How to Negotiate a “Put and Call” Agreement When Selling Your Business

I am often interested in learning more about how business sales transactions are negotiated and structured. Here is a great way to structure a deal that caught my eye. If you are thinking about selling your business, and would consider retaining a minority position in the company, this method of structuring the transaction will be attractive to you. This method of structuring the deal also takes away some of the more traditional fear of “buy/sell” agreements from a seller’s perspectives.

How to negotiate a put and call agreement when selling your business | Smart Business

There is Something About Gas Stations

Over the years we have been fortunate to have had the opportunity to sell a few gas stations and c-store businesses in the Greater Edmonton area. Most of this gas stations and c-stores are independently owned and sometimes also comes with a car wash. We have noticed that each time our office has a gas station listed our number of buyer inquiries spike up by about 5 to 6 times. Our typical buyer inquires each week is approx. 20 to 30 and when we have a gas station on the mix it typically increases to about 100 that week. I recall on one particular gas station we recently sold, we received a total of over 1,400 inquires to our office over a period of 3 months on that one listing alone. I have no clue if a gas station owner can handle that number of inquires on their own nor would they want to deal with that many of the so called “curious lookers.” Because at the end of the day out of all those inquires we were only able to narrow down to about 3 or 4 serious buyers who was willing and able to buy the business.

One interesting observation that I was able to pick up while dealing with most of the buyers is the myth that gas stations are easy to manage and operate and it requires low skill employees and/or management. Most buyers want to buy a gas station and hire low wage store clerks to run the business while they cash in the profits. Unfortunately I have to DISAGREE with this assumption completely. Gas station business is one of the most demanding and challenging businesses to operate in the retail industry. For one, it is a cash business hence the importance to have good management control of the cash that comes in each day. Secondly it is an inventory intensive business, where it is very important for an owner to manage the inventory and knows what to buy and what not to buy based on sales patterns. Thirdly, gas station and c-store businesses are changing rapidly. Today this businesses sell more than just your average gas and chocolate bar. Today they include services like money transfer, phone cards, groceries, etc. as such an owner needs to be constantly involved in understanding what the consumer demands.  Furthermore, an owner who spends time observing his or her customers and gets to know them might be able to add products most desirable by its customers base and increase the revenue of the store.

When buying a gas station, there is also the issue of financing. As most buyers will find out that banks are very hesitant to finance gas stations due to both the lack of capital assets in the business and the potential environmental risk associated with it.

Most buyers are also misinformed on the profitability of gas stations and c-stores. Most of them talk to us with the expectation of wanting to make over $100,000 a year owning a gas station while not putting in 100% of their time and effort. Unfortunately the reality has been that most successful gas stations with good profit margins are family owned and operated and the owners are involved in the business 120% of the time. In my experience as a business broker, I have seen very few small businesses with absentee owners able to generate high profit for the owner and yield a return of over 15% on the cash investment. So for all those buyers out there thinking that owning a gas station business is an easy business to run…..please think again and I encourage you to speak with an experienced business broker first before planning to go further.

VR Business Sales Completes the Sale of the Bin Company

EDMONTON, ALBERTA–(Marketwire – May 23, 2012) – VR Business Sales, Mergers & Acquisitions of Edmonton, AB has just completed the business sale of The Bin Company Inc., a business that provides waste containers for renovation construction, yard clean up, seasonal clean up, garage de-cluttering, and many other do-it-yourself projects. The Bin Company has been established in the Edmonton area and has been the industry leader in bin rentals and garbage disposal for the last 8 years with 6 straight years of being the Consumer’s Choice Award recipient.

The Company was purchased by CERF GP Corp., the general partner of Canadian Equipment Rental Fund Limited Partnership.

The Seller, Mr. Newman stated “VR Edmonton made the process seamless and worry free. They managed the process from the first day we listed the business and providing us with multiple offers for the business.”

Jey Arul, President at VR Business Sales, Mergers & Acquisitions in Edmonton, represented The Bin Company throughout the transaction. VR Business Sales, Mergers & Acquisitions Edmonton facilitated all phases of the transaction, from initial analysis through closing. Details were not disclosed.

About VR Business Sales, Mergers & Acquisitions Edmonton

VR is Edmonton’s only business is representing business owners in the sale of their business; confidentially, professionally and with proven results. Since 1979 VR Business Sales, Mergers & Acquisitions has sold more businesses in the world than anyone®. Information about VR Business Sales, Mergers & Acquisitions Edmonton can be found on their website at www.vralta.com. VR Business Sales, Mergers & Acquisitions Edmonton is located at 211, 3132 Parsons Road, Edmonton, AB. For more information, please call 780-469-4769.

What the Market Tells You

It never fails to amuse me how at least once a week I will come across an owner of a business that will tell me how he came up with the price of the business.

It often goes like this, the Seller will call our office for a meeting to discuss selling their business. I will then visit them at the appointed time (if it is at their place of business it will usually be after hours or weekends). We will then have a general discussion about their business, what they do, how long they have been around, some of the challenges and opportunities in the business….etc. sooner or later the discussion will star to narrow down to the business financials, revenue and the value of it. Most business owners will tell me that they have “no idea” on what is the value of their business. And most will tell me, “my accountant told me…“, “my lawyer told me…“, “my financial advisor told me…“, “my banker told me…“, etc…it seems like these days there are no shortages of “free opinion” on business values and suddenly everyone is an expert in business valuation.

I then try and educate them about what really matters about the business value……..”What the market tells you”, after all that is the one that matters most. Anyone can come up with a value of the business on paper, but what matters is what someone is willing to pay for it and produce a cheque with that number.

So my advice to all business owners who are thinking of selling their business in Alberta is this, get a business value opinion of your business from someone who has actually sold businesses…..not from those who can only tell you, but do go out and has to defend the price and get you that value.

10 Tips For a Smooth Transition After Buying a Business

At VR Business Sales we receive approximately 80 inquiries from Buyers on a weekly basis looking to buy a business. What are these buyers looking for? What are some of their questions and what do they want to see in a business they are looking to invest in.
Here are some of the questions we get on a weekly basis from qualified buyers:

1. What is the required capital investment I need to purchase this business?
2. What is the annual net increase in sales in this business?
3. How much of inventory I am buying and what is the inventory?
4. How much money can I borrow from the bank for this business based on its current cash flow?
5. What is the possibility of the owner staying on for a minimum of 3 – 6 months to assist with the transition of the business?
6. What makes this business different, special and/or unique?
7. What further defines the product or service in this business? Does it consist of bid work? Repeat Business? Written contracts?, etc.
8. How can I grow this business further?
9. What can a Buyer do to increase the value of this business?
10. What is the profit picture of this business in good times and bad times?

So if you are thinking of selling your business now or in the future, please take a few minutes and see if you can answer some of the questions above.

10 Things Buyers Want to Know

At VR Business Sales we receive approximately 80 inquiries from Buyers on a weekly basis looking to buy a business. What are these buyers looking for? What are some of their questions and what do they want to see in a business they are looking to invest in…….
Here are some of the questions we get on a weekly basis from qualified buyers:

1. What is the required capital investment I need to purchase this business?
2. What is the annual net increase in sales in this business?
3. How much of inventory I am buying and what is the inventory?
4. How much money can I borrow from the bank for this business based on its current cash flow?
5. What is the possibility of the owner staying on for a minimum of 3 – 6 months to assist with the transition of the business?
6. What makes this business different, special and/or unique?
7. What further defines the product or service in this business? Does it consist of bid work? Repeat Business? Written contracts?, etc.
8. How can I grow this business further?
9. What can a Buyer do to increase the value of this business?
10. What is the profit picture of this business in good times and bad times?

So if you are thinking of selling your business now or in the future, please take a few minutes and see if you can answer some of the questions above.

Should I Sell My Business

Selling your business will change your life so it’s important to consider the options and implications before you decide to sell. Whatever your reasons for selling, ensure you’re making the right decision by asking yourself the following:

• Am I really ready to sell, or do I just need a break?
• Have I considered other options, such as bringing in outside management?
• Why am I selling? Buyers will want to know the answer to this question so prepare a truthful answer that will not jeopardize the success of the sale.
• Will my family and friends support my decision to sell?
• Is the timing right? Could the market and sale price be better if I waited? As a general rule, the best time to sell is when the business and your sales are peaking and the industry is likely to attract great interest.
• Will the sale benefit me financially?
• Will I be restricted from trading in my profession once the business is sold? This is a common clause in contracts for the sale of a business.

You should also seek professional advice, so talk with a business or financial advisor, accountant, and lawyer to make sure you achieve the best possible outcome from your decision.
Think about your staff
You also need to consider your employees. How will they be affected by the sale of your business? It’s important to note that whoever buys your business is not obliged to employ your former employees. When the business is sold you may have obligations to pay entitlements which could include severance pay and leave entitlements.

What are the tax implications if you sell your business?
There are many tax issues to consider when selling your business which include:

• goods and services tax;
• capital gains tax;
• private expenses;
• finalizing employee/independent contract or obligations;
• record keeping obligations;
• completing final income tax returns;

Do I have obligations under my lease if I sell the business?
If you operate your business from leased commercial premises, your obligations under the lease do not automatically transfer to the new owner upon sale of the business. You may still be legally liable for the rent and all other obligations under the lease unless you arrange to have the lease assigned (transferred from one tenant to another) to the new owner of your business who will then become the new tenant. Refer to your lease to ensure you are permitted to assign the lease and understand the process required for the assignment. Generally, leases will require the tenant to request the assignment of the lease in writing.

Can You Sell Something with No Value

As I go on appointments to meet prospective clients wanting to sell their business,  I caution them 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 call an Asset Sale. 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 25-35% of the assets’ original value.

Now, there are cases in which sellers pay more than the value of the net tangible assets—creating Goodwill in the seller’s balance sheet equal to the amount in which the purchase price exceeds the net tangible assets of the acquired company. Goodwill, however, normally has a value—such as competitive advantage, brand, employees, customer base, etc.

In summary, if your business is not generating profits, what you have is an Asset Sale and those assets need to have a realistic value assigned to them for buyers to want to buy.  In my opinion, you cannot sell anything that does not have a value attached to it that is equal to or better than the buyer’s expectations. So, if you are selling, take a hard look at what you are REALLY selling and consult with your business broker on pricing your business properly.

Selling Your Business Confidentially

Once you have an established asking price and terms, your search for the right buyer begins. Buyers may be found through a targeted search of potential candidates in your industry, or by a business broker in contact with a number of qualified prospective buyers. Regardless, a business broker can assist in the discreet search and screening of qualified buyers.

Confidentiality
Confidentiality is KEY in maintaining the goodwill of your business and in minimizing the disruptions at the work place during the sale process. If employees, customers and suppliers learn about the potential sale of the business too soon through other channels, they could begin to look elsewhere for employment and services. It is usually best to wait until a transaction looks imminent before key individuals are told of a sale.

To help minimize exposure, specific information regarding your business should be revealed only to qualified prospective buyers after they have executed a confidentiality and non-disclosure agreement. A qualified prospective buyer is someone that has established the following:

* A desire to purchase your business.
* Has sufficient financial capability to complete the transaction.
* Has the qualifications and resources necessary to manage your business.
* Has the willingness and ability to move forward in a timely fashion.

The information presented to a qualified purchaser after execution of a confidentiality agreement may include:

* A history of your business
* An overview of your business, including information about its products and services, operations information and personnel structure
* Information regarding your market, including customer mix, competitor, and industry trends.
* A list of the fixed assets included in the sale.
* Information regarding your facilities, including lease terms etc.
* Financial information that may include: balance sheets, income statements, details of liabilities to be assumed, equipment leases, etc.
* Details on the price, terms, and sale structure of which you are offering your business.

In-depth confidential information need only be revealed during the due diligence proces