What Are the Responsibilities of a Business Broker?

As a business owner, it is important to understand the role and services provided by a business broker or business intermediary. A qualified broker should be responsible for the following:
• Advise the seller on how to prepare the business for sale
• Furnish the seller and buyer with current market information
• Help the seller establish the selling price
• Discuss and educate both the buyer and seller on financing options and how financing can effect the sales price
• Create a confidential business review (CBR)
• Promote the business for sale
• Work with other agents
• Analyze market feedback and present this to the seller
• Help maintain confidentiality of the business
• Qualify buyers
• Introduce qualified buyers to the business
• Follow up with prospects
• Solicit offers for the business
• Orchestrate the negotiations
• Manage the due diligence process
• Maintain a marketing effort so there are back-up offers
• Supervise the close of escrow
• Help with any post-sale matters.
As you can see, there is a lot of work to be done if the broker is providing the highest levels of service. Make sure when choosing a broker, they are both qualified and committed to performing the above responsibilities. This will not only increase your likelihood of finding a qualified buyer, but it will also increase your chances of having a successful closing.

Working With Landlords

Landlords play a very important role in the process of selling a business. If not dealt with properly, a landlord can cause a deal to fall apart that would have otherwise closed. If you are considering selling your business, it is important to review your lease and understand the terms that you agreed to. Most leases have a clause that allows you to assign the lease, but it is subject to the approval of the landlord which cannot be unreasonably withheld. Landlords understand that business sell and are usually prepared to deal with this event. Once you have decided to sell, you should consider approaching your landlord to find out what requirements they are going to have for a new owner. Landlords are usually looking for a minimum credit score, net worth, as well as the experience of the new owner in the industry. You can save a lot of time, money and energy by not dealing with potential buyers that do not meet the minimum requirements of the landlord. Remember, the landlord does not want vacant stores in their centers, so they are going to do what is best for their property when making a decision. Another important thing to know is that most landlords are going to require you to stay on the lease as a guarantor until the term you are assigning is completed. Therefore, you as the seller want to make sure you have a buyer that is strong enough to stay in business and pay the rent. Sometimes when there is only a short amount of time on the lease, the landlord may be willing to negotiate a new lease with the buyer where you will not have to stay on as a guarantor. It is important to discuss all options regarding the best way to deal with your landlord with your business broker, commercial broker or attorney. These professionals should have the experience necessary that can help get your deal done, protect you, and reduce your liability. If you are thinking about selling your business, and want more information about dealing with your landlord, don't hesitate to consult one of the professionals above.

Daily Observation - Loan To Value

If anything that has changed to complicate the underwriting process it is Loan to Value. Today the LTV's as they are affectionately known are all over the board. LTV's used to be as high as 90 to even 95% but with the advent of the sub prime debacle, loan to values have been reduced precipitously.

Where a land loan used to be at a 75% loan to value which means if the property appraised at $1,000,000 the bank would lend you $650,000 today we would be lucky to find a bank lending $550,000 for a straight land deal.

Also the loan to value that many lenders are quoting will affected by the CAP Rate of the property as well as the net income. If the net income cannot support the needed debt service coverage ratio, the lender will lower his loan amount to meet the DSCR, and thus LTV will also fall accordingly.

I cannot blame these lenders from lowering the amount they loan, but what I fault them for is allowing the current foreclosure market to dictate what a property is really worth. by using comps from foreclosed and short sale properties, which is bringing down the amount of value that borrowers without credit problems have for their homes that they want to use as collateral.

More about this issue another day. To understand collateral you must understand What CAP Rates

Pricing a Business - Factoring in Market Conditions

There are many methods used to value a business. However, most business intermediary's use published multiples (Rules of Thumb) when determining the selling price of a business. An excellent source for these multiples is The Business Reference Guide, published by the Business Brokerage Press, Inc. These multiples are published yearly and are based upon historical selling information within a particular industry. For example, an electrical manufacturing company should be priced at 5 times EBITDA. However, when pricing a business, a broker cannot just rely on these rules of thumb. An experienced broker will know that there are many other factors that must be taken into consideration. Currently, there is a significant factor that is forcing sellers to price their business for less than the rule of thumb for their industry would suggest. The tightening of commercial credit is making it more difficult for buyers to obtain financing. Banks are requiring buyers to have collateral to put up for the value of the loan. However, because of the mortgage crisis, buyers no longer have the equity necessary in their homes to secure the financing. The result, if a business owner wants to sell their business, in many cases they are being forced to lower their price. For more information on current happenings in commercial financing, I strongly recommend you visit Harlan Friedman's blog at http://commercialloanbroker.blogspot.com/. When selling your business, make sure you use a broker that takes all factors into consideration when determining the price. This will help ensure that you business sells in a timely manner.