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BUSINESS INTERMEDIARY


BBNY Business Intermediaries Why Use a Business Intermediary?
Because using the right representation will make the difference between closing or losing a deal.

 

A Business Intermediary is a skilled professional in mergers and acquisitions and business brokerage. They have established relationships with many professional organizations, which are required to complete the transfer of business ownership. These relationships are invaluable to business owners and buyers alike. The business owner is recognized as an expert at running their business, but may not be as knowledgeable about the selling process. An intermediary will provide the business owner with strategic information regarding market timing, market conditions, market price, financing options, structuring the transaction and other relevant information that is critical to the business owner. Selling a business is very time consuming and can take hundreds of hours of dedicated time, which will keep you, the business owner, from doing what you do best; running your business.  If you go through the process alone, the amount of time the process would take you away from the management of your business could have serious negative effects on the business.

 

Procrastination and delays are critical factors when structuring a deal. Therefore, an intermediary will continually move the process forward with qualified buyers, financing resources, and ancillary associations to the deal, such as CPAs and attorneys. An intermediary is in a better position to perform this function than the owner, as they are focused on the life cycle of the deal. Consequently, the business owner will be able to focus on operating a profitable business. A professional business intermediary identifies qualified prospects, negotiates the deal, and closes the business sale in the most discreet fashion possible until the transaction is closed.

 

Valuing and Pricing a Business

 

There are several skill sets a professional business intermediary uses to ensure that a seller of a business obtains the highest price for a business. Evaluation experience, market awareness, and knowledge of the deal structure are a few of these skills. A Business Intermediary sells businesses in the marketplace daily and is current with overall supply and demand. No other professional is in this position. It is important to use everyone on a support team for their specific area of expertise. For example, your attorney drafts legal documents, your CPA provides tax advice, and your intermediary guides you through the business transfer process.

 

Even before a price has been established, it is important to know what the fair market value of the business is before putting it on the market to be sold. Invariably, the first thing a buyer will do after they have developed an interest in the business is ask about the price. Rarely does a business sell for the asking price, it may be higher, or lower depending on the business owners willingness to be flexible. Even if a price has been agreed upon by the buyer and seller, how can you, as a seller be sure the price you have agreed to is the highest justifiable price or the price that enables you, as a seller, to receive the highest price the market will pay without leaving money on the table? A competent intermediary should be able to arrive at this price after a close financial analysis of your company. Business Intermediaries will determine this figure in conjunction with a qualified valuation professional and a thorough market analysis. Having a business on the market with too high a sale price might ultimately detract prospective buyers, while under-pricing a business could cost you money. A Business Intermediary can assist you in determining the best price for taking a business to the market.

 

Buyer Prospecting

 

Once a business owner decides to sell his/her business and all the pertinent documents have been prepared, the business intermediary must begin the prospecting phase of the process. There are a multitude of way to reach buyers and the intermediary will exercise most of the alternatives. A majority of people in the country have thought about owning their own business, but only a small percentage ever do. When a business becomes available for sale, the most strenuous step is qualifying prospective buyers. On average, for every serious and qualified buyer introduced to a business owner as a prospective buyer, the intermediary will typically meet with between 10 to 30 prospects. Many prospective buyers do not have the financial resources, are not a good fit, or are just "window shopping." A Business Intermediary will act as a buffer and allow you, the business owner, to concentrate on running your business rather than wasting your valuable time parading unqualified buyers through your business.

 

Confidentiality

 

An intermediary will preserve the confidentiality of the selling company during the process of marketing the business and only share information on a “need to know” basis. Preserving confidentiality is one of the main reasons to hire a Business Intermediary. A professional Business Intermediary will have variations of confidentiality agreements already drawn up and is familiar with how to effectively administer this important document. Most Business Intermediaries will not discuss a business with a prospective buyer unless a confidentiality agreement has been signed. To further ensure confidentiality, a financial statement from the buyer will often be required at the same time the confidentiality agreement is signed. The idea is that if a prospect signs both a confidentiality agreement and gives his financial statement, he will most likely adhere to confidentiality and not just test the proverbial waters. By taking these measures in the early stages, confidentiality is insured by eliminating the "tire-kickers" before a company name or location is divulged to a buyer. An owner could experience disastrous results by “leaking” that the business is for sale. Employees, customers, suppliers and competitors relationships could be damaged causing an adverse condition hurting the potential sale.

 

Negotiating a Better Deal

 

Selling a business is often emotional experience for the business owner. An intermediary will act on behalf of the owner and will establish a strong negotiating position without compromising the goodwill and relationship between the principal parties. An intermediary will increase the opportunity to receive “the best price” for the business. A business owner is emotionally tied to his business, negotiating on emotion rather than reason. A Business Intermediary can negotiate the best deal for the owner because he is not intimately connected with to the business, but operates in the owner's best interest. A business intermediary has dealt with many business transfers and is aware of all the nuances involved. He foresees problems and deals with them, while a business owner going through the process for the first time could lose a deal because of lack of experience.

 

Professional Marketing Program

 

As an experienced business owner, you definitely know how to run a successful entity and make it grow. When you are ready to sell, the "fundamentals" of your business must be presented in the most succinct and positive manner in order to entice prospective buyers to consider your business as an acquisition candidate. A Business Intermediary is skilled at preparing concise, informative marketing packages on businesses he represents, we call it the Confidential Offering Memorandum. After a package has been prepared, the prospecting starts in earnest. Without a proper marketing campaign an otherwise excellent business may go unnoticed. Business Intermediaries have the resources available at their fingertips to advertise a business with the highest confidentiality and maximum exposure.

 

Most Business Intermediaries will search their internal database for pre-qualified buyers to find a match for your business. If no match is found, the Business Intermediary will use marketing mediums such as the web, trade publications, and other business brokerage firms until the right buyer is identified. Even though a Business Intermediary utilizes an enormous amount of time, effort and money to market a business, it is a fraction of what an owner would expend. A Business Intermediary knows the quickest, most effective methods of reaching the buying masses, while preserving confidentiality.

 

The Closing Process

 

The closing process is usually the most intense and nervous step for all parties involved. An experienced Business Intermediary will have experience working with closing attorneys or the escrow companies. He will be able to handle the problems that arise with attorneys or the escrow company. The Business Intermediary along with the closer will ensure that the business owners interest is protected and ensure the deal closes.

 

Managing the "Deal" Team

 

Previously, we mentioned that the business owner will have a support team in place to facilitate a smooth transfer. The CPA, attorney business intermediary, lender, comptroller, and others will be needed in the process. It is imperative to have a "point person" to coordinate the team. That person is the Business Intermediary. Using a Business Intermediary to sell your business will alleviate the time constraints involved in coordinating your support team. Most importantly, no one on your team will have the experience that a Business Intermediary has throughout the entire process. Members of the team might specialize in certain areas, however the business broker is the only one whose job is to facilitate and coordinate the entire process. Summary of Business Intermediary Services Provided During the Business Transfer Process:
  • Consultation with seller and review of seller's documentation
  • Review of seller's financial statements
  • Performing a market analysis
  • Preparation of a listing agreement, seller's disclosure and seller file
  • Development of a marketing plan and marketing package
  • Preparation and submission of business advertising
  • Initial Business showings and buyer follow-up
  • Additional consultations with buyer/seller
  • Assisting buyer with preparation of Offer to Purchase or Letter of Intent and presentation to seller
  • Offer follow-up with buyer/seller
  • Meetings with buyer/seller to coordinate buyer due diligence
  • Consultations with buyer/seller and outside professional advisors
  • Coordination of closing and other documentation
  • Consultation with parties regarding transfer of licenses, utilities, etc.
  • Attending the closing and subsequent transfer of the business
  • Follow on support during new business owner transition
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