Posted 12-16-2022 2:31 pm by
If you are selling your business in Las Vegas, you may feel like having an accepted offer in hand is the equivalent of having the sale proceeds in your bank. Unfortunately, an experienced business broker can tell you that having an accepted offer and the deal actually going to closing are two different things. There are a number of hurdles that need to be overcome before the buyer will proceed to closing. Here is a sample list of items that need to be accomplished prior to closing:
• Due diligence. Once an accepted offer is in place, the buyer will likely request a long list of due diligence items from the seller. In most cases, the accepted offer will contain a due diligence contingency. If the buyer is unsatisfied for any reason during the due diligence period, the buyer can back out and the offer is terminated. Different buyers have different comfort levels. An individual buyer may only want to see a handful of items from the seller, while a large corporation may have an entire due diligence team requesting pages and pages of due diligence items. A buyer who is already in the industry may only request a few key items for due diligence, while a buyer without previous experience in the industry may request a longer list of due diligence items. A buyer looking to execute a stock purchase may request a longer list of due diligence items compared to a buyer looking to do an asset purchase does, because a stock purchase comes with additional liability for the buyer. Understandably, it is impossible for anyone to learn everything there is to know about a business during the due diligence period. The objective is to help the buyer feel comfortable enough to move forward without the seller giving away trade secrets or the employees finding out about the sale prior to closing. Some sellers may feel overwhelmed during the due diligence process. Having an experienced business broker intermediary in Las Vegas is very helpful because the broker can work with both sides to ensure that both parties’ objectives are met.
• Getting financing. One of the traits that separates the top business brokers in Las Vegas from ones that are mediocre is the broker’s ability to help the buyer obtain financing fast so the deal can go to closing as soon as possible. Getting business acquisition financing is different from getting a loan to buy a house. Going to the wrong bank can easily drag out the deal for months, leaving both the buyer and seller frustrated. An experienced business broker is likely to have a vast network of bankers, and knows which bank to use for which type of deal and which kind of buyer. Advantage Commercial Brokers does not leave anything to chance. Even when we represent the seller, we work closely with the buyer to help the buyer obtain financing quickly so the chances of closing delays are minimized. For example, the bank may require the buyer to submit a business plan and several years of pro forma. Not every buyer is good at writing business plans or creating Excel spreadsheets. If the buyer feels overwhelmed by the bank application process and ends up taking several weeks to prepare the business plan and pro forma, the closing date can get delayed correspondingly. At Advantage Commercial Brokers, we have an in-house business analyst who will work with the buyer to ensure the business plan and pro forma are created properly and submitted to the bank fast. This is one of the reasons our brokerage sells businesses three months faster than the national average.
• Purchase price allocation. When a business is sold, the purchase price needs to be allocated amongst several categories for tax purposes. How the purchase price is allocated affects the tax situation for both the buyer and seller. There may be some negotiations involved with the purchase price allocation. Allocating the purchase price one way may benefit one party and hurt the other side, or there may be places where an increased allocation towards certain categories does not benefit the buyer but hurts the seller. The allocation for an asset sale is different from the allocation for a stock sale. In complex transactions, it is even possible to allocate the purchase price as an asset sale even if the parties are doing a stock sale if both sides agree to make the Section 338 (h)(10) or Section 336 (e) election. It is important to have a business broker who understands the ins and outs of purchase price allocation, so he or she can work with each side’s CPAs to negotiate an allocation schedule that works for both parties.
• Purchase and sale agreement negotiation. Sometimes, the buyer makes the initial offer with a purchase and sale agreement (PSA). Other times, the buyer makes the initial offer with a letter of intent (LOI) with the purchase and sale agreement to be negotiated during the due diligence period. The main difference between the LOI and the PSA is that the LOI is meant to be a simple, one-to-two-page document that lays out the basic terms of the agreement. An attorney will be hired at a later point to turn the LOI into a full-blown PSA that can be anywhere from fifteen to sixty pages. During PSA negotiations, the buyer’s attorney will be working hard to protect the buyer’s interests while the seller’s attorney will be working hard to protect the seller’s interests, leading to draft after draft of cross outs and edits back and forth. It is a common goal for the buyer and seller to ensure their interests are protected without spending a fortune on attorney fees. Having an experienced business broker to facilitate the negotiations process can help both sides meet their objectives without the attorney fees going out of control.
• Getting landlord approval. If the seller currently leases an office, retail, or warehouse space, the buyer will need to get approved by the landlord prior to closing, and get a lease or lease assignment effective the day of closing. Landlords have a lot of power because the transaction may fall apart if the landlord does not approve the buyer. Some landlords are quick to respond while others such as REITs and major shopping centers may have layers and layers of approval that takes months. Many deals have fallen apart because the buyer failed to obtain landlord approval in a timely manner. Advantage Commercial Brokers works closely with the buyer, seller, and landlord to facilitate a smooth transition of the lease.
• Obtaining licensing. Some businesses require special licensing to operate such as a liquor license, daycare license, adult family home license, marijuana license, etc. Some licenses take just 30 days to obtain, while others may take 90 days or even nine months to obtain. A proactive business broker will work closely with the buyer and licensor to ensure all the paperwork is in place so closing delays are minimized.
• Entity set up. It is common for the buyer to set up a new corporation or LLC to purchase the business. Care needs to be taken in the entity set up process, because the State sometimes mails letters to the seller’s business location when the buyer sets up a new entity and puts the seller’s business address as the location of business. If the seller’s employees who are not aware of the sale happen to open the mail, they may wonder what is happening and start asking questions. An experienced business broker will coach the buyer on the pitfalls of getting the entity set up and obtaining the business license to prevent the breach of confidentiality.
• Account set ups. Buying a business has a lot of steps, and first-time business buyers can often feel overwhelmed. Even when Advantage Commercial Brokers represent the seller, our brokers work closely with the buyer to guide the buyer through the process. The buyer will likely need to set up credit card processing, payroll processing, insurance, vendor accounts, etc. prior to closing. If the buyer does not know which credit card processor to use, Advantage Commercial Brokers can recommend one. It is the job of an effective business broker to anticipate every need a buyer may have, and have resources ready to meet that need so the deal can go to closing fast.
For a consultation with Advantage Commercial Brokers, contact us below.
Aaron Muller, President of Advantage Commercial Brokers, has personally sold over 200 companies for his clients as a business broker. Recognized as an Industry Expert by the Business Brokerage Press, Aaron has over 20 years of experience selling companies with sale prices ranging from $100,000 to over $50 million. Aaron is an Inc. 500 entrepreneur, having built one of America’s fastest growing private companies. Aaron owns multiple companies today, and is the #1 international bestselling author of The Lifestyle Business Owner: How to Buy a Business, Grow Your Profits, and Make It Run Without You, available on Amazon in Kindle, audiobook, and paperback. Contact Aaron at (702) 829-6373 or aaron@acbrokersinc.com for a confidential, complimentary consultation for business sellers in the Las Vegas area.
