too) verify the reliability of financial records. Lease Agreements, corporate status, etc. During this period—normally 10-15 days--we deal with accountants and lawyers asking for information pertinent to the business and making sure the information flow occurs as expected. After all requirements have been met, we ask the buyer to sign a “Due Diligence Release Form” indicating his satisfaction with the review. If the buyer is not satisfied within the timeframe allotted, all bets are off.

The Lease Assignment Process is perhaps the one where most deals are broken. Most Purchase Agreements include a Lease Contingency clause-- one where if the buyer cannot obtain a lease the deal is off. Unfortunately, most Landlords are unwilling to go from one lessee to another without a tremendous amount of scrutiny. So, we, as brokers, must convince them of the financial capability of the buyer to undertake the lease assignment “for the landlord’s benefit,” or, a win-win for both the buyer and landlord. This, my friends, is “easier said than done.” As I mentioned before, the landlord has no motivation to provide either an assignment or a new lease—he already has someone (the seller) committed to pay the rent.

Last, but not least, we manage the “Closing Process.” The Purchase Agreement becomes the basis for the preparation of about twelve (12) or more documents—depending on the complexity of the transaction. Brokers normally take both the seller and buyer through this process by going over each one of these documents. Failure to follow this process may mean a deal broken at the closing table, where either the buyer or seller would indicate ignorance. Some of these documents are shown below:

a. The Affidavit. The seller indicates ownership of the business being sold; all information provided to the buyer is correct, no outstanding liabilities etc.

 b. Allocation Agreement. An agreement as to how the sale of the business will be allocated among its assets, where the balance normally is goodwill.

 c. Bill of Sale. The seller indicates his/her agreement to sell their business and the components of it; such as websites, Business name, etc

d. Buyer Written Action. The buyer’s corporation consents to the purchase of the business.

 e. Closing Agreement. Buyer and Seller indicate that conditions within the contract have been satisfied.

 f. Indemnification. Buyer and Seller hold each other harmless from losses.

g. Non-Compete. Seller agrees not to compete within the pre-established distance and time.

h. Pledge of Lease. Buyer agrees to guarantee lease payments or forgo business.

 i. Security Agreements. Buyer pledges the business as security for non-performance on Promissory Note.

j. Seller Written Action. The Seller’s corporation consents to the selling of the business.

 k. Promissory Note. The conditions to pay back the seller financing.

l. Closing Statements for both Seller and Buyer. Distribution and Receipt of funds.

The proper management of the areas listed above would insure the successful completion of a sale. Make sure that you have a competent business broker who can effectively negotiate and navigate your sale through these very “dangerous waters.”

Should you want to know more about buying or selling a business in Central Florida, visit my website at www.bizbuyorsellflorida.com, email me at fsimo@tworld.com or call me at 407-361-8886.

In one of my recent articles, I discussed profitability (Owners Benefit) as one of the key elements in determining a business valuation. I mentioned that if a business generate limited or no cash flow, it normally can only sell its tangible assets—receivables, inventories, furniture and fixtures and equipment.—for a nominal amount. Yes, you may get more than the book value, but I find it very rare. Unfortunately, over and over again, sellers come to me wanting to sell their business at a point of no return—where the business generates no profit or negative cash flow.

Believe me, I certainly can not be too critical of those sellers—I have been there. I know how hard it is to let go of a dream. However, that is precisely why I feel obligated to write this article. That’s why I recommend an Exit Strategy.

 As I go on listing appointments, I caution sellers that there are two ways in which one can normally value small businesses (notice the word “normally” and “small”). One way values Tangible Assets, such as inventories, receivables, furniture, fixtures and equipment. The other uses a multiple of Owners Benefit (Operating Profit plus owner’s salaries, depreciation, amortization, interest and personal benefits charged to the business). In other words, if your business generates minimal or no Owner’s Benefit, what you are really selling are the business’ tangible assets—what we business brokers call an Asset Sale or Sale of Assets--depending on which broker you talk to.  Before I get most of my colleagues upset, let me explain that by definition an Asset Sale normally includes some level of goodwill and normally represent about 90% of our sales, the other being a Stock Sale.  So, in this blog I am using the words Asset Sale loosely.  Having said that,  ordinarily, you would not be able to sell your business for an amount greater than the market value of those assets—market value is in the “eye of the beholder.”  However, buyers normally define Market Value at 20-30% of the assets’ original value--please notice I said "buyers." 

What is it about most of us who decide that “cheap” is better? We do it when buying clothes, shoes, furniture, car, etc, only to find out, in most instances, that our decision was not a good one. Why?? Because in the very short term, clothes look like hell and soon deteriorate, shoes fall apart and last only a few months, and our furniture rips apart easily, forcing us to go buy the same things within months-- doubling our expense!!  We do the same when buying a house.  We forgo the best location--in front of a lake or preserve-- to save a few thousands only to lose thousands more at the time of sale.  Remember, location, location??

During one of my listing appointments, I met a seller who wanted to sell his business in order to improve his quality of  life—he wanted to spend more time with his family. According to him, he spent over sixty (60) percent of his time doing things that had nothing to do with the actual operations of the business—the back office stuff.  He complained that the forty (40) percent he spent focusing on his business, although enjoyable, was not enough to provide the kind of bottom line profitability he needed to provide for his current life style. Therefore, his solution was to sell the business.