Frequently Asked Questions

PacificBusinessAdvisors.net

Serving Southern California Since 1987

How long has PacificBusinessAdvisors.com been in business?

The firm started doing business in 1987, but the broker for the firm, Michael Chulak, has been licensed to sell businesses since 1971.

 

What are some of the questions that you will ask concerning the sale of my business at our first meeting?

We have created a convenient form that lists most of the initial questions we will ask and discuss at our initial meeting concerning the sale of your business: Initial Questions for Business Sellers.

 

We are seriously thinking about selling our California based business. Will Pacific Business Advisors provide us with a no cost confidential consultation so we can obtain more information?

Absolutely. For a no-cost, confidential consultation call Michael Chulak or one of the business brokers or agents on this website.

 

I am concerned about maintaining confidentiality. I don't want my employees, competitors, or vendors to know that I will be selling my business. Can you maintain confidentiality while selling my business?

Absolutely. Our advertising will not disclose a precise description of your business and we will take every step required to protect your confidential information. See: Confidentiality is Critical in Business Sales.

 

What is the difference between a business broker and an investment banker?

Both types of firms are business intermediaries that represent buyers and sellers of companies. Business brokers tend to represent business clients in transactions up to about $15 million while investment bankers represent larger companies that are often public companies. Investment bankers offer a greater range of financial services, but their cost is also greater. Pacific Business Advisors is a business broker that has represented buyers and sellers of both large and small businesses since 1987.

 

What a private equity firm?

A private equity firm or private equity fund consists of a firm that has a large pool of money available to be invested in businesses or to acquire profitable companies. They generally raise their funds from wealthy individuals investing as limited partners, pension funds, university endowments, and other sources. Pacific Business Advisors has worked with several private equity firms that have purchased businesses through our firm.

 

What is a venture capital firm?

A venture capital firm consists of a firm that has a large pool of money available to invest in start-up companies that have great growth potential. These companies are not necessarily profitable when required. They generally raise their funds from wealthy individuals investing as limited partners, pension funds, university endowments, and other sources.

 

What is vertical integration?

Vertical integration refers to an arrangement in which the supply chain of a business is integrated and owned by that company. The supply chain may consist of products or services, or both. An example would be a property management company acquiring an accounting firm that provides financial statements for its management clients. The primary advantage to vertical integration is that a company can capture upstream, and downstream profit margins making it more competitive while providing it more control over its operation. Many business buyers, acquire companies in order to achieve vertical integration.

 

What is horizontal integration?

Horizontal integration refers to a company expanding through acquisitions or mergers. It generally results in greater efficiency, cost savings, and increased market share. An example would be two or more small real estate brokerage firms in different locations merging into one larger company, resulting in greater market exposure and diversification.

 

What is financial synergy?

Financial synergy exists when two or more businesses combine, usually by means of a merger or acquisition, resulting in operating benefits that could not be achieved by either business operating independently of the other.

 

What is a divestiture of a business?

A divestiture is the partial or full disposal of a business, usually a subsidiary, by means of the sale or dissolution of the business. Divestitures most often take place after a merger of two or more businesses. They are intended to allow businesses to concentrate on their core operations, cut costs, repay debt, and increase shareholder value.

 

Does Pacific Business Advisors have the in-house capability of evaluating tax returns and financial statements?

Yes. One of the owners of the company is the Chief Financial Officer of an accounting firm, Nationwide Accounting Services located in Westlake Village, California. Notwithstanding, we recommend that all buyers and sellers of businesses consult directly with their own independent accountant for advice.

 

We are intending to sell our businesses, but our accounting records are not in good order. Can Pacific Business Advisors recommend someone to assist us in getting our accounting records ready for a buyer's evaluation?

Yes. Pacific Business Advisors has an affiliate, Nationwide Accounting Services which is available for such assignments, or you may utilize other experienced accounting firms.

 

I would like to join your business brokerage firm, but I live far from your corporate office in Agoura Hills. Can I work from my home in Northern California if I join Pacific Business Advisors?

Yes. It is not necessary to work from Agoura Hills. Today, most business brokers and agents work primarily from their homes. Pacific Business Advisors represents sellers and buyers of businesses throughout in California so there is no disadvantage to working outside of Agoura Hills or Los Angeles County.

 

What type of license do I need to become a business broker or agent?

In California, you need a real estate license. The license is issued by the California Department of Real Estate. If you do not have a California Real East License, please visit: Become a Real Estate Agent.

 

Is it possible for me to earn commissions by simply referring potential buyers and sellers to a full time, experienced business broker or agent?

You can become a referral agent, and earn thousands of dollars consistently each year by limiting your activating to making referrals.

 

When I sell my business will I be able to transfer my lease to the buyer?

Most commercial leases have a specific provision that addresses this issue. The majority of leases will permit a transfer of the lease if the buyer has good credit and pays a transfer fee. Some landlords will release the original lessee of any liability under the lease and some will not. Your business broker or agent can review your lease and help you obtain the necessary approval.

 

Does your firm have someone who has experience with commercial leases and subleases for both office and retail spaces?

Yes. When we represent a seller and/or buyer, we can definitely assist with negotiating lease terms so that the cost of a legal review is minimized.

 

Are business brokerage commissions set by law in California? It seems that every firm is charging 10% to sell a business.

Commissions are not set by law. Every business brokerage firm establishes what it will charge to market and sell a given business. Commissions and levels of service vary from firm to firm. Pacific Business Advisors generally charge from 8% to 10% depending upon several factors including the size of the business.

 

What will your service cost if I already have a buyer for my business?

Finding a highly qualified buyer for a particular business is a very significant part of what business intermediaries do for their clients. Since you have a buyer, our fee will be substantially reduced. We need specific information about the proposed transaction in order to provide you with a proposal.

 

We will not be selling our business but will be letting our son take over responsibility for it in the very near future. I will not be available to be his advisor which he will need due to his age and lack of business experience. Can Pacific Business Advisors assist us with this situation?

Yes. There are several possibilities. We can act as a consultant and provide him advice on an as needed basis, or we can search for an experienced business professional who can purchase a percentage of the business and act as a partner - mentor. There are other options as well.

 

Does your firm ever joint venture the purchase of a business with others?

Yes. We will consider the joint venture acquisition of certain types of businesses. Call Michael Chulak to discuss a potential joint acquisition of any business.

 

Can a non-citizen own a business in the United States?

Absolutely. Whether you are a citizen or a non-citizen, we would be pleased to help you purchase a business anywhere in California.

 

Is it possible to acquire a business with the funds I have accumulated in my 401k account?

Yes. Many business buyers use the funds in their 401-k account and/or IRA account to purchase a business.

 

Is 100% cash required to purchase most businesses?

No. The Small Business Administration will lend up to 80% to qualified purchasers and some sellers choose to offer financing because they understand that providing financing makes their business far more saleable.

 

Buyers of businesses often ask which are the most recession proof businesses in California?

Please refer to our list of Recession Proof Businesses in California.

 

Should I consult with a CPA before buying an existing business? 

Yes. How a purchase is structured can have both short-term and long-term effects on your tax liability. In addition, a CPA can assist in the business acquisition due diligence process by reviewing the tax returns and financial statements of the business being considered for purchase. If you do not have CPA and need a referral, please call us.

 

What is goodwill?

Goodwill is a long-term asset categorized as an intangible asset. It arises when a person or company acquires a business. The amount of goodwill is the cost to purchase the business less the fair market value of the tangible assets, the intangible assets that can be identified, and the liabilities obtained in the purchase.

 

How do stock sales and asset sales differ?
Please see: Advantages and Disadvantages of Asset Sales and Advantages and Disadvantages of Stock Sales.

 

What is the difference between a financial buyer and a strategic buyer?

The difference depends upon the business buyer's underlying motivation for acquiring the specific business. See Financial and Strategic Buyers of Businesses for additional information.

 

What is the difference between a business merger and an acquisition?

A merger is the combination of two businesses, usually into a newly formed business entity. Mergers are commonly called amalgamations. The two merging companies cease operations and the assets or stock are transferred to the new company. Mergers are friendly transactions intended to benefit the owners of the two original businesses. An acquisition takes place when one business acquires another, usually but not always a smaller company. See: Reasons for Mergers and Acquisitions and Mergers and Acquisitions.

 

If our firm buys another company, will the acquisition become a subsidiary?

Possibly. A subsidiary is a company that is controlled by another company referred to as a parent company or holding company. Control requires the ownership of more than 50% of the company. If the parent company owns 100% of the subsidiary, the subsidiary is referred to as a wholly owned subsidiary. There are legal and tax ramifications to owning and/or controlling subsidiaries.

 

When buying an existing business, can I expect the seller to provide any training?

This is an important term to be negotiated between the buyer and seller where we can be of great assistance. A degree of training is expected, but must be carefully described in detail in the purchase agreement. This provision can make or break a new business if the buyer does not already have extensive experience with the type of business being acquired. 

 

I have personally accumulated a great deal of specialized knowledge over many years of running my business which has resulted in a highly profitable business. How will this affect my ability to sell the business?

Being indispensable makes it more difficult to sell a business than if the ownership and management is easily replaceable. If you want to sell your business for the most money, if possible you should train other managers to run the company without you, or at the minimum, plan on providing the buyer with extensive training over a reasonable period of the time. Providing a buyer with written training materials and a detailed operating manual is also a good investment.

 

What is a Business Disclosure Statement or BDS?

A Business Disclosure Statement or BDS is a written disclosure made as part of a Business Listing Agreement. It is intended to assist the broker in establishing the listing price, the list of material facts to be disclosed to prospective buyers, and a list of items to be included or excluded from the sale of the business. Most business brokers utilize the current CAR Form BDS.

 

What types of representations and warranties are commonly included in sale/purchase contracts?

Since every business is unique, the representations and warranties may differ, but we have provided a basic list. Your attorney may want to add more or delete some from our list. Representations and Warranties by Sellers of Businesses.

 

If we engage your firm to sell our business, how will you advertise it? 

There are several websites that are multiple listing services for business brokers. We will select those that we believe would be the most effective for your business. Also, most importantly, while maintaining strict confidentiality, we will send an Offering Memorandum to an extensive list of cooperating business brokers and agents, and to the people who have expressed a desire to acquire a business like yours through our website and through other sources. 

 

What is a white paper?

As used in business, a white paper or whitepaper is a written document used as a sales tool by business brokers and investment bankers designed to promote the sale of a business. It is an offering memorandum. Pacific Business Advisors makes extensive use of offering memorandums when representing the sellers of a business.

 

If we list our business for sale with Pacific Business Advisors, will you cooperate with other business brokers?

Yes. We will always do what is in the best interest of our clients.

 

What information will I need to assemble in order to sell my business?

Please refer to: Items Needed to Sell Most Businesses.

 

What will your service cost if I already have a buyer for my business?

Finding a highly qualified buyer for a particular business is a very significant part of what business intermediaries do for their clients. Since you have a buyer, our fee will be substantially reduced. We need specific information about the proposed transaction in order to provide you with a proposal.

 

Does your firm require exclusive right to sell business listings?

Yes. Any experienced business brokerage firm will require an exclusive right to sell listing agreement before investing its marketing dollars and the time of its agents and support staff before representing an owner in the sale of his or her business.

 

When marketing a local business, do you target potential foreign buyers?

Absolutely. In California foreign buyers and immigrants make up a large percentage of the buyers of small and medium sized businesses. While these buyers come from all nations, in our experience, most are Chinese, Korean, Japanese, Mexican, Persian, and Indian (Republic of India). We also target private equity groups, and many others.

 

Does your firm provide business appraisals?

No. While we will estimate the value of any business where we are representing a buyer or seller, our valuation is not the same as a full appraisal prepared by a licensed appraiser that specializes in business appraisals. Only a third party appraiser can be totally objective because he or she will not earn a commission upon the sale of the business.

 

Is the primary factor in valuating a business the net income before taxes?

Yes, but there are other important factors to be considered such as:

  • Is the net income trend increasing or decreasing, and if so, why?
  • Is the industry growing or shrinking?
  • Is the business location improving or deteriorating?
  • Is the income of the business diversified, or is it generated by only a few sources?

 

My business partner wants to buy my interest in our jointly owned business. Do you handle this type of transaction?

Yes. It is common for one business partner to buy out the interest of another business partner. Our firm can definitely represent you in this type of transaction.

 

Why are the commission rates for selling a business higher than for selling real estate?

There is clearly more work involved for the business broker in connection with the sale of a business than in nearly every real estate transaction. Business brokers and agents are required to have far more knowledge than the average real estate broker or agent because the sale of a business involves far more than the sale of real estate.

 

Does Pacific Business Advisors provide discounted commissions to veterans?

Yes. Please visit: Veteran Owned Businesses.

 

Does Pacific Business Advisors have a minimum size transaction when representing the sellers of a business?

We do not have a minimum sales price size, but we do have a $15,000 minimum commission when representing the seller of a business.

 

If I sell my business, how long will I be expected to remain with the business to assist the buyer?

There is no perfect answer except that agreeing to stay with the business long enough to satisfy the buyer will always result in a higher sales price and/or additional compensation. Buyers are always concerned about the transition, so to the extent that a seller is able to reduce the buyer's perceived risks, the more most buyers will agree to pay.

 

If my business has bank debt, what happens to it when I sell the company?

If the sale of the business is an asset sale, the cash paid by the buyer is normally used to pay any outstanding bank debt. If the sale is a stock sale, the bank loan can possibly stay in place and be paid according to its terms. This will depend upon the lending agreement. In most cases where the bank loan stays in place, the seller of the business will not be relieved of liability if he or she signed a personal guaranty of the loan.

 

My business is located on property that I own. Do I need to sell the property along with the business?

No. A sale of the business can be structured in which you retain the land and building and lease the premises to the buyer of the business. The other option, of course, is to sell both the business and real estate. Pacific Business Advisors can help you with either alternative.

 

I own a business that is earning me a good salary but not a profit. Can you help me sell it?

Yes. The price you will receive will be dependent upon its earnings potential to a buyer, as well as its ability to enhance the value of a buyers existing business. For example, a real estate brokerage firm that is earning very little money, may be very valuable to a real estate broker that wants to expand into the seller's local area. After an evaluation, we can better advise you.

 

What are the most common reasons people sell their businesses in California?

Please see: The Most Common Reasons Owners Sell Their Business.

 

Does Pacific Business Advisors offer franchise consulting services?

Yes. We can assist you in selling a franchised business, buying a franchised business, or developing a franchise. See: List of Franchises.

 

I do not want to sell my business but would like to franchise it. Can Pacific Business Advisors help me to franchise my business?

In most cases the answer is yes. After a discussion and the review of your company's financial information, if we conclude that your business can be successfully franchised, we will provide you with two options. One option would be a joint venture with us; the other option would consist of our working on a consulting basis. In either case, you pay no money for us to review your financials and make a proposal. Please call Michael Chulak if you would like to discuss the possibility of franchising your existing business. The content of our discussion will be maintained strictly confidential.

 

If we decide to start a business, instead of buying a business, can you help us with a startup?

Absolutely. In addition to being business intermediaries, we are business consultants with extensive experience in business formations. We have also joint ventured the formation of numerous businesses in California.

 

What are the most common reasons a business doesn't get sold?

Please see: 15 Reasons Businesses Initially Don't Sell.

 

If I sell my business at a profit will I be required to pay any taxes?

Yes. You should confer with a CPA regarding all tax matters. Generally, but not always, stock sales result in lower taxes, but also lower selling prices. Very few buyers prefer stock sales and some will refuse to consider a stock sale because of potential liabilities.

 

As a seller, should I offer financing to the buyer of my business?

While it is certainly not required, there are advantages to doing so. Business sellers that carry back financing for 5 years or more, almost always sell their business faster and at a higher price. Generally, sellers expect buyers to put at least 20% cash down, have adequate funds in reserve, and have good cred it. The loan documents mayor may not include an option permitting the lessee to acquire the property at some further date.

 

What is convertible debt?

Convertible debt is the use of debt to purchase a business, especially one that has above average risks. It is debt that can be converted to stock or equity, usually at the time of the holder's choosing. If the businesses should fail requiring a liquidation of the assets, the holder of the convertible debt receives the same priority as other creditors. Convertible debt is typically used only in large, leveraged transactions by private equity firms.

 

Our firm is a small but going business in California. We have an informal and inactive board of directors consisting of the two original owners. What are the primary duties of a corporate board?

The duties of corporate boards vary from business to business, but generally include the following: Duties and Structure of Corporate Boards.

 

Our company has reached the point where we fully appreciate the value of attracting an outside director. Our bank has encouraged us to do so and our accountant concurs. Can Pacific Business Advisors assist us in finding an outside corporate director who would add value to our business?

Yes. As a business consulting firm and intermediary, we have developed many valuable relationships with businessmen and women in various fields of business. Please contact the owner of Pacific Business Advisors if you would like assistance in recruiting an outside director who can add value to your business.

 

How are outside corporate directors paid?

They are usually paid a monthly fee by the corporation for each meeting attended. Usually the meetings are held monthly, every other month, or quarterly. Directors are usually covered by insurance and are indemnified by the corporation.

 

What should we look for in an outside director?

Overall business experience, experience about your specific industry, accounting experience, legal experience, and banking experience are all valuable. Ideally, an outside director will add prestige to your board and will assist you in generating new business.

 

We are holding an unpaid court judgment that we would like to turn into cash. Can your company assist us?

Yes. We have an affiliate, Pacific Rim Commercial Collections that specializes in the collection of small claims and superior court judgments. Please contact them for assistance.

PacificBusinessAdvisors.net
Office: 818-991-5200
Direct: 818-991-9019