Restaurant and Bar Sellers

The Marling Group prides itself on confidentiality

The Importance of Confidentiality

Confidentiality is KEY in maintaining the goodwill of your company and in minimizing the disruptions of the work place during the marketing of your business. Uncertain about the future of a company that is for sale, employees and customers could begin to look elsewhere for employment and services. It is usually best to wait until a transaction looks eminent before key individuals are told of a sale.

To help minimize exposure, specific information regarding your company should be revealed only to qualified purchaser prospects after they have executed a non-disclosure agreement.

A qualified purchaser prospect is an entity that has established:

  • A desire to purchase a company
  • Financial capability necessary to complete your transaction
  • The qualifications and resources necessary to run your company
  • The willingness and ability to move forward in a timely fashion

The Marketing Package

The information presented to a qualified purchaser after execution of a non-disclosure agreement may include:

  • A history of your business
  • An overview of your business, including information about your company’s products and services, operations information, and personnel structure
  • Information regarding your market, including customer mix, competitors, and industry trends
  • A list of the fixed assets included in the sale
  • Information regarding your facilities, including lease terms, etc.
  • Financial information which may include: Balance Sheets, Income Statements, details on any liabilities to be assumed, equipment leases
  • Details on the price, terms, and sale structure of which you are offering your company
  • Confidential information need only be revealed during the due diligence process.

Do’s and Don’ts for a Successful Business Sale

We can never overstate these basic business sale tips.

Do allow yourself enough time to find the right buyer – a typical business sale will take between 3 months and 1 year

Do know your selling stumbling blocks – non assignable leases, contracts, licenses, supplier agreements, liens and other liabilities need to be addressed in the beginning of the business sale process

Don’t let the world know your business is for sale – Confidentiality is key to maintaining the stability of your employees, customers, suppliers as well as your reputation in the industry

Do have prepared complete, accurate, verifiable financial information ready to be disclosed to the right purchaser (at the right time)

Don’t focus solely on price in an offer – other considerations include the financial strength and experience of the parties making the offer, and the terms and conditions specified in the offer

Do engage legal and accounting professionals experienced in business transactions – an attorney well versed in business sales contracts can help protect your interests in a comprehensive, efficient manner; your CPA will help minimize your tax consequences resulting from a sale

The Business Sales Process

Valuation

The value of any business is the price and terms that a buyer is willing to pay, and a seller is willing to accept for that company. That being said, an experienced business broker will have the ability to provide an opinion of value that reflects what a purchaser would expect to pay, given an arm’s length transaction. There are many valuation methods, and one must be careful to incorporate the many factors unique to each business. More often than not, simple industry “rule of thumb” evaluation methods are not applicable to your business. Although it is customary to use an earnings ratio to determine value, there are many reasons for that ratio to vary.

For Example:

  • Provable income has a higher perceived value than non-recorded income;
  • Repeat revenue has a higher perceived value than does one-time sales;
  • A well diluted customer base has a higher perceived value than a customer base that includes one or two customers accounting for the bulk of all sales.
  • Industry trends, company trends, company history, equipment value and condition, capital requirements, barriers to entry, intellectual property, employee turnover, and owner’s duties are just a few of the factors that will impact a company’s value.

Establishing a fair price with terms competitive with other businesses for sale will help you achieve successful results. Your business broker or other professional will work with you to find that range.

Structuring A Sale Price

Alas, establishing a price is only a piece of the puzzle! Market value is usually determined with the assumption that the seller will offer terms compatible with the current market.

If you are considering retirement, offering longer than “market” terms may be advantageous to you, as well as increase your likelihood of finding a qualified purchaser.

If you are in a situation where a cash sale is the only feasible alternative, your business broker can work with you to explore various sales structures including assumption of liabilities by a purchaser as a method of payment, third party financing, or discounted sales prices.

Marketing Your Business

Once you have established offering price and terms, your search for the right purchaser begins. Buyers may be found through a targeted search of potential candidates in your industry, or perhaps the business opportunities section of local and regional newspapers. Professional business brokers are in contact with a number of qualified purchaser prospects, and assist in the discreet search and screening of strategic buyers.

Offer and Acceptance

An offer may come in the form of an Earnest Money Receipt or A Letter of Intent. It will typically include the price and terms being offered, the sale structure (asset sale vs. stock sale), a closing date, contingencies and conditions of a sale.

Terms and conditions presented in an offer may outline the method of payment, scope and length of a non-compete agreement, training terms, incentive payments, identification and condition of assets being acquired, identification of liabilities to be assumed, any seller warranties, and other transaction details. Contingencies will detail all action items needing completion prior to a sale. Verification of financial and operations information (due diligence), satisfactory equipment inspections, satisfactory lease transfer arrangements, compliance with licensure and regulatory bodies requirements, financing approval, attorney review and approval of all sale documents, are all common sale conditions. Contingencies will often be tied to completion dates.

An offer may be accepted, rejected, or modified and presented back to the purchaser as a counter-offer. Until agreement is reached by both parties, either party may withdraw their proposal.

In considering an offer, be sure to evaluate the purchaser’s qualifications, financial position, and method of securing any payments to be made. A good price from a risky purchaser may not be the best solution.

Completing Your Sale:

Due Diligence

The time between offer and acceptance and closing can be the trickiest. Contingencies must be removed, third parties must get involved, and the final details need to get nailed down. Due diligence, the process in which a Purchaser will perform the tasks necessary to verify the financial and operations information represented by the Seller, and a Seller will verify the financial and business strength of a purchaser, is typically the first action item that follows offer and acceptance. A purchaser may have his accountant assist or perform due diligence.

In order to sustain a smooth transaction, and to minimize the potential damage in case of a sale fail, we offer a few tips regarding due diligence:

  • Do not allow in depth due diligence to be performed until offer and acceptance has been reached.
  • Have a clear time frame encompassing the due diligence process. A time frame in which necessary information will be provided, and a time frame in which due diligence will be completed, keeps a transaction moving in a forward motion.
  • Do not move on to other contingencies involving third parties (lease transfer arrangements, supplier transfer agreements, etc.), until the due diligence contingency has been removed.

Sale Documents

Once all other contingencies have been removed, your attorney will draft the sale documents necessary to complete the transaction, and the purchaser’s attorney will review and approve or make changes. It is important that both parties are represented by legal counsel. Contracts executed in a typical business sale carry significant default implications for both parties. Sale documents prepared may include a Sale Agreement, a Bill of Sale, a Non-Compete Agreement, a Security Agreement, and Personal Guarantees.

Escrow

Closing (the completion of the sale), often takes place at an escrow office or other location neutral to both parties. A business escrow service will prepare closing statements, calculate and disperse pro-rated expenses and revenues, perform the searches necessary to convey clear title to property, file liens on behalf of the seller, and coordinate the execution of sale documents and the collection and disbursement of sale proceeds. Escrow fees are typically split between the Purchaser and Seller equally.