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 How many businesses are there in the United States? |
| How many businesses sell? |
| What happens to the ones that don’t sell? |
| How many businesses are for sale? |
| Why do people go into business? |
| FAQs for Sellers |
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| FAQs for Buyers |
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| How many businesses are there in the United States? |
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| The Internal Revenue Service (IRS) reports that they received some 24.8 million business tax returns for the year 1999. According to another source, there are 18 million non-employee businesses. INC, in their Small Business issue, said that there were 5.8 million businesses with at least one employee. |
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| Here is a further breakdown: |
- 80.5% of the total have sales under $1 million
- 14.3% of the total have sales of $1-5 million
- 4.8% of the total have sales of $5-100 million
- 0.4% of the total have sales of $100 million +
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| Here is a breakdown by type of business: |
- Services - 40%
- Retail - 19.8%
- Wholesale - 7.5%
- Manufacturing - 6.0%
- Construction - 12 %
- Finance, Insurance & Real Estate - 8.3%
- Transportation/Utilities - 3.9%
- Agriculture & Mining - 2.4%
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| How many businesses sell? |
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| Approximately 50% of businesses that actually sell are sold by business brokers. There may be a large number of businesses for sale, but the number that actually sell represents a small portion. About 20% of all businesses are for sale at any one time; and the smaller the business, the less likely it is to sell. |
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| General Business Brokerage |
The Larger Business Brokerage |
| Number of Businesses…4,400,000 |
Number of Businesses…550,000 |
| Number for Sale …880,000 |
Number for Sale …173,000 |
| Number that Sell…160,000(1out of 5) |
Number that Sell…43,000(1out of 4) |
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| The Mid-Size Company |
The Large Company |
| Number of Businesses…550,000 |
Number of Businesses…54,000 |
| Number for Sale …173,000 |
Number for Sale …8,000 |
| Number that Sell…49,000(1out of 3.5) |
Number that Sell…2,500(1out of 3) |
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Note: All figures are estimates only. The term sell refers to an actual sale, merger, or any major
change in ownership. |
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| What happens to the ones that don’t sell? |
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| What happens to the approximately one million businesses that don’t sell? Some are always on the market; the seller is just waiting for a buyer to come along. Many owners have very unrealistic expectations of what their businesses should sell for. In some cases, the owner just closes the doors. A very small percentage of business owners actually file for bankruptcy. |
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| How many businesses are for sale? |
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| At any given time there are approximately one million businesses on the market. Many of them sell and are replaced by other businesses. |
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| Why do people go into business? |
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41% join family business
36% want more control over future
27% tire of working for someone else
5% downsized or laid off |
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| FAQs for Sellers |
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| How long will it take to sell my business? |
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It generally takes, on average, between three to four months to sell most businesses. Some businesses will take longer to sell while others will sell in a shorter period of time. The sooner we have all the information needed to begin the marketing process, the shorter the time period. It is also important that the business be priced properly from the start. Some sellers, operating under the premise that they can always come down in price, overprice their business. Often this theory does not work because some buyers will refuse to look at an overpriced business.
The amount of the down payment may be a key ingredient to a quick sale. The lower the down payment, generally 40% of the asking price or less, the shorter the time to a successful sale. A reasonable down payment also tells a potential buyer that the seller has confidence in the business’s ability to make subsequent payments. |
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| What can business intermediaries do? What can’t they do? |
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Business intermediaries are the professionals who will facilitate the successful sale of your business. It is important that you understand just what a professional business intermediary can do – as well as what they can’t do. We can help you determine how to price your business and how to structure the sale so it makes sense for everyone – you and the buyer. We can find the right buyer for your business, work with you and the buyer, every step of the way until the transaction is successfully closed. We will also help the buyer with all the details of the business buying process.
A business intermediary is not able to sell an overpriced business. Most businesses are saleable if priced and structured properly. You should understand that only the marketplace will determine what a business can sell for. The amount of the down payment you are willing to accept along with the terms of the seller financing can greatly influence not only the selling price but also the success of the sale itself. |
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| What can I do to help sell my business? |
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Cooperate fully with us and any other professionals that you are using. A buyer will want up-to-date financial information. If you use an accountant or bookkeeping firm, work with them on making current information available. If you are using an attorney, make sure he or she is familiar with the business closing process and the laws of your particular state. You might also ask if their schedule will allow them to participate in the closing on short notice. If you and the buyer want to close the sale quickly, usually within a few weeks, unless there is an alcohol or license involved that might delay closing, you want to wait until the attorney can make the time to prepare the documents or attend the closing. Time is of the essence in any business sale transaction. The failure to close on schedule permits the buyer to reconsider or make changes in the proposal.
And, finally, your team of advisors must all be working towards the common goal of selling your business for the best price and terms available in the marketplace and closing the sale as quickly as possible. As your professional business intermediary, we are on your side. By cooperating with us, we can best handle your business interests. |
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| What happens when there is a buyer for my business? |
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When a buyer is sufficiently interested in your business, we will help in the preparation of an offer or proposal. This offer or proposal may have one or more contingencies. Usually, they concern a detailed review of your financial records and may also include a review of your lease arrangements, franchise agreement (if there is one) or other pertinent details of the business. The buyer’s proposal will be presented to you for consideration. You may accept the terms of the offer or you may make a counter proposal. Understand, however, that if you do not accept the buyer’s proposal, it can be withdrawn at any time.
We will submit all offers to you for your consideration. At first review, you may not be pleased with a particular offer; however, it is important to look at it carefully. It may be lacking in some areas, but it might also have some pluses to seriously consider. There is an old adage that says, “The first offer is generally the best one the seller will receive.” This does not mean that you should accept the first, or any offer, merely that all offers should be looked at carefully.
When you and the buyer are in agreement, we will work with both of you to satisfy and remove the contingencies in the offer. It is important to cooperate fully in this process. You do not want the buyer to think that you are hiding something. The buyer may bring in outside advisors to help them review the information at this juncture. After the closing, money will be distributed and the new owner will take possession of the business. As your business intermediary professional, we will work with you throughout the entire process. |
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| Why is seller financing so important to the sale of my business? |
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| Surveys have shown that a seller, who asks for all cash on average, receives only 70 percent of the asking price, while sellers who accept terms on average receive 86 percent of their asking price. In many cases, however, the chances of selling increase dramatically and the time period from listing to sale greatly decreases. Most sellers are unaware of how much interest they can receive by financing the sale of their business. In some cases, it can greatly increase the amount received. And, again, it tells the buyer that the seller has confidence that the business can pay for itself. |
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| FAQs for Buyers |
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| What should I look for? |
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| Consider only those businesses that you can afford with the cash you have available. In addition, the business you buy must be able to supply you with enough income, after making payments on it, to pay your bills. However, look at a business with an eye toward what you can do with it, how you can improve it and make it more productive and profitable. An old adage advises that you shouldn’t buy a business unless you believe you can do better with it than the present owner is. Everyone has seen examples of a business that needs improvement in order to thrive and a new owner comes in and does so. Conversely, there are also cases where a new owner takes over a very successful business and, not soon after, it either closes or is sold. It all depends on you. |
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| Why should I buy a business rather then start one? |
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| An existing business has a track record. The failure rate in small business is largely in the start-up phase. Financial records are available along with other information on the business. An existing business has demonstrated that there is a need for that product or service in a particular locale. Most sellers will stay and train a new owner and many will also supply financing. Finding someone who will teach you the intricacies of running the business and who is also willing to finance the sale can make all the difference. |
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| How are businesses priced? |
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Generally, at the outset, a prospective seller will ask the business intermediary what he or she thinks the business will sell for. The business intermediary then explains that a review of the financial information will be necessary before a price or a range of prices can be suggested for the business. Most sellers have some idea about what they feel their business should sell for – and this is certainly taken into consideration. However, the business intermediary is familiar with market considerations and, by reviewing the financial records of the business, can make a recommendation of what he or she feels is what the market will dictate. A range is normally set with a low and high price. The more cash demanded by the seller, the lower the selling price; the smaller the cash requirements of the seller, the higher the price.
Since most business sales are seller financed, the down payment and terms of the sale are very important. In many cases, how the sale of the business is structured is more important than the actual selling price of the business. Too many buyers make the mistake of being overly concerned about the full price when the terms of the sale can make the difference between success and failure. To illustrate this point, consider the following oft-quoted anecdote: “If you could buy a business that would provide you with more net profit than you thought possible even after subtracting the debt service to the seller, and you could purchase this business with a very small down payment, would you really care what the full price of the business was?” |
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| What does it take to be successful? |
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| Certainly, you need adequate capital to buy the business and to make the improvements you want, along with maintaining some reserves in case things start off slowly. You need to be willing to work hard and, in many cases, to put in long hours. Many of today’s buyers are not willing to do what it takes to be successful in owning a business. A business owner has to be, as they say, the janitor, errand boy, employee, bookkeeper and chief bottle washer. Too many people think they can buy a business and then just sit behind a desk and work on their business plans. In reality, owners of small businesses must be doers. |
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| What happens when I find a business I want to buy? |
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When you find a business, the business intermediary will be able to answer many of your questions. Once you get your preliminary questions answered, the next step is for the intermediary to prepare an offer based on the price and terms you believe are appropriate. This offer will generally be subject to your approval of the books and records supporting the figures that have been supplied to you. The main purpose of the offer is to see if the seller is willing to accept the price and terms you offer. There isn’t much point in continuing if you and the seller can’t get together on price and terms. The offer is then presented to the seller who can approve it, reject it, or counter it. You have the decision of accepting the counter proposal from the seller or rejecting it and going on to consider other businesses.
If you and the seller agree on the price and terms, the next step is for you to do your due diligence. The burden is on you, the buyer, and no one else. You may choose to bring in outside advisors or to do it on your own, the choice is yours. Once you have reviewed and approved any areas of concern, the closing documents are prepared, and your purchase of the business can be successfully closed. You will now join many others who, like you, have chosen to become business owners. |
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| What is the real reason people go into business for themselves? |
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| There have been many surveys taken in an attempt to answer this question. Most surveys reveal the same answers in almost the same identical order of priority. Here are the results of a typical survey, listed in order of importance: |
- To do my own thing, control my destiny.
- Don’t want to work for someone else.
- To better utilize my skills and abilities.
- To make money.
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| It is interesting to note that money is not at the top of the list. |
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| Why should I go to a business intermediary? |
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A professional business intermediary can be helpful in many ways. They can provide you with a diverse selection of businesses, including many that you will not be able to find on your own. Approximately 90 percent of those who buy businesses end up with something completely different from the business they first inquired about. Business intermediaries will offer you a wide variety of businesses to look at and consider.
Business intermediaries are also an excellent source of information about business and the business buying process. They are familiar with the market and can advise you about trends, pricing and what is happening locally. Your business intermediary will handle all of the details of the business sale and will do everything possible to guide you in the right direction including consulting with other professionals who can assist you. |
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| Do I need an attorney? |
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While your business intermediary can and should aid you in structuring a business transfer, they are not supposed to provide you with legal and/or accounting advice. Larger deals (say anything over $1,000,000 in value) often have numerous issues that should be reviewed by a competent corporate attorney. These issues range from taxation concerns to questions regarding the transfer of contingent liabilities. Spending some money on a good corporate attorney now will often save the buyer much larger sums down the road. An attorney should be brought into the process as early as possible so that they can aid the buyer in setting up the appropriate entity to purchase the target company’s assets (entity asset setup can take as long as one to two months) and to help the buyer decide whether to purchase a targeted business’ assets or ownership interest. It is advisable to have your business intermediary aid you in creating a deal memo from which the attorney can work, therefore saving you time and legal fees.
When attorney shopping, look for certain qualifications:
- Has this attorney worked on business transfers of this size before? It is important to remember that different-sized company transfers raise their own issues.
- Is the attorney a team player? You want an attorney who can work with your CPA, business intermediary, business appraiser, asset manager and life insurance agent. Every member of your team should be able to take input from your other team members and not insist on being the “know everything” man or woman.
- Is the attorney familiar with all aspects of business succession? A good attorney in this area should be able to provide assistance with all aspects of the business transfer from entity formation through the creation of a Buy/Sell agreement as well as providing you with a purchase agreement.
A common error made by both sellers and purchasers of businesses is to use the family attorney or attorney who is a friend, but who doesn’t regularly practice in this area. They often will miss issues that will later be critical to the purchaser.
Another common mistake is to hire a “door attorney.” This is an attorney who takes everything that comes in the door. These folks are generalists and can be very good for basic legal needs, but in a practice area that has so many potential issues in such wide ranging arenas, a specialist should be used.
Finally, when your attorney presents you with a copy of the purchase agreement, ask him or her one question. “If you were selling this business would you sign this? While the buyer and the seller of a business are in theory in an adversarial position to a certain degree, the two parties are also partners in the process. To make a deal happen, both parties to need be reasonable and to expect to give a little bit to come to a happy medium. |
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