According to industry statistics, the average time to successfully close a business sale is about 10 months from the time the listing enters the market to the time the transaction closes. The reality, however, is that each individual deal is so unique that it’s difficult to call any transaction “typical.” The general rule of thumb we give our sell-side clients is to plan on as long as 12 months to complete the sale. However, our expectations are that the process will take six to nine months, based on the average time on the market for our deals is just over six months - with the average NorthStar deal closing in just over six months on average. What this estimated time frame does not take into account, though, is the lead time you need to prepare your business for sale and the time required to package the business to go to market – those factors are highly dependent on you.

While there are many methods that can be used to calculate the value of a business, for our purposes, we are only interested in determining the market value. In other words, the value you can reasonably expect your business to sell for on the open market at this time. The ultimate result of this process is both subjective and objective in nature, an opinion based on facts, a combination of science and art – a true yin and yang scenario. The first step in this process is “recasting,” or normalizing, your financials to understand the true net profit of the business, as well as the EBITDA and SDE (seller’s discretionary earnings) – these figures become the basis for your business’ value. From there, multipliers specific to your industry, as well as unique to your business based on its sellability, are applied to establish a range of value and a suggested asking price. A seasoned and experienced valuation expert should be able to establish a market value within a few points of what a business eventually sells for. Read more about NorthStar's VSA™, (Valuation & Sellability Analysis)

The fact is, the majority of business sales do include some form and amount of seller participation in the deal structure, whether that be in a promissory note, an earn-out or retained equity, to name a few options. As much as you would prefer an all-cash transaction, those are extremely rare. From a buyer’s perspective, there’s a certain level of comfort knowing you are confident enough in your business to agree to future consideration. Not to mention the peace of mind knowing you’re likely to answer the phone when they call in a few years with a question if they still owe you money! From your perspective, there are several benefits from seller financing that can outweigh the potential risks you may be focused on. Deals that include seller financing typically will command a higher sale price – it’s a great way to build additional value in the transaction. From a time value of money standpoint, seller financing often generates interest income in excess of what current market returns produce. Being open to seller financing also increases your attractiveness to the market, as many buyers will only consider acquisitions where the seller will carry some sort of future consideration in the deal.

Of all the steps and stages involved in the process of selling a business, finding the buyer is perhaps the easiest. That’s certainly not meant to downplay the importance of identifying a buyer that has all of the characteristics necessary to successfully take over your company, but it is meant to express the idea that you shouldn’t get tunnel vision when it comes to the early stages of evaluating buyers. Last year, NorthStar produced nearly 250 buyers for each listing taken to market, so there are going to be several wonderful candidates you’ll ultimately have to consider! NorthStar closes more than two-thirds of the time with individuals or groups already in our buyer database – it’s an eye-opening number, but it makes sense when you consider several factors. First, if a buyer is in our database, it means we already know some things about them – their criteria for industry, revenue, EBITDA and/or sale price. So we are able to target specific buyers within our database with the deals that make the most sense for them. Second, the buyers we have in our database have likely already looked at other deals we’ve represented. This means they have experienced, first-hand, the speed, efficiency, comprehensiveness, and professionalism of our process, and are excited to see the next opportunity we have to offer. And finally, we give buyers in our database pre-market access to our listings, meaning they get the opportunity to begin their evaluations before the deal hits the open market. Even though we put tremendous emphasis on our buyer database, we are also staunch believers in the “volume game.” The more eyeballs that see your business, the more confident you can be that you’re working with the best candidates making the best proposals. These additional buyers will come from various third-party listing and promotion websites, as well as direct marketing efforts if the situation calls for it.

This question requires a multi-layered answer to address it adequately. First things first – no, we have not sold a business exactly like yours! The fact is, every single business in operation today is truly unique. Every company operates under a specific set of influences that combine to make it different than any other business. Between the individual personalities, characteristics, and experiences of a business’ owners, employees, customers, suppliers, competitors, vendors, geography, etc., etc., each business is inherently distinct. That’s why it’s imperative that your M&A advisor takes the time to truly understand what makes your company tick. Now, having said all of that, have we sold a business “similar” to yours? Absolutely! With more than 350 successful closings under our belts, there truly isn’t an industry the NorthStar team has not touched – you can browse many of those transactions by industry when visiting The 17% Club™ page. But the hard truth about direct experience is that it really doesn’t matter in the end – what matters is a proven, systematic process that delivers consistently outstanding results for sellers, regardless of their industry, size, geography, etc. That’s where NorthStar’s Transaction Navigator™ is invaluable to our clients’ success!

Honestly, the best time to take your business to market is just as soon as you are ready! In the big scheme of the business sale cycle, the timeline to successfully close most transactions can reasonably be anywhere from six to 12 months. Given that extended period of time, the process is likely to cover numerous perceived “good” and “bad” times of a typical calendar year. So instead of worrying about trying to perfectly time your entry into the market, you should be more worried about making sure that you’ve prepared both yourself and your business for the process of selling. The timing will take care of itself; preparing your business will not.

You may have read online somewhere, or even had your CPA tell you, that you want your business transaction to be a stock sale as opposed to an asset sale because of the advantageous tax treatment you’ll receive. In most cases, while that statement is correct, it makes no sense, financial or otherwise, for a buyer to offer a stock sale over an asset sale. Buyers prefer asset sales for two primary reasons. The first is financial. Buying the assets of a business vs. the stock generally puts the buyer in a better tax situation, as they are able to establish a new depreciable base for the assets. The second is liability. Buying the stock of a business means the buyers are acquiring all of the past liabilities, known and unknown, of a business. While the purchase agreement will try to limit any potential exposure of a stock sale, an asset sale is still widely preferred because no liabilities transfer to the buyers that they don’t want. However, in some instances, a stock sale does make the most sense for both parties. The most common reason for this has to do with the transferability of contracts, licenses, permits, or other agreements your company already has in place. By acquiring the stock, those agreements stay with the business and do not require approval to transfer to the new business owner.

First, what is working capital? By definition, working capital is the difference between the current assets and current liabilities on a company’s balance sheet, which represents the liquid resources available to fund day-to-day operations. Or, to put it simply, it’s the cash a business needs to keep the lights on. While there are several logical arguments that support many sellers’ opinions that working capital should not be included in a sale of their businesses, the bottom line is that the vast majority of transactions should include working capital. Think of working capital as just another asset of your business that’s required to maintain its continuous, successful operation. When you’re selling your company, you’re selling a “going concern” to the buyer, meaning that a buyer should expect to receive everything necessary in the sale to continue the operations as-is. This includes both the tangible and intangible assets of the business. Just like a machine shop uses CNC equipment to manufacture products, a tree trimming business uses pole saws to cut limbs, and a software developer uses high-speed computers to write code, every business utilizes working capital to maintain operations – it’s just another asset of the business that a buyer will need to successfully run the business immediately following closing.

This can’t be emphasized enough – YOU ABSOLUTELY NEED AN ATTORNEY! And not just any attorney, but an M&A or transaction attorney. The sale of your company will include complexities from a legal and documentation perspective that are unique to the M&A world, so it’s imperative that you have professional representation on your team that lives and breathes these specialties. As you would expect, NorthStar has worked with hundreds of attorneys over the years and would be happy to offer a referral to anyone in need of an outstanding and experienced legal representative.

While this is an impossible question to answer without having insight into your personal and business financials, there are some general rules of thumb when it comes to the tax treatment of a business sale on the seller. Generally speaking, in an asset sale there are two primary distinctions sellers will make on the final sale price – goodwill vs. tangible assets. Tangible asset value is going to be the total value of your equipment, vehicles, tools, inventory, etc., included in the sale, while goodwill is essentially equal to the sale price less the tangible asset value. This designation is important because these two value categories are taxed differently. Goodwill is taxed as capital gains, while assets are taxed as ordinary income. This is a very simplistic explanation, and many transactions are much more complex, but in most cases, these are the two primary distinctions. Of course, this is not meant to be tax advice, and you are strongly encouraged to discuss your specific tax liability circumstances with your tax advisor for a more detailed explanation and estimate.

There are two distinct schools of thought when it comes to the way M&A advisors are paid – the up-front fee model and the success fee model. Some firms are strictly paid a success fee upon the successful closing of a business sale, calculated as a percentage of the sale price – the old “they get paid when you get paid” arrangement. The closing commission rate will typically range from 2% to 10%, depending on the size of the business. These types of organizations assume all of the financial risk of taking a business listing to market, but are also paid a higher rate in the end. Other firms will require up-front fees – engagement fees, listing fees, retainers, or packaging fees – in addition to earning a commission at closing, which is usually at a lower rate than that of a pure success-fee firm. These up-front fees are designed to offset the cost of bringing a business listing to market, while also reducing a firm’s financial exposure and risk. There’s no guarantee that a business listing will ultimately sell, so by requiring fees on the front end, firms can at least cover some costs. Each model has its pros and cons to both the firm and the client, so it’s important to evaluate what matters most to you regarding an M&A advisor’s fee structure while also asking them to support the reasons behind their pricing model.

It does you absolutely no good if your employees, competitors, customers, or vendors know about the sale of your business before you want them to – in fact, that type of premature disclosure can potentially be extremely damaging to your business. Additionally, it’s critical to carefully control the amount, type, and release of sensitive information about your business to buyers. So, yes, protecting your confidentiality should be of utmost concern to you. That’s why it’s important to understand the specific procedures your M&A advisor utilizes to ensure your company is protected as much as possible. If allowed, buyers will run roughshod over M&A advisors that don’t mandate strict disclosure policies and procedures, which can only hurt your business and chances of a successful sale. Your M&A advisor should be able to clearly articulate to you exactly when, why and how information is disseminated to buyers, as well as work with you on developing a plan to eventually disclosure the sale to your employees, customers and vendors when it makes the most sense.

Most business sales are closed on what is known as a “cash-free, debt-free” basis. This essentially means that the seller keeps all of the cash in the bank, but also pays off all of the existing debt. Buyers will likely be securing their own debt to buy a business, so the assets being acquired must be free-and-clear of any liens or encumbrances. In some rare cases, existing debt on the business might be assumed by the buyer, but it doesn’t change the net financial outcome of the transaction for you – any seller debt assumed by the buyer would decrease the sale price dollar-for-dollar.

You’re obviously a successful businessperson to be in the position to consider selling your company, so it stands to reason that you might feel confident in your ability to sell your business without professional representation. However, there’s a reason a cardiologist doesn’t perform appendectomies, an immigration attorney doesn’t litigate injury claims, and a plumber doesn’t build homes. While most professionals will have some familiarity with a tangential specialty, they are not experts in that field. The same can be said about successfully navigating a business acquisition. You need someone running point on the sale of your company who brings a level of experience, knowledge, and expertise you can count on to help ensure your business sells for the highest possible price in the shortest amount of time with the fewest number of surprises. Could you close the sale of your business on your own? Certainly. But the likelihood that you’ll run into unnecessary delays, experience immense frustration, and ultimately agree to less-than-optimal terms is exponentially higher without an experienced M&A advisor on your team.

While the initial documentation and information request you receive related to the business valuation process may seem daunting and even overwhelming, it shouldn’t be a disruption to your day-to-day responsibilities. It is important, however, to provide as much detailed information as possible for the purposes of the valuation. The accuracy and completeness of the resulting analysis can only be as good as the quality and volume of the information used to perform it. With that all said, at NorthStar we work extremely hard to take as much of this burden off you as we can. If that means coming and sitting at your office and running reports ourselves, or being provided read-only access to your system in order to get the data we need directly, we’ll work with you on a case-by-case basis to be as nonintrusive, efficient, and fast as possible so you can stay focused on your business operations.

There are several terms that describe firms like NorthStar that are commonly used interchangeably in the marketplace – mergers and acquisitions advisor, investment banker, business broker and business intermediary are just a handful you might have heard. While these names might be randomly assigned by people in the business community without much thought, there are some important distinctions you should be aware of – namely in the professionalism of the service being provided and the ability to manage larger and more complex transactions. An M&A advisor should offer you a more advanced level of service and support. Their processes should be more defined and built in a way that provides you with superior representation and, quite frankly, establish higher expectations for the results. An M&A advisor should also understand the financial, operational, and legal differences between a main street business and a lower-middle market company. The larger and more complex a business gets, the more sophisticated and professional the interested buyers will become. So it is important for your representative to be able to operate in these more intricate M&A arenas.

This is a question best answered with more questions! How involved are you in the day-to-day operations of the business? What background and expertise does the buyer have related to your industry? Is your intention to continue working after the sale? Those are just examples of a few questions that will ultimately determine your post-closing involvement in the business. At the end of the day, the buyer for your company expects it to continue running and operating after the sale, so your involvement will depend greatly on what it takes to help ensure that smooth transition. You may maintain critical relationships with customers, vendors, and/or employees, so the buyer will want you around long enough to transfer those relationships over. Your buyer may be a strategic that has all of the knowledge and expertise needed to step in and maintain smooth operations, so your involvement might be limited. Your motivation for selling might just be to take a few chips off the table but continue working, so you might enter into a multi-year employment agreement with the new owner. But generally speaking, a typical training and transition period will last no less than 30 days and up to six months, in most cases.

Without question, you will. The non-compete agreement is a critical part of every business sale, for a number of reasons. First and foremost, when a buyer acquires your company, they are making a significant investment in the business’ ability to continue producing at similar historical revenue and profit levels. Having the previous owner of the business out in the marketplace competing directly against them is a recipe for disaster. So the ability to ensure that you can’t harm their business through direct competition becomes paramount. You’ll also find that it’s just not a non-compete, but a non-solicitation agreement as well. Even if you are working in an entirely new non-competitive industry, hiring away key employees from your former company would also be crippling to the buyer, which is why there will also be non-solicitation language in addition to, or included in, the non-compete.

Except in only rare cases, every business is sellable – the caveat being that every business is sellable, under the right price and terms. The sellability of your business all comes down to buyer confidence in the ability to replicate the historical results you’ve produced. Given that, there are some key metrics about your company that buyers will weigh to determine the viability of a business’ continued success. Customer concentration, owner dependency, key employees, clean books and records, transferable systems and processes, repeat and recurring revenue – these are some examples of some of the factors that make your business more or less attractive from an acquisition standpoint, and ultimately help define its value to buyers. That’s why a key aspect of NorthStar's VSA™, (Valuation & Sellability Analysis) focuses on these value drivers and how they uniquely impact your company’s marketability and sellability, not just its value.

In a perfect world, every business owner would operate their books strictly under GAAP and there would be no need for recasting financials in order to determine the true profitability of a business, or its SDE (seller’s discretionary earnings) – that’s the truest way to maximize your business value. The reality is that it’s widely known and understood that most business owners take some liberties with their books in the name of reducing their tax liability. While this may be a “widely known and understood” practice, it can still create some challenges when it comes to getting the full value of your business, depending on the extent, nature, and provability of these “add-backs.” If you make the decision to include personal expenses in your business financials, just keep a few hints in mind. First, make sure they are easily identifiable. If you expense your BMW through your trucking company, don’t bury it in the vehicle expense line – break out those expenses so a buyer can easily see and accept them. Second, keep proof of these expenses. It’s one thing to have them broken out on your P&L, but at some point you’ll also need to provide proof that supports the amount you claim was a non-business expense. Finally, don’t overdo it. Even if you have every single penny of non-business expense categorized and accounted for, if the sheer volume of your add-backs is excessive, that will create problems. Few buyers will have confidence in a business that shows a net loss on its P&L, but half-a-million dollars in SDE, and certainly no lender will finance that deal!