The decision to sell your business could possibly be the most important business decision that you will ever make. Selling a business is a complex process. Most business owners are experts at managing their business, but have little or no experience selling a business.

When it comes to selling a business, there are a multitude of questions for which the typical business owner simply does not have the answers. How do I arrive at a fair price for my business? How do I allow my business to be put up for sale while not unnecessarily alarming my employees, customers, creditors, suppliers and competitors. How should I structure the terms of the sale? And is that important anyway? Should I offer owner financing? What information do I need to market my business and how is the best way to present it? How do I find potential buyers? Can I trust potential buyers to keep my sensitive business information confidential? What do I do when a buyer makes an offer? What is the best way for me to approach negotiations with a prospective buyer? What about my accountant and attorney; how and when should they be involved? What role should a closing attorney play in the process? Once an offer is accepted, how do I organize the transfer of ownership to minimize my tax obligations? And, most importantly, how can I possibly find the time to do all of this?

All of the above questions, as well as many others, must be professionally addressed to effectively sell your business. The way you approach the selling process can literally make you or cost you thousands of dollars.

This brochure will address the process that should be followed to successfully sell your business while maximizing the return on your investment.

The Professional Business Broker

Once you have made the decision to sell your business, you should retain the services of a professional business brokerage firm to assist you and guide you through the selling process. A professional business broker is the key member of your selling team. He will manage the entire selling process for you. His advice, assistance and experience can literally make you thousands of dollars. A professional business broker will make you money–not cost you money.

When selecting a business brokerage firm to assist you in selling your business, attention should be given to their experience, honesty, integrity and professionalism. You will have many meetings and interactions with your business broker during the selling process and it is important to select a business broker that you trust, respect and with whom you feel comfortable.

Most professional business brokerage firms are compensated in the form of a commission when they sell your business. On average, professional business brokerage firms charge a commission of 15% of the sale price on businesses that sell for up to $1 million. For businesses selling in excess of $1 million, a 10/8/6/4 Lehman formula is normally used to calculate the commission. You pay 10% commission on the first million dollars of the sale price, 8% on the second million, 6% on the third million, and 4% on the balance. All commissions are paid at the closing of the sale of the business.

All professional business brokerage firms will require that you grant them the exclusive right to market your business for a specified period of time, usually one year.

R.O. Forster & Associates

R.O. Forster & Associates is a professional business brokerage firm specializing in the sale of privately-held companies with annual sales revenues between $1,000,000 and $25,000,000.

Our paramount objective is to educate and assist the business owner in planning the most effective exit strategy to maximize the return on his investment. Professional, independent third-party business evaluations are highly recommended to determine the true market value of your business prior to the sale. We provide assistance in structuring the terms of the sale and providing a professional offering portfolio on your business. We develop a customized marketing plan for your business not only locally but throughout the entire nation. Marketing strategies include the internet, newspaper and trade journal advertising, direct mail and networking with other business brokers nationwide. We present your business to qualified buyers only and represent the business owner throughout the entire negotiating and closing processes.

Business Brokers Network

Business Brokers Network (BBN) was founded in 1981 to meet the needs of the dynamic business brokerage industry. BBN has experienced exciting growth and today includes more than 450 affiliate offices in all fifty states and Canada and is the largest business brokerage affiliation in the world.

Independently owned and operated, each BBN affiliate office operates under a standardized system so that affiliates across the country can easily share buyers and sellers. Any business listing can be presented, in person, to potential buyers anywhere in the country. Instead of merely having the services of a local business broker who only markets the business on a local basis, with BBN, a business owner has the strength of each of the 450+ nationwide network of offices. Our clients are not geographically restricted to the local-only services offered by most ìneighborhoodî business brokers.

Through the 450+ affiliate offices nationwide and our comprehensive world wide web site (http://www.bbn-net.com), your business is made available to thousands of potential buyers worldwide. Our web site is currently averaging more than 20,000 inquiries per week – and the majority of these are from interested buyers. The BBN web page currently lists 736 businesses for sale and 2564 qualified buyers throughout the United States.

Professional Affiliations

• US Chamber of Commerce
• International Business Brokers Association
• Institute of Certified Business Counsulors
• American Society of Appraisers
• Institure of Business Appraisers
• American Institute of Certifed Public Accountants
• International Association of Financial Planners
• American Bar Association

Valuation

Undoubtedly the most critical element for the profitable and successful sale of a business is determining its fair market value. If priced too high, then potential buyers will not be interested. If priced too low, the seller does not receive fair compensation for his investment. The best course of action is to value your business properly and fairly.

How do you determine the fair market value of your business? The simple answer is that you don’t. Instead, you should rely on experienced business valuation professionals to determine the value. Most business owners have no experience in placing a value on a business, and, in fact, many business owners will seriously undervalue their business.

For most businesses it is prudent and cost effective to have a professional, independent, third-party evaluation of the business prepared to determine the fair market value.

Anyone who has ever purchased a home knows that an independent appraisal report was not only necessary but required to complete the sale. The sale and purchase of a business is similar but much more complex. The key to having a viable valuation performed on a business is to have it performed by an independent third-party valuation service.

Without an independent third-party valuation report, a business owner will face intense price negotiations as the opinions of value between the seller and the buyer could vary widely.

R.O. Forster & Associates, as a professional business brokerage firm, work closely with independent business valuation firms that specialize in determining the fair market value of businesses. With your assistance we will collect and organize the significant and necessary data required and submit it to the valuation service for their analysis. We recommend the services of Ross, Wendler & Steen, Inc. or The Forrestal Group to prepare your independent business valuation. They perform numerous business valuations each year and have one of the largest databases of closed business transactions in the nation. Their results in the market place are invaluable to the business seller, as these businesses have sold within 90% of their recommended value.

Their independent valuation reports are designed to be shown to prospective buyers and be used as a sales tool. They will recommend which assets and liabilities you should sell and which you should keep. They will recommend the deal structure that will most likely produce the best price and the report will justify that price to prospective buyers.

Higher prices and smoother sales result when an independent third party valuation report is presented as part of the business offering package.

We strongly recommend that a comprehensive valuation report be included in the offering package of any business, and especially for those being offered at $1,000,000 or more.

Valuation Methodology

As many as nine different formulas may be utilized by the valuator in a complex computer model to determine the fair market value of your business:

• Asset Method
• Basic Method
• Return on Investment Method
• Critical Factors Method
• Debt Capacity Method
• Industrial Method
• National Method
• Weighted Factors Method
• Multiple Average Method

Terms

The terms of the sale will dramatically impact the market price and the attractiveness of your business to potential buyers. The terms of sale include two basic elements: down payment requirements and owner financing.

Down Payment Requirement

The down payment required will dramatically affect the attractiveness of your business to potential buyers. Only 20% of businesses that require a 100% down payment ever sell, while over 80% of businesses that require a 35% down payment will sell.

The down payment required also dramatically affect the price your business will command in the marketplace. For example, if a business is valued at $100 and the owner will accept a 35% down payment he will usually sell his business for $100. If he insists on 100% down, he will usually sell his business for $60. The value of a business to a buyer is a strong function of the down payment required.

A buyer is trying to buy as much business as possible for the money he has available to pay down. When a seller asks for a $200,000 down on a $400,000 value business, the buyer will usually keep looking until he can find a $600,000 value business where the owner will accept $200,000 down and finance the balance.

High percentage down payment requirements cause buyers to discount offers. The business owner who asks for all cash is usually not going to be able to sell his business because buyers know that they can buy three times as much business elsewhere for the same investment.

An all cash or unrealistic down payment requirement communicates to the buyer that the seller is not confident in the future success of the business or that the seller is not confident in the buyerís management ability.

The effects of an unrealistically large down payment:

On the Buyer
Reduces the buyerís perception of value
Reflects the seller’s doubts about the future of the business
On the Seller
Few interested buyers
Lower offering price

The following graphs pictorially show the overall economic impact of a high down payment and its effect not only on selling price but the overall effect on a business to be able to sell at all.

Owner Financing

Over 80% of all businesses sold above $1,000,000 are sold with one-third or less down and the business owner financing the balance. The benefits to the owner of owner financing include:

• The chances of the business selling are increased.
• The seller will achieve a much higher price for the business.
• Financing the sale tells the buyer that the seller has confidence that the business is viable and will, or can, pay for itself.
• The interest income received by the owner will greatly increase the effective selling price of the business.
• Tax consequences
• Owner financing will offer the business owner significant long-term cash flow benefits as the following chart attests.

Confidentiality

Confidentiality & Marketing Confidentiality

Confidentiality is usually critical to the business selling process. Confidentiality is important for a variety of reasons. Customers, competitors, employees, creditors, and suppliers all will have different reactions upon discovering that your business is for sale. Employees, fearing the unknown, may resign. Customers, fearing a decline in performance, may go elsewhere. Competitors may spread rumors. Creditors may get nervous. Suppliers may curtail credit.

Prospective buyers often react negatively to a business opportunity that has not been kept confidential. At R.O. Forster & Associates we follow four steps to protect your confidentiality.

Prepare Blind Ads and Listings

A “blind ad” is an advertisement that camouflages the identity of the business. A “blind listing” is a camouflaged description of the business in a multiple listing database.

Pre-qualify Prospective Buyers

Screening and pre-qualifying prospective buyers is perhaps the business brokerís most valuable service to protect seller confidentiality.

More than 90% of prospective buyers who respond to business-for-sale ads are not qualified to purchase the business for some reason. They lack the necessary money, skills or courage to move forward.

Register Prospective Buyers

We require prospective buyers to provide background information about themselves and to sign a confidentiality agreement. We require each buyer to complete a “Buyer Registration Form” and to sign a confidentiality agreement.

Our “Buyer Registration Form” asks for the prospective buyerís contact information, acquisition criteria, and financial disclosure of cash available for the business purchase. We also ask for a resume and a financial statement.

Release Information in Phases

The job of protecting confidentiality becomes more difficult when the pre-qualified and registered prospective buyer begins to receive detailed company information. To manage this process, we release information in stages:

When we list a business, we create an ìOffering Summaryî which includes an executive summary of the business opportunity and selected financial information. The name and location of the business is not included in this summary. The “Offering Summary” is available to prospective buyers on our web sites.

A two page “Business Profile” is created and provided to prospective buyers who have viewed the “Offering Summary” and are interested in learning more about the business. The name and location of the business is not included in this profile. The “Business Profile” presents overview information about business activity, history, marketing , sales and earnings, assets and liabilities, employees, facilities, reason for sale and price and terms.

For the serious buyer, a twenty-one page comprehensive professional offering portfolio, “Confidential Memorandum and Company Profile” is created. This documents expands on the information presented in the “Business Profile.”

Professional Offering Portfolio

The first step in marketing a business is to have a professional offering portfolio prepared. This comprehensive ìConfidential Memorandum and Company Profileî should effectively address the following topics:

The business owner can have his staff prepare “Confidential Memorandum” and Company Profile or R.O. Forster & Associates can have one prepared for the business owner by Business Brokers Network corporate headquarters.

Comprehensive Marketing Plan

R.O. Forster & Associates will prepare and implement a comprehensive marketing plan to professionally market your business locally, regionally, nationally and internationally.

We use the power of the more than 450 Business Brokers Network and its affiliate offices nationwide to present your business to potential buyers throughout the country and Canada.

Business Brokers Network has an extensive database of more than 2,500 qualified buyers who have more than $8 Billion to invest in business acquisitions. We research this extensive buyer database to determine if there is a match between the registered buyer and your business.

Your business will be placed on the largest business brokerage site on the internet where it will be accessible to buyers throughout the world.

We will advertise your business in local, regional and national newspapers as appropriate.

In industries with trade associations, your business will be advertised in the appropriate trade journals.

Merger and acquisitions letters will be sent to the potential corporate buyers as appropriate.

More than 70% of business buyers are first time buyers who are leaving (of have left) corporate America with a strong desire to control their own destiny and earnings. Approximately 28% of buyers are investment groups and corporate acquirers , while 2% are professional buyers.

Conclusion

R.O. Forster & Associates will coordinate every aspect of the business closing process for you. We will assist the buyer in preparing his Offer to Purchase and then present the offer to you for your consideration. We represent you, the seller, in this transaction and will therefore manage the negotiations with the buyer. Our job is to effectively and expeditiously coordinate all of the closing activities with the appropriate attorneys, accountants and bankers , while protecting you, the sellers vital interests.

R.O. Forster & Associates is eminently qualified and would welcome the opportunity of representing your interest in the successful sale of your business.