Most business sales come with noncompetes

The best time to sell a business is when its value is high and it doesn’t have to be sold. Too many sellers lose interest in the business, neglect it, let profits decline and then decide to sell when the value is low.

Below are some common questions business owners ask when deciding to sell, and their answers.

How long will it take to sell my business?

Selling a business takes time. How long it takes to sell a business depends on several factors including the price of the business, the type of business, your willingness to finance all or part of the purchase price and current market conditions. On average, it takes 60 to 180 days to find a buyer for a business with whom you enter into a contract. Obviously, the more reasonably priced and the better the terms offered, the faster the sale.

How will I be protected on financing I provide to the buyer?

Should you provide some owner financing, the closing escrow agent will prepare a promissory note, a security agreement, and will file a UCC-1 financing statement with the appropriate state and local agencies. It is much like financing a car. A lien will be recorded in the public records office and the assets listed on the UCC-1 cannot be legally sold or refinanced without your permission.

Will the buyer pledge any additional collateral for my loan?

Buyers do not pledge additional collateral for your loan. When a buyer buys a business, he/she does so based on the business being able to generate sufficient cash flow to pay your loan and provide him/her with an income to meet their needs. When you ask for additional collateral, you are sending a negative message to the buyer: The buyer has paid too much for your business and the business will not generate enough cash flow to pay your loan and provide adequate cash flow to the buyer.

What types of offers should I expect to receive?

An astute buyer is going to structure the initial offer to ensure the best possible price and terms from you. Therefore, you should expect to receive a low initial offer. Don’t be offended – this is just an initial offer to “test the waters.” All offers will contain some important contingencies, including review of the financial statements and records of the business, obtaining a satisfactory lease and agreement on training and transition period. Other contingencies specific to your business also may be included.

How long is the training period for the buyer?

Generally, you will be expected to provide two weeks to two months training in the business with equal time of telephone consultation. Remember, if you are financing any portion of the purchase price, you still have an investment in the business, so properly training the buyer is in your best interest.

Will I have to sign a noncompete agreement?

Yes. Generally, the noncompete agreement covers the area from which your current customers are generated and the time period equals the term of the financing you are providing to the buyer. For example, if your customers come from a 20-mile radius of your business and you are providing the buyer with a five-year loan, you will be asked to sign a noncompete agreement for a five year period, covering a 20-mile radius from your business.

When should I tell my employees about the sale?

Although it sounds harsh, experience has proven that it is best to tell your employees about the sale immediately after the sale is complete. Of course, if there is an employee whose expertise will be needed after the sale, you should introduce the buyer to this employee shortly before closing.

Another question on the seller’s mind is whether to use a business broker or sell the business himself. The negative side of using a broker is that the seller pays a commission. On the other hand, to paraphrase the Apostle Paul, the workman is worth his wages. Business brokers are experienced in the selling process, maintain confidentiality, usually have a database of potential buyers and are able to qualify those buyers. The end result is that using a broker often results in selling a business faster, for more money, and with confidentiality maintained.

When choosing a business broker it’s best to make sure your broker has some experience in your industry, and that he is a member of the International Business Brokers Association

If you choose to work with a broker he should do the following:

• Help you identify and meet your goals to be accomplished with the sale of your business;

• Market the sale of your business confidentially. Your employees, customers or competitors will be unaware that your business is for sale;

• Screen potential buyers before presenting them to you; and

• Work with you to arrange meetings with potential buyers (this may include evenings and weekends).

Dan Machnicki is a broker with Sunbelt Business Advisors. He is a former business owner, information technology professional and international management consultant now based in Springfield.