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Selling Q&ATips for SellingWhy Intermediary's




Selling Q & A

Business owners have focused their entire lives on growing and developing their businesses and seldom know how to answer all of the questions related to selling a business. That is where a professional firm such as Veracity help.

Is there a fee to sell our business?

    A.  Yes.  We have many different options for you to choose from.

How will it be advertised?

    A.  The advertising of each business will depend upon the size and type of business. Veracity uses several mediums to solicit prospective buyers, including local and national newspapers, including the Wall Street Journal, trade publications and the Internet. In addition, qualified buyers from other brokers, corporate acquirers and investment groups. 

What affects selling price?

A.  Numerous factors come into play and can affect the sales price. 

    1. One of the most critical is the “terms” or the amount of down payment and the amount financed.  Over eighty percent of all businesses sold above $100,000 are sold with one-third or less down and the owner financing the balance.  Asking for one-half down will reduce the price by approximately twenty percent.  Asking for cash will reduce the price to about forty to sixty percent of the amount attainable with one-third down.   

Down payment or the “terms” is a key factor, because a buyer is trying to buy as much business as possible for the money available for down payment.  So, when a seller asks for $200,000 down on a $400,000 value business, buyers prefer to continue looking until a $600,000 value business is found where the owner will accept $200,000 down and finance the balance. The seller who asks for all cash or a large down payment is not going to succeed in obtaining the full fair market value of their business, because buyers know they can buy three times as much business for the same investment. In a nutshell, high percentage down payments cause buyers to discount offers.  

    2.  A second critical factor is the quality of the information provided to a prospective buyer.  The value of the assets and cash flow generated by the business must be provable and verifiable.  A professional business broker will be able to assist the business owner in arriving at these values.

    3.  The third most important factor that effects the sales price of a business is whether there is competition among prospective buyers for the business. Competition creates higher selling prices, as we all know from basic economic principles.  When a business owner asks for more than the fair market value for their business or does not offer reasonable terms, there will be few, if any, buyers interested in acquiring the business. On the other hand, when a business is priced realistically and with proper terms, multiple buyers are likely to pursue acquiring the business. A buyer who knows he has other buyers competing for the business will be motivated to offer the price being asked to ensure he does not lose the business to another buyer's better offer.

Is confidentiality important?

    A.  Sound working relations with employees, customers, suppliers, and bankers are important factors to a company. Any premature indication of a possible change in ownership could disrupt these relations and weaken the company’s competitive position. For these reasons, and many others, confidentiality is critically important at all stages. With the proper procedures, it is possible to minimize the risk of an untimely disclosure.

Veracity does everything it can to protect the real identity of any business we list for sale. A comprehensive fact sheet is created for each listed business. The public fact sheet section is featured on our website for all to see, but more detailed or identifying information may only be viewed after the prospective buyer provides Veracity with a signed Confidentiality Agreement and a Net Worth Statement. In every transaction, there is an appropriate time to reveal that a sale may be imminent. Proper timing of these sensitive announcements can contribute to a smooth transaction and reinforce the buyer’s willingness to proceed to a closing.

Generally, Veracity chooses to make the announcement that a sale has occurred "after the closing" through an escrow process. Veracity helps to ensure that information is kept confidential throughout the entire selling process.

An owner may ask: "Why can’t I sell it myself?"

    A.  There are several reasons why most owners choose not to try and sell their own business:

  • An owner representing himself cannot maintain anonymity and the lost confidentiality could seriously hurt the business

  • An owner may not be knowledgeable in current areas of law, accounting, taxes, and marketing of businesses

  • An owner typically does not have the ability or time to contact, screen and qualify a large group of prospects to find a qualified buyer who is serious and will offer a fair price

  • An owner’s talents are much more effectively utilized in running the business than in trying to sell the company

  • An owner generally would not have the experience, knowledge, and negotiating skills needed to sell his company efficiently and for the best price, particularly in a highly emotional negotiation such as the sale of a business where the buyer’s objectives are totally opposite of the owner’s

  • Many times owner's cannot separate themselves from the business enough to answer questions and provide information objectively

What is the difference between a business broker and a M&A Intermediary?

    A.  The main differences lie in experience, skill set, and size/complexity of the deal.  M&A deals usually start around $2.5 million depending on who you ask.  Veracity will directly handle deal sizes at this time up to $20 million and will partner or direct clients to firms specializing in transactions exceeding that amount.

Should I get a valuation and how much do they cost?

    A.  Yes, get a price valuation.  The cost is really determined by what level of valuation you need.  From a simple a financial review to evaluating changes in the economy as a whole or your specific industry at large can cause a price a valuation to escalate.  Our general rule is the more complex your business or greater its worth the more in-depth of a valuation you should get.  Prices can range from straight hourly fees to ten's of thousands of dollars.

What is "Book Value"?

    A.  It is a method of business valuation that takes an accounting view of the value of the assets of the business.  "Book Value" is not an accurate economic perspective.  It considers arbitrary deductions from the value of items owned in the business.  Therefore, "Book Value" only considers the skewed accounting view of the value of the assets and does not consider the income that the assets generate.  The non jargon answer is this... let's say you buy a van for your business.  You need to depreciate that van over time in the accounting records.  The "book value" of your van decreases over time as you depreciate the asset.  So, if your depreciation schedule is aggressive the van might still be worth more than what is in the accounting records or "book value".

What is "Fair Market Value"

    A.  FMV considers the true economic value of the assets.  There are a number of ways to arrive at the true economic value and most professionals employ several techniques.  "Fair Market Value" also considers the fact that some assets generate income for the business.  Therefore, "Fair Market Value" is what buyers consider, what banks lend on and what sellers can expect to be paid for.  What are those assets worth in the open market if you sold them.  If your company van is worth $10,000 at the car dealership then it's FMV is $10,000.

How many different ways are there to value a business?

    A.  There is REALLY only one... how much a buyer is willing to pay.  If you ask a financial analyst they may throw out:  book value, FMV, income capitalization, discounted cash flow, P/E multiple, dividend capitalization, multiples of sales or profits, liquidation, market approach, etc.  The list can go on.

When I sell my company should I also sell my property or buildings?

    A.  You can sell the property with the business, or keep it and lease it back to the buyer.  There are lots of things to consider in any deal.  Although, in some cases the property is a deal maker or breaker.

How important is purchase asset allocation?

    A.  Is is very important.  There are tax and accounting consequences to how the purchase price is allocated.  Buyer and seller will both report to the IRS on the allocation. Veracity will make suggestions or give opinions, but we always suggest speaking with your accountant or attorney regarding asset allocation.

If I would like to "cash out" and the buyer wants me to carry a note do I have any alternatives?

    A.  Yes.  Veracity works with a network of businesses that buy notes from sellers.  Although, expect to sell at a discount for them to assume your risk.  On the flip side, you are able to "cash out".  There are tax decisions to be made on taking notes, consult with your accountant.

How long will it take to sell my business?

    A.  This can depend on a wide variety of factors. For most small businesses that are properly prepared and priced the average time to sell is around 3 to 6 months. For larger companies that time may be extended to a year or more.  Obviously there are exceptions. Some businesses sell in a matter of weeks, and some have taken more than a year. In general, the sooner Veracity receives all the necessary information to begin preparing for the marketing process, the shorter the time period should be to close a deal. The bottom line is that a good business with a solid track record that is priced properly will sell faster than others.

How much will I pay in taxes?

    A.  We cannot answer that as we are not tax experts.  Please speak with your tax advisor.  Now that the disclaimer is out of the way... here is a quick example:  Let's say you sell your business for $3 million.  Time to hit the beach right???




Tax Treatment

Tax Due

Ordinary Income – 39.6%


Capital Gain – 20%


Ordinary income – 39.6%


Consulting Fee
Ordinary income – 39.6%


400,000 Capital gain – 20%


Depreciation recapture building)
200,000 Ord. Income – 39.6%


* Originally purchased at 400,000, depreciated over time to 200,000.

If you like paying taxes, cut a check and call it a day.  If paying almost 30% of your sales price to the IRS is not OK we recommend you talk to a tax professional.

Did you know all of the answers?

We have only listed a few quick Q&A's here, but this is just a fraction of what you need to know about buying or selling a business.  Missing the smallest piece of information could turn into a very critical mistake costing you thousands of dollars. Don't you want to be sure you know everything before you buy or sell your business? Veracity can guide you with ongoing expert advice at each step of the buying and selling process.


Contact Information

Postal address
1304 23rd Street South, Fargo, ND 58103
Electronic mail
General Information: rklinger@seekveracity.com
Sales: sales@seekveracity.com
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Copyright © 2006 Veracity Business Brokerage and Consulting, Inc.