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Frequently asked questions

Find answers to the essential questions that buyers like you ask.

• What are the key stages of the business sale process?

  The process of selling a business typically follows several key stages. Here’s what you can expect:

  1. Business valuation: Your broker will assess the market value of your business by analyzing financial performance, growth opportunities, and intangible assets.
  2. Client interview: The broker will interview you to understand your goals for selling and collect the necessary information to present your business effectively to potential buyers.
  3. Engagement agreement: You’ll sign an exclusive listing agreement with the broker, allowing them to market your business and find qualified buyers.
  4. Preparation and marketing: The broker will prepare a detailed prospectus and list your business on various platforms. This process is discreet to protect sensitive information.
  5. Screening buyers: The broker will vet potential buyers and ensure they are financially capable and a good match for your business.
  6. Letter of Intent (LOI): Once a serious buyer is found, they will submit an LOI outlining the price, terms, and conditions. Your broker will guide you through negotiating and accepting the offer.
  7. Due diligence: The buyer will review your financials and operations to confirm the business’s performance.
  8. Closing: After all terms are agreed upon, the funds are transferred, and the business is legally handed over to the buyer. A transition period will be arranged to help the new owner take over smoothly.

  Pro tip: Staying organized and responsive during these stages can significantly reduce the time it takes to close the deal.

• When should a buyer consider walking away from a business deal?

  It’s important for buyers to be aware of red flags that may indicate a deal isn’t right. Here are some key signs that may suggest you should walk away from a business acquisition:

  • Revenue decline: A sudden drop in revenue or profits during due diligence.
  • Seller evasiveness: If the seller avoids answering questions or is not forthcoming with information, it can be a sign of deeper issues.
  • Aggressive add-backs: Overly optimistic or unjustified add-backs in the financials can indicate inflated earnings.
  • Employee dissatisfaction: Key employees expressing reluctance to stay on after the sale can signal instability.
  • Spike in expenses: Unexplained increases in expenses, especially advertising costs, might suggest short-term strategies to boost revenue.

  Pro tip: Trust your instincts. If something feels off during the due diligence process, it’s worth considering whether to proceed or walk away.

• What is Seller’s Discretionary Earnings (SDE), and why is it important in business sales?

  Seller’s Discretionary Earnings (SDE) is a key metric used to assess the profitability of small and medium-sized businesses. It reflects the business’s earnings before interest, taxes, owner compensation, non-recurring expenses, and certain non-cash items.

  Why is SDE important?

  • True earning potential: SDE shows a potential buyer how much profit they could expect to make if they take over the business.
  • Adjustments for new ownership: SDE excludes expenses that are specific to the current owner and unlikely to continue after the sale, making it a clearer indicator of future profitability.
  • Valuation foundation: Many businesses are valued based on a multiple of SDE, so having an accurate SDE calculation is critical for determining the sale price.

  Pro tip: Ensure your SDE is accurate by working with a knowledgeable broker who can help you identify all relevant adjustments.

• What are my financing options when buying a business?

  When buying a business, there are several financing options available to you. Here are some common methods buyers use to secure funding:

  • SBA loans: The Small Business Administration offers loans that are commonly used to finance business acquisitions. However, these can be harder to obtain for online businesses due to the lack of hard assets.
  • Seller financing: In some cases, the seller may agree to finance part of the purchase price. This can be a flexible and attractive option for buyers who cannot secure the full amount through traditional financing.
  • Bank loans: Traditional bank loans can be challenging for online businesses, but if the business has strong cash flow and a solid track record, some banks may consider offering a loan.
  • Alternative financing: Options like home equity lines, private investors, or other types of loans can also be explored to cover the purchase costs.

  Pro tip: Discuss financing options with your broker, who may have connections to lenders that specialize in business acquisitions.

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