More and more small business owners are finding that profits are going to servicing their debt and keeping their business operational.  In such cases, an option is to sell the business through a short sale.  Especially if a business owner is burnt-out, looking at shuttering the business and declaring bankruptcy.

Declaring bankruptcy is different as a small business owner.  It’s not just an anonymous bank or bureaucratic phone company that is owed money; it’s often suppliers and vendors with whom there are long-term personal relationships.  And often, friends and family have invested in the business or lent large sums of money to help keep the business afloat.

A short sale can provide creditors at least a portion of the funds owed to them, while alleviating the small business owner of having a bankruptcy tied to their name and credit.  It can also save the jobs of the employees.

Special note for franchise owners – If the business is under a franchise agreement and the franchise payments are grossly in arrears, there is a chance the franchisor can take back the business, leaving the owner without a business and still holding all the debt.  It is in the interest of the franchisor for the business to sell and bring in a new owner who will start paying royalties.

How it works –

An experienced and competent business broker will package the business based upon its net profit and assets.  The debt and other non-operational expenses will be added back to the net profit and an industry appropriate multiple will be determined.  If the business sells for less than what is owed, it is a Short Sale.  If it sells for more than what is owed, the owner will receive whatever is left over after all the debt is paid.

In a normal sale, an escrow is used primarily to protect the buyer from successor liability – any debt attached to the business.  In a short sale, the escrow process also aids the seller in settling the business’s debt.

Once all the debt is established, the escrow officer will prepare a seller’s estimated statement reflecting all secured and unsecured debt.  Secured debt includes tax liabilities, private liens, judgments, etc.  Unsecured debt includes private loans.  If the sale price covers all the secured debt, the remaining funds are distributed pro rata to the unsecured creditors.  If the sale price doesn’t cover all the secured debt, remaining funds are distributed pro rata to the secured creditors.

All creditors will need to agree on the payout in order to close the deal.  Since the alternative is usually bankruptcy for a small business owner, creditors would prefer to receive something rather than nothing.  Thus, they generally will agree to the pro rata payout.

Although short sales are messier than regular business transfers, they are a win-win for the buyer, the seller and the creditors.  The buyer gets a good deal on the business; the seller avoids bankruptcy and is alleviated of their debt while their creditors get something rather than nothing.

Enlist an experienced business broker.   They can help you overcome most obstacles and discreetly bring you qualified buyers.  We currently have over 3,000 buyers in our database alone.  For a free consultation, please don’t hesitate to call me.  Shelli Margolin-Mayer, Business Broker: (310) 882-2200 ext. 128.  I’m happy to help.

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There are many nightmares that the wrong buyer can cause:

• Fear and concern among your employees: Buyers often stop by your business and the wrong buyer will talk to your employees, and accidentally alert them that you are selling the business. This invariably causes fear and concern from your people. Often employees start looking for a job when they know the business is for sale even though they would likely have a job with the new owner.
• The release of confidential information: The wrong buyer might talk to your competitors and perhaps even share your confidential or financial information with them.
• A very expensive waste of time: The worst of all is having your business essentially off of the market for several months while you are working with them on due diligence and find you have lost all that time and opportunity because they can’t or won’t complete the transaction.

Your plans to move to Montana or to buy that other business are shattered.

The good buyer:

• Will be asking lots of questions which are perfectly normal and necessary. You need to engage the buyer in conversation. If the buyer is not willing to answer your questions it is likely that they are not genuinely interested and/or qualified
• Will agree to sign a “Non Disclosure Agreement.”  Before you move beyond the general information about your business to the more confidential and financial information, Again, authentic buyers will be willing to do this.  Your broker will have the appropriate form
• Will respect your confidentiality
• Will be as honest with you as he expects you to be with him

At the risk of repeating myself;

• genuine interest in your business
• the skills to operate it effectively
• and the financial resources to make the purchase

These are the key characteristics of a good buyer for your business. If they do not have these traits, they may cause many problems; they are probably not your buyer and are likely to be a waste of your time.

When you do find a qualified buyer who has taken serous interest, you should be forthcoming and as helpful as you can be to help move the process forward. In most cases you will have some financial interest in his success.

A good Business Broker is experienced in handling buyers and eliminating some of these nightmares. The broker can help make a fair deal for both of you, guide you through the complicated process and help create successful transition for the buyer too run his or her new business. The best deal is one that works for everyone.

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So we delay and explore other ways to promote our business and wait for someone else to figure out the magic recipe on how to blog time and cost effectively.

Then one day the phone rings and I spend 30 to 45 minutes talking to another first time Buyer who is interested in buying a business. Most of which is spent going over some really basic things they need to know before moving forward. BizEx, our company who specializes in brokering the sale of small and medium sized businesses, gets calls like this almost every day. So I decided to condense these conversations into writing and posted “How to Buy a Business” on my website, and for Business Sellers, How to Sell a Business just to save myself from another daily 45 minute conversation.

Then it dawned on me that this is really what blogging should be about. We should blog to save us and our client’s time and money, by sharing the information they need to fulfill their part of the business sales process. Things that they really need to know and would derive significant benefit from. It’s all about efficiency.

BizEx’s core mission is the support of Entrepreneurialism, and we have a lot to give. We use a consultative approach which requires us to learn what is most critical about every business we represent from the owners who are experts at what they do. Our Brokers specialize in a variety of industries including Retail businesses, Restaurants, Manufacturing companies, Dry Cleaners, Service related businesses like Film and Entertainment companies, Internet ecommerce businesses, and a host of other businesses that would take too much space to list. We have a wealth of information we can share for the benefit of entrepreneurs that we take for granted: Information that would promote the sales cycle and reduce the risk and anxiety associated with the purchase of a business.

Are there SEO benefits we can derive from our blogging efforts? Sure. For Google, content is king. The better the quality of information we provide, the more Google, Yahoo, MSN, Bing and other search engines are going to like us. This will equate to higher search engine rankings for our best work.

So now we’re bloggers. We plan on writing a lot more posts in the near future. We hope our fellow entrepreneurs will find them interesting enough to read and comment on.

Welcome to the Biz Blog!

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