Most people go through the process of selling their company only once in their lifetime and should not be subject to any costly mistakes. We are here to lead you through the process, avoid mistakes, and make the process as simple and lucrative as possible. Some common questions we have received are listed here for your benefit.
How can the sale of my business be kept confidential?
The marijuana industry is small and word travels fast. We take this seriously. We recommend several approaches to maintaining confidentiality. First, confidentiality agreements are executed by all interested buyers. Second, meetings are held off-site or off-hours. Third, any marketing is done with information that does not describe the specific business. We typically have so many buyers in our queue that no marketing program is necessary. Third, professionals (accountants, attorneys, bankers) are instructed in the need to maintain confidentiality.
In most cases, there is no benefit to employees being made aware of a potential sale until very late (if not the end) in the process. Informing an employee can only cause them undue stress due to uncertainties. Employees can get themselves worked up that they won’t have a job, will lose insurance, or won’t like the new owner.
We understand the need to maintain confidentiality and have not had a client experience a problem with early disclosure of selling their business.
When is the best time for me to sell my business?
The short answer is when you least feel the need. The best time to sell your business is when the performance of the business is at its best, in terms of financial performance (sales and profits) and the outlook of the business. During tough times the business will be least attractive but so many people want to sell during the most challenging times. The business may be saleable then, however you likely will receive less money.
What should I expect when working with a business brokerage firm?
This is an important question. Most business brokerage firms operate similar to real estate firms, seeking clients with businesses to sell, developing a package describing the business, listing the business, securing buyers, and then letting the process continue until a closing. The value these types of firms provide is in finding buyers.
Few firms serve as an Advisor Intermediary (AI). An AI provides the services of a brokerage but leads and directs the entire process and serves as your expert advisor from start to finish. An advisor must thoroughly understand taxes and implications relating to business sales, be completely knowledgeable in accounting, fully understand all legal terms, concepts and documents in a sale, have owned and run their own businesses in order to understand your situation, and be a completely trustworthy person to whom you are commending what is likely the most important transaction of your life. AIs also serve as your business coach during the entire process. AIs also help protect you from potential lawsuits after the sale by working with you to develop correct and complete disclosure schedules.
CannaBusiness Brokers function as Advisor Intermediaries. Practically all of our new clients arrive to us referred by satisfied clients whose businesses we have sold. There is no premium paid to AIs; the fact is that most potential sellers do not know there are different services provided by brokerage houses.
Can I engage your firm to sell my company without paying for a valuation?
Yes. We do not charge upfront fees. Our experience is that many valuations paid for by business owners are a scam. Our experience is also that many accountants who perform valuations do so without an understanding of comparable sales or several important factors (owner involvement, customer concentration, specific industry knowledge) that affect value. Some just look at financial statements. Our broad experience combined with our understanding of all the factors that affect value make our recommended values much more realistic. We also provide you an estimate of your walkaway cash, and that is really all that matters to you.
How long will it take to sell my business?
According to Business Brokerage Press, statistics in the U.S. indicate the average time for 82% of businesses to be sold is 4 to 12 months. Less than 10% of businesses sell more quickly, and a little over 8% are on the market for more than 12 months. Price and terms of the sale have the biggest impact on timing. The industry and location of the business are also factors.
Marijuana dispensaries, manufacturers of infused products, and cultivations for sale attract a lot of initial attention. Many buyers do not have the stomach, or legal qualifications to buy cannabis companies. Many marijuana company owners have high expectations of their company’s value. (We will offer our opinion, but ultimately, asking price is up to the seller.) In the cannabis industry, banking is tricky–this means lending is tight and cash deals are preferred, leading to terms that can be difficult (how you feel about owner carry is something you should think about). All of these factors play into how quickly your business will sell.
How long should a brokerage firm hold an exclusive listing of my company?
The norm is for a contract to exist for six months to one year. We will let you out of a contract, as long as no letter of intent is in effect, at any time. We never want to force a client to use us. However, we have never had a client terminate his or her relationship with us.
What are the common reasons that a transaction doesn’t close?
The vast majority of businesses that get a letter of intent signed end up closing. The closings that don’t happen are related to some form of surprise that arrives during the due diligence process. For example, the following surprises may occur (though most can be prevented by working with the right firm):
- Landlord issues: A reason some transactions don’t close after a buyer and seller have negotiated a deal is that the landlord cannot come to terms with the seller and/or buyer. This issue should be discussed early in the process to determine if there is any potential of a problem.
- Financing issues: Most people wonder if financing can be obtained for a business. There is no answer to that question because any business can be financed with the right buyer. A buyer intending on putting a $200,000 down payment on a $2 Million business is unlikely to ever get financed. We have never had a transaction break down due to financing because we do early vetting of the buyer and business.
- Declining financial performance: If the financial performance declines during the sale process, the business can lose value. It is important for sellers to continue to operate their business and as though they’ll continue to own it for years.
- Surprises in due diligence: It is important for negative characteristics, like having significant customer concentration, to be disclosed early in the process, prior to the offer stage. The later a negative characteristic is revealed, the more of an impact it can have.
Do buyers prefer to buy the real estate or lease it from the seller?
There is no right answer. This varies on each situation. Many times the owner of the business can dictate whether the real estate is sold as part of the sale or retained by the seller and leased to the new owner of the business.
How long does the owner of the business have to stay on to train the buyer?
Based on the experience of the buyer, the current owner typically stays on for a period of a few months, typically with declining time commitments (full time for a month or so and declining hours thereafter). Larger acquisitions may require a longer period of time. This is discussed early in the process and is impacted by what involvement the seller wants to have following a transfer in ownership of the business.
What company information do you need for performing a valuation analysis?
There are two categories of information we need. First, we need intangible information. We need an understanding of the business, an overall grasp of the attributes that affect valuation. These attributes include the owner’s involvement in the business, the products or services provided, the growth opportunities, an understanding of management, the profile of customers, and so forth. This can all be obtained in about an hour.
Second, we need financial data. This includes the past two to five years of:
- income statements
- balance sheets
- tax returns
As you can see, we simply need to spend some time with you and gather some financial information, then we’ll be able to inform you what to expect upon a sale of your business.
What type and size companies does CBB represent?
We represent privately-held, small to mid-size businesses with gross revenues ranging from $500,000 to $100 million that we believe are salable.
Can I engage CBB if I have buyer in place?
Approximately half of the engagements we encounter are situations where the seller was already approached by a buyer. We handle all of the activities from that point until closing. It is commonly believed that the primary value provided by brokers is to find a buyer. For true business brokers that is true. However, our vast experience allows us to add value at nearly every step of the process.