Following are FAQ about business sales, acquisitions, mergers, and business brokerage. If you need additional information, please do not hesitate to call.
How long has PacificBusinessAdvisors.net been in business?
The firm started doing business in 1987, but the owner of the firm, Michael Chulak, became licensed to sell businesses in 1971.
Why should we select PacificBusinessAdvisors.net over any other business brokerage firm?
Pacific Business Advisors has been representing buyers and sellers of businesses in California since 1987. We have the knowledge and experience to represent you whether you intend to sell your business or buy a business or franchise. Knowledge and experience is everything when it comes to representing buyers and sellers. We wrote the many articles that are on our website to assist you and to provide you with a sample of our knowledge. We are also members of the California Association of Business Brokers (CABB) and the International Business Brokers Association.
What should I ask a business broker or consultant before I hire them?
See: Questions to Ask a Business Broker Before Hiring Them to Sell Your Business
In anticipation of selling my business, I have searched the internet and have viewed many websites of business brokerage firms. I have found that a large number of business brokerage websites have identical material, especially their blogs and articles. Is the material on the Pacific Business Advisors website copied or is it original?
It is all original. Every article and all other material on our website has been written by our founder, Michael Chulak, sometimes in collaboration with our senior level management. Unlike some of our competitors, we do not buy articles or subscribe to any service that writes articles for multiple business brokers. For example, an internet search will show that companies such as Deal Studio, headquartered in North Carolina, provides many business brokerage firms with duplicate content.
Is it possible to obtain an estimated value of my business from Pacific Business Advisors so I can decide if it makes sense for me to sell it?
Absolutely. See: Free Broker Opinion of Value.
What percentage of businesses listed for sale with your firm do you actually sell?
Historically, if we go back to 1987, we have sold approximately 90% of the businesses that have been listed with our firm. Many factors affect the likelihood of a successful sale. See: Consequences of Overpricing a Business and How Long Does it Take on Average to Sell a Business in California. If you are considering the sale of your business, we suggest you: Receive a Free Broker Opinion of Value for Your Business.
Is selling an existing business that is a franchise the same as selling any other business?
Absolutely not. Selling an existing business that is a franchise requires far more knowledge and experience because it involves obtaining the approval of the buyer and the terms of the proposed transaction by the franchisor, and also satisfying all of the conditions of the franchise agreement. Not all business brokers have experience with franchises, including franchise documents. PacificBusinessAdvisors.net has substantial experience representing buyers and sellers of franchises and works with many franchisor companies. See: Types of Businesses for Sale: Franchises and Non-Franchised and Types of Restaurants for Sale: Franchises and Non-Franchised.
Does PacificBusinessAdvisors.net adhere to a code of ethics?
Absolutely. Our firm and all of our business brokers adhere to the California Association of Business Brokers (CABB) Code of Ethics.
Can PacificBusinessAdvisors.net help us sell our pharmacy? This is a very specialized type of business that requires specialized knowledge.
Absolutely. PacificBusinessAdvisors.net has assisted both buyers and sellers of pharmacies over more than 35 years.
Can Pacific Business Advisors assist us in determining the value of our pharmacy before we list it for sale?
Yes. We can provide you with a written broker opinion of value at no cost.
Does PacificBusinessAdvisors.net represent buyers as well as sellers? We have found that most business brokers represent only sellers of businesses.
Our firm and our business brokers represent buyers of large and small businesses anywhere in California. Please contact us if you would like to buy or sell an existing business or franchise.
Can PacificBusinessAdvisors.net assist us in acquiring a franchise outside of California?
Absolutely. We can assist you in selecting and acquiring a franchise anywhere in the United Sates.
Can Pacific Business Advisors help us in selling real estate that is part of a probate estate?
Absolutely. Real estate is sold through our affiliate, Pacific-Realtors.net. Properties may include houses, rental houses, apartments, commercial properties, industrial buildings, and land. For help with land sales see: CALandBrokers.com.
What is a mergers and acquisition firm?
A mergers and acquisitions firm (M&A firm) represents clients in business acquisitions, mergers, sales, and divestitures. Pacific Business Advisors is an M & A firm established in 1987.
What is a business intermediary?
A business intermediary is either a business broker or investment banker. Pacific Business Advisors is a business broker and consulting firm.
Can you tell me how much my business is worth?
We can provide you with an estimate after we review your complete financial information and obtain detailed information about your business, including adjustments to your cash flow: See: EBITDA - What You Must Know. The majority of businesses in California sell for a multiple of net earnings before taxes ranging from 2 to 5 times depending on many factors. Call Michael Chulak for a confidential discussion if you have an interest in selling your business now or in the near future.
Items Needed to Sell Most Businesses
While every business is different, we have prepared a generic list that applies to almost every business that will be offered for sale: Items Needed to Sell Most Businesses.
How does the size of business factor into determining its value or selling price?
Obviously, increased net income before taxes translates into a higher value and selling price, but the relative size of a business also makes a significant difference. Larger businesses nearly always sell at a higher multiple of net earnings before taxes. It is for this reason that many businesses acquire other businesses and integrate them into their operation well in advance of selling the larger combined business. For example, two smaller businesses may each sell for a multiple of three, whereas the combined business may sell for a multiple of four.
Can a small company acquire a larger company?
Absolutely. Small companies often buy larger companies by means of a leveraged buyout. Contact us if you have a target in mind.
What is an entrepreneur?
An entrepreneur is a person who creates a new business, accepting all of the risks in search of a goal which usually includes making a profit. Entrepreneurs tend to be creative, focused , good communicators, and very hard-working men and women.
Is Pacific Business Advisors part of a franchise?
No. Pacific Business Advisors is an independent brokerage and consulting firm established in 1987. Our firm represents buyers and sellers of new franchises and existing franchised businesses. We also assist business owners with creating franchises.
We would like to acquire a business. What are some of the most recession proof businesses?
While buying or starting any type of business has some risks, many people have started businesses during difficult periods that prospered and grew into large, successful companies. See: Existing Businesses Started During the Great Depression. Historically, a few of the business types that have been resistant to recessions include: Property management services, Security guard and patrol companies, Video surveillance and alarm companies, ATM routes, bookkeeping and tax services, and private postal/mailbox services.
Does Pacific Business Advisors advertise its listings on any internet listing sites?
Yes. We utilize BizBen.com, BizBuySell.com, BizQuest.com, LoopNet, IBBA, CABB, and other listing sites we believe will be valuable in marketing a particular listing. We also post listings on our own website which is visited by buyers, sellers, and other business brokerage firms on a regular basis.
Does PacificBusinessAdvisors.net advertise all of its listings on your website?
No. At the request of some clients, some of our listings are pocket listings which means the businesses are exposed only to a limited number of potential buyers. See: Pocket Listings - Business Sales.
Were the articles on your website written by you or were the articles provided by a service that writes articles for many business brokerage companies?
All of the articles on the PacificBusinessAdvisors.net website were written by Michael Chulak, the owner of the firm. The articles are updated as needed and additional relevant articles are added on a regular basis. Unlike some of our competitors, we do not purchase articles from a service.
May we distribute your articles to others and add them to our website?
Yes, provided we are given credit for writing the article. Every one of our articles includes our identifying information at the bottom which must be included. There is no cost for using our articles.
Does Pacific Business Advisors recommend that buyers and sellers of businesses use the service of an independent escrow company, or is it possible to save money by forgoing the use of an escrow?
Pacific Business Advisors insists on the use of an independent escrow company that specializes in business sales transactions for all asset and stock sales. This is for the protection of the buyer, seller, any lender, as well as our firm. See: Escrows for Business Sales.
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.
What is the California Association of Business Brokers (CABB)?
Founded in 1986, the California Association of Business Brokers (CABB) is a professional trade association whose members are actively involved in assisting their clients in selling, buying, and evaluating businesses. See: California Association of Business Brokers (CABB).
What is the International Business Brokers Association (IBBA)?
The International Business Brokers Association (IBBA) is the largest international non-profit association operating exclusively for people and firms engaged in business brokerage and mergers and acquisitions. See: International Business Brokers Association (lBBA).
What is a CMEA?
A CMEA is a Celified Machinery and Equipment Appraiser. See: CMEA - Certified Machinery and Equipment Appraiser. Our staff includes a CMEA who can appraise your machinery and equipment so you can maximize your net revenue when you sell your business. Call Mark Tzalka, CBB, CMEA directly to discuss obtaining an appraisal.
Does Pacific Business Advisors offer exit planning services?
Absolutely. The management of Pacific Business Advisors works with other professionals such as CPAs and attorneys to develop a comprehensive strategy for exiting a privately held company. An exit plan is intended to maximize the net proceeds of a business sale after taxes and to create a smooth transition to a new owner.
Our community owns a great deal of machinery that we don't use and would like to sell before offering our company for sale. Can your company assist us?
Absolutely. Our staff includes a Certified Machinery and Eguipment Appraiser (CMEA) who can appraise your equipment and machinery so you can maximize your net revenue. Call Mark Tzalka, CBB, CMEA directly to discuss obtaining a certified appraisal.
Are agency disclosures required to be provided to buyers and sellers of businesses?
Yes. See: Agency Relationship Disclosures.
Can a business broker or agent be a dual agent in California?
Yes. It is permissible for a business broker or agent to be a dual agent, but the agent must make a proper disclosure.
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.
We want to sell our business but also want to exercise extreme caution in maintaining strict confidentiality. Can Pacific Business Advisors sell a business without advertising it?
Yes. It is more difficult and will likely take more time, but it can be done. In such situations, we obtain what is called a pocket listing and then approach potential buyers one at a time after they are vetted and sign a confidentiality agreement that was prepared by the firm 's attorney. See: Pocket Listing - Business Sales.
How likely is it that everyone that signs a non-disclosure agreement will honor it?
It is highly likely if you are represented by Pacific Business Advisors because we explain in graphic detail what can happen to them if they breach the agreement. See: Non - Disclosure Agreement (NDA).
Does Pacific Business Advisors qualify prospective buyers before providing them information about a specific company?
Pacific Business Advisors qualifies prospective buyers extensively. It starts with them reading and signing a confidentiality agreement that can be found on our website. We assess their financial capacity, their tolerance for risk, their skills, and experience, their credit history, and their preferences. We also evaluate their biographical information. The business brokers and agents with Pacific Business Advisors understand the importance of not providing confidential information to people who are not suitable for a specific investment.
How do the business brokers at Pacific Business Advisors screen potential buyers?
Screening buyers requires several steps. Before a prospective buyer is asked to sign a Non-disclosure Agreement (NDA) and provided any confidential information about your business, we want to determine the following: (1) Does the person have the financial ability to buy the business and have adequate reserves, (2) Does the person have a genuine interest in owning and operating your type of business, and (3) Does the person have the ability to run the business. We do not want to start the buying process with someone who will change his or her mind prior to closing or who will be unable to successfully run the business after the closing. This is vitally important if seller financing is involved.
How important is it for the seller of a business to ask a prospective buyer for proof of funds?
It is absolutely reasonable to ask a prospective buyer for proof of funds. This is something a business broker should do for the seller of a business. Proof of funds can consist of a bank statement or a professionally prepared and signed balance sheet by the company's accountant.
I own a small business that has earned me an excellent income for several years. While my income is good, I cannot say that the business generates a profit over and above my take-home pay. Is this type of small business saleable?
Yes. There are many people seeking to buy the type of business you have described assuming it is realistic to expect that the buyer will be able to run the business as you have. If after a reasonable training period, a new buyer can replace you, your business is saleable.
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 is the difference between a franchise consultant and a business broker that represents people who want to buy a franchise or a franchised business?
Franchise consultants refer or introduce interested individuals to franchisors who then explain the benefits of acquiring a franchise from their company. Franchise consultants require no license in California and play a limited role beyond making a referral. Franchise brokers are licensed professionals who represent both buyers and sellers of new franchises as well as existing franchised businesses.
We are interested in buying a new franchise. Can you help us select a franchise that is right for us?
Absolutely. We can assist you with a new franchise or a resale franchise. Please contact us so we can obtain the information we need to make some recommendations.
I am interested in buying a specific franchise. Can your firm assist me in the acquisition?
Absolutely. We can assist you in acquiring any franchise based in any state within the United States or Canada.
Is financing available if I decide to buy a franchise?
While cash is always king, there are some financing alternatives available for many investors wanting to start their own business. See: Financing the Purchase of a New Franchise or Existing Business.
What are the advantages to buying a franchise as opposed to an existing operating business?
Both have advantages and disadvantages. Each investor has to decide which alternative meets his or her preference. See: Advantages to Buying a Franchise.
We are intending to acquire a franchise. Can your firm assist us with site selection?
Absolutely. Every major franchisor has a list of requirements. Once we know what franchise you intend to acquire, we can get started.
We are interested in acquiring a franchise. Will franchisors ever negotiate the price of their franchise?
Almost never, but you can ask. Franchisors understand that if they reduce the price for anyone investor, they will be put into a position of having to do the same for all subsequent investors. It is for this reason" that we do not see franchisors negotiate their fees. Notwithstanding, there are some things that some franchisors will consider negotiating such as: (1) Additional training, (2) Additional grand opening support, (3) The size of any protected territory, (4) Payment terms for the franchise fee, (5) The terms of any personal guarantee, (6) The fee required to be paid for a transfer of the franchise, and (7) The renewal or extension terms. When you buy a franchise through Pacific Business Advisors, we can discuss your options.
Should I consider buying a business that is losing money if the price is right?
You should consider it only if you have extensive experience with the type of business being offered for sale. If you own and operate the same type of business and can identify specifically why the business is losing money, you may be able to acquire a bargain. The key is being able to eliminate the reason for the red ink and taking advantage of what the business offers you.
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 dealership?
A dealership is a business that has the right to sell a company's products in a specific geographical area, on a retail basis using the company's name. An example would be a Ford dealership. Owners of dealerships, referred to as dealers, generally operate with very few restrictions unlike franchisees who are required to follow strict requirements. Dealerships must be licensed in California.
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 a merchant banker?
A merchant banker is an investment banker that acquires stakes in companies. The stake may be an equity investment or a loan. Merchant bankers generally provide services to large corporations as opposed to individuals or small companies. Small companies, under $5 million in annual revenue tend to do business with business intermediaries like Pacific Business Advisors.
What is a private Business Development Company (BDC)?
A private business development company is a company that typically invests in small, distressed companies, providing capital, marketing, and needed expertise. Business development companies assist distressed companies regain a sound financial footing. They are sometimes paid with stock. Call Michael Chulak for a no-cost initial consultation. We may be able to assist you.
What is a family office business?
A family office business, also referred to as a family office, is a private wealth management advisory firm that serves one or a small number of highly affluent families. Family offices often work directly with business brokerage firms such as Pacific Business Advisors to assist them in acquisitions, sales, and mergers of businesses.
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 a platform company?
A platform company is the first company acquired by a private equity group in a specific industry. Platform companies serve as the foundation or platform for other companies acquired in the same industry. These acquisitions are known as add-on acquisitions, tuck-in acquisitions, and bolt-on acquisitions. The majority of private equity firms will acquire four to eight platform companies for each fund and will then expand the platform companies organically or by means of acquisitions. See: Mergers and Acquisitions and Reasons for Mergers and Acquisitions.
What is an accretive acquisition?
An Accretive Acquisition is one in which the valuation multiple for the combined company exceeds the multiple that would apply to either the acquiring company or the acquired company. This occurs strictly because the combined company now large enough to demand a higher multiple based on the market. See: Reasons for Mergers and Acquisitions and Mergers and Acquisitions.
What is an add-on acquisition?
An add-on acquisition refers to a company acquired by a private equity firm for one of its platform companies or by a strategic buyer seeking a merger target. Add-ons provide additional revenue but may also provide diversification, an expansion into a new territory, and new products and/or services. More than 70% of acquisitions by private equity firms are add-ones.
What is a bolt-on acquisition?
A bolt-on acquisition is similar to an add-on acquisition by a private equity firm for one of its platforms except that the company acquired is much smaller. Compare to add-on acquisitions and tuck-in acquisitions.
What is a tuck-in acquisition?
A tuck-in acquisition refers to a small company acquired by a private equity company for one of its platform companies. These companies have no management team. They are usually run by a single owner who is retiring from the business. Tuck-in acquisitions are motivated exclusively by revenue and geography. These small companies lose their identity when the acquisition is completed. They are completely absorbed into the platform company. Compare tuck-in acquisitions to bolt-on acquisitions and add-on acquisitions.
What is a beachhead acquisition?
A beachhead acquisition takes place when a business acquires another smaller business in a distant geographic market in order to establish an entry into that market with the intention of expanding it. A beachhead acquisition permits the acquiring company to test the market and provides it an opportunity to make adjustments, if needed, before a major investment in made.
What is a business affiliate or affiliation?
A business affiliation exists when a formal business relationship is established between two companies where each company provides an economic benefit to the other. The economic benefit often consists of referrals and the payment of commissions. Affiliations or affiliate companies may also refer to two or more subsidiaries of a parent company. It is not necessary for affiliates to own shares in the other company and most do not. Many companies have numerous affiliates, using the relationships as a primary means for generating revenue, web traffic, and market exposure. This is commonly referred to as affiliate marketing . Pacific Business Advisors has several affiliates. The most significant is Pacific-Realtors.net which is a full-service real estate brokerage firm located in Southern California.
I am going to sell my business but don't know whether an asset sale or stock sale is more advantageous from a tax standpoint. What do you recommend?
Your CPA or Enrolled Agent can provide you with two pro-forma calculations. However, you should remember that many buyers of businesses will not consider a stock sale because of the possible liabilities that he or she may inherit with a stock sale.
What is a joint venture?
A joint venture is a business arrangement in which two or more businesses agree to pool their resources for the purpose of accomplishing a specific task. Joint ventures are different from strategic alliances. See: Joint Venture and Strategic Alliance.
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 synergistic buyer?
A synergistic buyer is a business buyer that grows his or her business by means of acquiring targeted companies in the same or in highly related industries in order to take advantage of economies of scale. Most synergistic buyers are large, well established and highly capitalized companies.
What is the capital structure of a business?
In corporate finance, the capital structure consists of the allocation or mix of shareholder's equity, preferred stock, and debt or borrowed funds, including bonds. The capital structure of a business is set forth on the company's balance sheet. The larger the debt is in relation to the other sources of capital, the greater is the financial leverage. Too much debt increases risk but can also result in the highest profits. The owners of the company are responsible for establishing the capital structure of the company. When Pacific Business Advisors represents a buyer or seller of a business, we carefully evaluate the capital structure.
What is a Private IPO?
A Private IPO (Private Initial Offering) is a method of raising capital through private placements in which only accredited investors are offered stock or bonds for cash. These accredited investors include pension funds, investment banks, mutual funds, and wealthy individuals that meet the requirements of the Securities and Exchange Commission (SEC). Unlike a public IPO, stock and bonds may not be offered to the public which limits the pool of potential investors. The cost of a Private IPO is far less than the cost of a Public IPO.
What is effective control of a corporation?
Effective control is exercised by a shareholder who owns less than a majority of the stock of a corporation (50% plus one share), but nevertheless controls the corporation. This usually occurs when a shareholder owns a significant stake in the corporation and all of the remaining shareholders own small numbers of shares. For example, a shareholder who owns 35% of the shares may have effective control of a corporation when the next largest shareholder owns only 5% of the shares.
What is a control premium?
A control premium is the amount that a buyer is willing to pay, in excess of current market value, for a partial interest in a company that provides the buyer with a controlling interest in the company.
What is an interlocking directorate?
Interlocking directorates refer to members of corporate boards serving on the boards of two or more corporations. A person who is a member of more than one board is referred to as a multiple director. Two corporations have a direct interlock if a director of one firm is also a director of another firm. An indirect interlock exists when directors of two firms each are a director of a third firm. Interlocks allow corporations to work together easier to accomplish common objectives. Interlocks sometimes take place between for-profit corporations and nonprofit corporations. The largest corporations in the country tend to have the most interlocks.
How does corporate pyramiding work?
Corporate pyramiding takes place when the controlling shareholder of a corporation uses that corporation to control another corporation and that corporation controls another and so on. For example, a 51 % shareholder of corporation A acquires a 51 % stake in corporation B. Corporation B now acquires a 51% stake in corporation C and so on down the line. The original 51% shareholder in corporation A now controls corporation B and corporation C. This process of pyramiding can continue with the original shareholder of corporation A controlling many corporations. When you consider that the original shareholder may be able to effectively control corporation A with less than a 51% stake, the leverage possibilities become huge.
When does the acquisition of the stock of a business become a subsidiary?
When a business acquires more than 50% of the stock of another corporation, the acquisition becomes a subsidiary. A subsidiary is a company that is controlled by another company referred to as the parent company or the holding company. When a subsidiary is 100% owned by a parent company, the subsidiary is called a wholly owned subsidiary. Two subsidiaries that are controlled by the same parent company are called sister companies.
What is an associate or associate company?
In accounting and business valuations, it is a company in which another company owns a 20% to 50% interest usually in the from of stock. Under these circumstances, the financial statements of the two companies are not consolidated. The value of the associate company is reported in the balance sheet of the first company as an asset
What are tiered corporate subsidiaries?
Multiple levels of subsidiaries are referred to as first-tier subsidiary, second tier subsidiary, and third tier subsidiary. A first-tier subsidiary is owned directly by the parent or holding company while a second-tier subsidiary is a subsidiary of a first-tier subsidiary and so forth. Each is a separate, distinct legal entity.
What is market share and what is its significance?
Market share the percent of total sales in a particular industry generated by a specific company. Market share is calculated by taking the company's sales over a defined period such as 12 months and dividing it by the total sales of the industry over the same period. The percentage is used to measure the size of a company in relation to its market and its competitors. The market leader in an industry is the company with the greatest market share. Increases and decreases in market share are one important indicator of how a business is doing. The most certain way of increasing market share is to acquire competitors. Increased market share allows a company to operate at a lower cost per dollar of sales and to more easily attract high quality employees. Pacific Business Advisors can assist businesses increase market share through business acquisitions.
What is a barter exchange company and how do they function?
A barter exchange is a business organization that provides third party services to members of the organization that engage in the trading or bartering of goods and services. See: Barter Exchanges - How they Work.
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.
What is a corporate spinoff or spinout?
Corporate spinoffs take place when a division of a company becomes an independent company with its own assets, employees, and operations that are taken from the parent company. Shareholders receive corporate shares in the new spinoff company as compensation for the loss of equity in the parent. A spinoff is not the same as a divestiture where assets are sold to a third party. Spinoffs take place when management believes the new corporation will create additional value if the business is operated an independent company. Spinoffs are sometimes referred to as spinouts. Many corporate spinoffs take place before a business is sold. Pacific Business Advisors has successfully assisted businesses create spinoff companies.
In a management buyout, would Pacific Business Advisors represent the seller or the management group intending to acquire the company?
We could represent either party to such a transaction. See: Business Startup Checklist and Business Plan.
What is a pocket listing and what are the advantages and disadvantages?
A pocket listing is a listing in which at the request of our client, the listing is exposed only to a limited number of potential buyers and is not advertised to the public. See: Pocket Listings - Business Sales.
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.
Does Pacific Business Advisors provide buyers and sellers with tax advice?
We do not. Buyers and sellers should obtain tax advice from a Certified Public Accountant.
How do I minimize the tax I will pay when I sell my business?
This is a question you must ask your CPA or Enrolled Agent. There are many factors to be considered. Only a CPA or Enrolled Agent is qualified to provide such 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.
What is Ratio Analysis?
Ratio analysis is a method of gaining insight into a company's liquidity, operating efficiency, and its profitability by studying its financial statements. Ratio analysis is commonly used by accountants in performing due diligence. Ratio analysis includes the evaluation of liquidity ratios, solvency ratios, efficiency ratios, probability ratios, and other relevant ratios.
What is meant by the burn rate?
The burn rate of a company is the speed at which a new company, including a new franchise, uses or burns through its existing cash reserves for overhead, including marketing expenses, before it reaches a positive cash flow.
What is the significance of the term "customer acquisition cost"?
Customer acquisition cost (CAC) is an important metric used in cost accounting and by potential buyers of businesses to compare acquisition opportunities. CAC is the cost incurred to obtain a customer or client who purchases a product or service. CAC is reduced when a business achieves a positive reputation in its industry. See: Cost Accounting and Managerial Accounting.
What does the core competency of a business refer to?
Core competency of a business refers to the defining capability or advantage that distinguishes a business from its competition. Examples would be superior ethical standards or the achievement of professional designations.
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.
I own a real estate brokerage firm in Los Angeles that has several residential and commercial real estate agents. Sometimes they come across someone who wants to buy or sell a business. Can we earn a referral fee if we refer the leads to your company?
Absolutely. We will pay a 10% fee to any brokerage firm that refers a business buyer or seller to us. The fee is 10% of the commission we receive, payable upon closing.
Do the business brokers with PacificBusinessAdvisors.net work out of a central office or from their home offices?
Our business brokers are located in various areas of California making it is more practical for them to work out of their home offices. We regularly hold Zoom meetings, including training meetings. By not spending money on an office that would be of little value to our brokers and clients, we have extra money to spend on advertising client listings and other means of generating business.
Who is responsible for in-house training of new business brokers at PacificBusinessAdvisors.net?
Extensive in-house training is conducted by Michael Chulak and Mark Tzalka who each have more than 30 years of experience representing buyers and sellers of businesses. Their biographies are included on this website for your review. Additional training is available through the California Association of Business Brokers (CABB) and The International Business Brokers Association (lBBA).
I want to retire so I can travel and spend my time on things other than my business, but would also like to benefit from the fact that I have created a successful growing business that I am certain will grow and become even more profitable. Do you have a recommendation?
Yes. We can assist you in selling your business while retaining a 25% interest in the form of non-voting stock or a limited partnership interest. This gives the buyer the ability to run the business, but it also gives the seller the ability to share in the income of the business and the benefits of future growth. There are numerous formulas for satisfying what you want to accomplish. Contact Michael Chulak for additional information.
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 selling a business similar to selling a home?
Not at all. Selling a business requires far more knowledge and far more work. While there are over one million real estate brokers and sales agents across the nation, there are only about 4,000 business brokers. All of the forms and documents used in selling a business are completely different from those used to sell real estate. If you are a real estate broker or agent wanting to become a business broker, call Michael Chulak at Pacific Business Advisors for a confidential interview. See Reasons to Join Pacific Business Advisors.
Is it possible and practicable to represent both buyers and sellers of businesses, and buyers and sellers of commercial real estate?
Absolutely. In fact Pacific Business Advisors has an affiliate, Pacific-Realtors.net which is a fulI-service real estate firm established in 1987.
Is it possible and practicable for a business broker to work part-time with Pacific Business Advisors?
Yes. However, to be really successful, you should work with one of our full-time, highly experienced business brokers in order to assure your clients they will receive the immediate attention they deserve.
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.
Buying a Business with a Month-to-Month Lease
Buying a business with a short term or month to month lease can be extremely dangerous or it can be a positive depending on several factors. See: Buying a Business With a Month to Month Lease and How Your Premises Lease Affects the Value of Your Business.
In a business sale, how is the inventory normally counted?
For most small businesses, the buyer and seller will work together to count the inventory, or they may decide to utilize the service of a professional, third-party service.
What is the difference between an assignment of a lease and sublease?
There is a great deal of confusion between the differences which are quite substantial. See: Assignment of Lease or Sublease?
When I sell my business, what happens to the accounts receivable?
This is a point to be negotiated between the buyer and seller. Accounts receivable can be retained by the seller, or they can become part of the purchase. In the majority of sales transactions, they are retained by the seller.
When I sell my business, what happens to the cash in the business account?
In the majority of business sales transactions, the cash is retained by the seller of the business. This should be addressed in the purchase - sale contract.
We own the building in which our business operates. We mayor may not want to sell the building along with the business. Does Pacific Business Advisors have the expertise to provide us with meaningful options?
Absolutely. You have several options where we can provide you with advice: (1) Sell the building to the buyer of the business. (2) keep the building and lease it to the buyer of the business, and (3) Sell the building to someone other than they buyer of the business (an investor) and arrange a lease between them. Pacific Business Advisors has the expertise to assist you with any of these alternatives. The owners of Pacific Business Advisors are also the owners of Pacific-Realtors.net which has a commercial real estate division.
Our business owns a large lot that we no longer use or need. Can you help us sell it in connection with the sale of our business?
Yes. We can assist you in selling the lot whether the buyer of your business needs it or not. See: California Land Brokers which is our affiliate or sister company.
What is a non-compete agreement and how does it work?
A non-compete agreement is a provision in a contract for the sale of a business in which the seller agrees that he or she will not compete with the buyer for a defined period of time and/or within a geographical area. While non-compete agreements signed by employees are generally not enforceable by employers in California, non-compete agreements signed by sellers of businesses are generally highly enforceable. These types of provisions should always be drafted by a business attorney.
What is a no-shop clause?
A no shop clause is an enforceable clause sometimes inserted into a letter of intent in connection with a business sale or merger. The contract provision is intended to prohibit the seller from soliciting further bids or acquisition proposals for a specified period of time. Most non-shop provisions also prohibit the seller or target company from discussing a potential transaction with another party or divulging any relevant information about the proposed transaction to another party. In addition, the seller is generally required to notify the buyer of any unsolicited bids or proposals in writing. See: Letter of Intent-Business Sale/Acquisition and Indemnification of Business Buyer.
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. See: Checklist for Commercial Leases and Glossary of Commercial Leasing Terms.
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 is a success fee?
A success fee is another term for brokerage commission. It is a fee paid to a business broker directly from escrow upon the successful closing of a business sale.
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.
If I buy a business through Pacific Business Advisors, will I pay a commission?
All commissions on business sales are paid by the seller.
Does Pacific Business Advisors request any advance fees when representing an owner who is selling their business?
Absolutely not. Any fee charged is paid by the seller at closing through escrow.
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.
Is it possible to sell a percentage of my business in order to raise cash for the expansion of my business?
Absolutely. While most buyers will want to acquire at least a 50% interest, and preferably 51% or more, such buyers exist. Our firm can assist you by finding the right buyer who has both cash and the ability to assist you in successfully expanding your business.
Is it realistically possible to sell a business that is losing money?
Very often it is possible to sell such a business to a buyer who is already running a similar business profitably. There are many reasons a business may not be operating profitably. A no cost consultation will allow us to discuss the reasons and explore all of the alternatives that are available. See: Economies of Scale and Reasons for Mergers and Acquisitions.
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.
Do foreign governments buy businesses in California?
Yes. Foreign governments acquire businesses throughout the United States with California being a significant target for foreign acquisitions. China is the largest buyer with Japan and Korea following. Chinese acquisitions include AMC Theatres. The Waldorf - Astoria, Motorola Mobility, Smithfield Foods, General Electric (GE) Appliances, Legendary Entertainment, and Strategic Hotels. China also owns a major stake in Sotheby's, Tesla, Reddit, Hilton Hotels, and many other companies.
What is a sovereign wealth fund?
A sovereign wealth fund is an investment fund owned and operated by a foreign government. The funds are generated primarily by exports and used to by American companies. China and the oil exporting countries in the Middle East have the largest and most active sovereign wealth funds.
Does your firm have anyone whose responsibility is to solicit international buyers of businesses?
Yes. While many of our business brokers solicit buyers from other counties, one of the owners, Tina Chulak, is heavily involved in soliciting buyers from the Peoples Republic of China and the Republic of China, also known as Taiwan. Tina was born in China and speaks both Mandarin Chinese and English fluently.
Does Pacific Business Advisors work with immigration attorneys to assist their clients in finding suitable businesses to buy in California?
Absolutely, we also work very closely with three large Chinese based chambers of commerce in Los Angeles County and a large Chinese cultural association and language school in Thousand Oaks. See: Director of Marketing - China.
Does Pacific Business Advisors assist E-2 Visa Investors acquire qualified businesses in California?
Absolutely. We work with both immigration attorneys and immigrant investors to find suitable opportunities. See: E-2 Visa Investors.
Does Pacific Business Advisors assist EB-5 Visa Investors acquire qualified businesses in California?
Absolutely. We work with both immigration attorneys and immigrant investors to find suitable opportunities. See: EB-5 Visa Investors.
Does Pacific Business Advisors handle the sale of businesses that are in probate?
Sometimes when the owner of a business dies, the business can still be sold. Such circumstances require a thorough evaluation by our senior management. See: Probate Business Sales
Can Pacific Business Advisors approach a business that we would like to buy that is not listed for sale?
Absolutely. Our business brokers do this all the time. We have helped many business owners acquire a competitor.
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.
If we buy a business, what type of financing is usually available?
There are generally three types of loans available to finance business acquisitions: (1) Small Business Administration (SBA) Loans, (2) Bank loans that do not meet SBA guidelines, and (3) Seller financing. See: Business Sales - Payment Structures and Payment Options.
Is it possible to use the proceeds of a reverse mortgage to buy a business?
Absolutely. If you qualify for a reverse mortgage loan, you can utilize the proceeds to buy a business. This method of acquiring a business is becoming common because there are no payments required to be made on a reverse mortgage loan and the loan will probably permit the business buyer to make an all cash offer which will always result in the best price.
I am intending to make an offer to acquire a certain business that you have listed for sale, but want to review the financial information so I don't waste any first time. Can I obtain this information?
You can be provided the seller's summary, but the detailed financial reports and tax returns can only be provided after you have signed a non-disclosure agreement (NDA) and make a written offer, subject to standard conditions such as your evaluation and approval of all financial data. Just as you would want to keep your personal financial information and documents private, business owners are agreeable to providing such private information only to very serious prospects who have been vetted by an experienced business broker.
If I buy a business with the seller financing a part of the purchase price, will I be required to sign the note personally?
This is a term to be negotiated between the buyer of the business and the seller. In the majority of business sales, in which Pacific Business Advisors represented a party, the buyer signed personally. This is most common.
What are the most common reasons many sellers of businesses carry back financing?
Reasons include the fact that they will probably sell the business faster and at a higher price than if they wait for a buyer that can pay all cash. In addition, many business sellers prefer payments over a long period, so they call comfortably retire with an income supported by an interest rate that far exceeds the rates banks pay.
What are some of the factors a business seller should consider when deciding whether to carry back financing as part of a business purchase transaction?
The factors include: the buyer's credit score, the amount of the down payment, the buyer's ability to successfully run the business, and the buyer's plans for the business. You will want to evaluate the buyer's resume or biography and you will want to be satisfied that the cash flow of the business will support the debt service if the revenue declines by 10% or more. You do not want the terms of the note to starve the business. Longer terms generally result in a safer promissory note.
What is Revenue-Based Financing?
In revenue-based financing, there are no fixed payments or interest. In a business sale, the buyer agrees to pay a percentage of the company's gross revenue until a predetermined amount has been paid. If revenue increases, payments increase. Likewise, if revenue decreases, payments decrease, but the amount owing overall remains fixed according to the purchase/sale agreement. See: Revenue-Based Financing.
If I sell my business and carry back a significant amount of financing, can I secure the loan with the stock of the business?
Absolutely. A business attorney can draft a note that includes a provision in which all or a majority of the stock is used as collateral for the payments due on the promissory note.
What is a non-recourse promissory note and how are they typically used in business sale transactions?
A non~recourse promissory note is a note secured by some of collateral, but the borrower does not have personal liability for the loan. Non-recourse promissory notes are often used when the seller of a business finances a portion of the purchase price by carrying back a note secured by all or a significant portion of the stock of the business. Recourse debt permits the lender/seller to pursue the buyer/borrower for any deficiency that may remain after repossession and selling the shares to a third party.
I have determined that most financial planners recommend that sellers of businesses not carry back financing, but instead sell for all cash even if the price is far less. Why?
This is common among financial planners who are hoping to invest the cash proceeds for their client. This is how they earn fees.
What is a business plan and when are they generally required?
A business plan is a formal written document that includes the goals of a prospective or existing business owner, the specific plans for achieving those goals, and a timeline for achieving the goals. Business plans also include a detailed description of the prospective or existing business and the owners and key managers. Business plans are often required to obtain bank loans, other financing, grants, and investment capital. Pacific Business Advisors can assist any prospective or existing business owner prepare a well written, easily understandable, and credible business plan.
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.
What is political risk in business?
Political risk in business is the possibility that a business will suffer losses due to one or more of the following reasons: (1) the defunding of the local police, (2) out of control crime, (3) huge tax increases, (4) additional burdensome regulations, (5) increased drug use and homelessness, (6) the adoption of sanctuary city status, (7) the adoption of rent control, and (8) civil unrest including riots.
What can I do to minimize losses due to political risks?
Things you can do include: (1) vote for candidates who support business, (2) vote for candidates who support our police, (3) vote for candidates who support lower taxes, (4) contribute money to the candidates listed above, and (5) purchase comprehensive insurance from an independent insurance broker who can provide you with solid advice.
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 other professionals will I need to hire if I decide to sell my business?
You should engage a business attorney and accountant to assist with your due diligence investigation, including the review and approval of key documents such as leases and contracts, and acquiring any required licenses. The extent of their involvement should be based upon the level of your own knowledge and experience. Due diligence investigations are critically important.
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.
What is a business incubator?
A business incubator is business that assists startup companies develop their business by providing education, training, and sometimes office space; capital, and other services such as accounting and marketing. Business incubators are sometimes paid by the startup in stock or a combination of cash and stock. Pacific Business Advisors has provided business incubator services for several startup companies in Southern California.
What is intellectual property?
Intellectual property (IP) is intangible property owned by a business or individual usually consisting of trademarks, copyrights, patents, and/or trade secrets. Intellectual property is an asset that can be purchased or sold like any other asset. Intellectual property owned by a business is almost always sold as part of the business.
What is a contingent liability?
A contingent liability is a liability that arises upon the happening of a certain event. The most common example is the guarantee of a loan where the guarantor becomes liable if the borrower defaults. Most loan guarantee documents allow the lender to make an immediate claim against the guarantor in the event of default by the borrower. Due diligence investigations by buyers of businesses and their consultants should focus 08 whether any contingent liabilities exist before they commit to an acquisition.
What is a toxic asset?
Toxic assets are investments that are extremely difficult or impossible to sell at any price because the demand for them has collapsed, sometimes because of government interference. For example, high yield bonds, also referred to as junk bonds, became toxic in the 1980s when the federal government mandated that every regulated financial institution in the country sell their high yield bonds at the same time. This destroyed the market for high yield bonds for several years. Subprime mortgages became a toxic asset in 2008 because of the non-existence of normal loan underwriting standards. These subprime loans and the mortgage-backed securities created with these loans were the cause of the 2008 financial crisis.
If I buy a business without acquiring the stock of the company, is it still possible to acquire the name of the company?
Absolutely. A business acquisition normally includes the name of the business, any domain names, phone numbers, and email addresses. Once acquired, you may change them in the future if desired.
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 does the term Acquihire mean in the mergers and acquisitions industry?
Acquihire refers to the practice of acquiring companies primarily for the purpose of acquiring their staff as opposed to any other reason . The term is a combination of the word "acquire" and "hire". The types of buyers most commonly engaged in the practice of Acquihire include, real estate brokerage firms, mortgage brokerage firms, and insurance brokerage companies. See: Sell Your Residential Real Estate Brokerage Company in California.
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.
How does an upstream merger differ from a standard merger?
An upstream merger refers to a smaller company merging into a significantly larger firm so it can gain access to more product lines, greater expertise, greater financial capacity, and possibly wider geographical reach. An upstream merger also refers to the merger of a subsidiary into its parent company.
What is a downstream merger and how does it differ from a standard merger?
Downstream mergers are rare. They involve a parent corporation merging into one of its subsidiaries. With a downstream merger, the subsidiary survives while the parent is dissolved.
What is an amalgamation?
An amalgamation is a combination of two or more companies into a newly formed entity. It's the same as a merger in that none of the companies involved survives as an entity. In the United States, the term merger is more commonly used.
What is a joint venture?
A joint venture (JV) consists of a single business entity created by two or more unrelated business entities for the purposes of investing or conducting business in a way that shares risks while combining their skills, capabilities, and assets.
What is a business consortium?
A business consortium is an association of two or more companies whose objective is to pool their resources in order to achieve a common goal. It is not the same as a Joint Venture. An example is when two or more commercial banks collaborate to make a large loan to one borrower.
What is a conglomerate company?
A conglomerate is a company engaged in multiple unrelated businesses usually organized as a parent company and several subsidiaries. Conglomerates are formed to maximize diversification and to reduce overall investment risk. Most conglomerates are formed by means of business acquisitions utilizing the services of a business brokerage firm like Pacific Business Advisors, or an investment banking firm.
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.
What is a leveraged buyout?
A leveraged buyout (LBO) is a type of business acquisition by a company using mostly borrowed funds to make the purchase. The assets of the company being acquired are generally used as collateral for the acquisition loan, plus assets of the buying company. Leveraged buyouts require that the buyer has excellent borrowing capability. The use of debt to buy a company generally reduces the cost of making the acquisition because the cost of debt is lower than the cost of capital. Debt is also tax deductible which usually reduces the company's state and federal tax liabilities. Pacific Business Advisors can assist qualified buyers in acquiring other businesses, utilizing a leveraged buyout structure.
I am aware that large companies sometimes make corporate acquisitions by means of a leveraged buyout. It possible for a mid-size company to make an acquisition by means of a leveraged buyout?
If the acquiring company has strong earnings and audited financial statements, it may be possible to do so. See: Leveraged Buyout (LBO) – Small Companies.
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.
I am aware that the California Association of Realtors (CAR) produces fair and balanced documents for commercial, residential, and business sales transactions. I am very comfortable using their forms and contracts. Will Pacific Business Advisors use these forms if I sell my business through your firm?
Yes. Since our founding in 1987, PacificBusinessAdvisors.net has been using the CAR forms when representing both buyers and sellers of businesses in California. We agree that their forms and documents are fair to both buyers and sellers. CAR's attorney drafted forms and documents are also comprehensive, reducing the opportunities for miscommunications to take place leading disputes. We currently use CAR Form BLA, CAR Form DDS, CAR Form BPA, and CAR Form RPA - CA for all business sales transactions.
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.
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. We also post listings on our own website which is visited by buyers, sellers, and other business brokerage firms on a regular basis. 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.
Having been in business since 1987, we also receive regular inquiries from Certified Public Accounts, financial planners, management consultants, private equity firms, former clients, other business brokers, investment bankers, real estate brokers, and others.
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.
I represent a group of Chinese investors who are seeking to buy certain types of businesses in Los Angeles County. Some speak only Chinese. Do you have staff that speaks Chinese?
Absolutely. We have two business brokers who speak fluent Mandarin and English. We also have business brokers that speak Spanish, Farsi, Armenian, and Hebrew in addition to English.
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 written 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?
What is scalability and how does it affect the value of a business?
Scalability refers to a company's capacity to perform well when faced with a substantially greater volume of business. It's a characteristic that many buyers of businesses evaluate before making an acquisition where they realistically expect to expand the company. If a company is highly scalable, it has a higher value.
What is a city or county general plan and how does it impact value?
In California, every city and county must adopt its own general plan for long-term physical development. These plans have a substantial impact on the demand for land and buildings within the local government's planning area. See: General Plans - Cities and Counties.
What is Sellers Discretionary Earnings and how is it determined?
Sellers discretionary earnings (SDE), sometimes referred to as sellers discretionary income (SOl), is a metric used to value small businesses. See: Seller's Discretionary Earnings.
What is EBITDA and Adjusted EBITDA?
EBITDA and Adjusted EBITDA are terms used in the businesses brokerage industry that every buyer and seller must understand. See: EBITDA What You Must Know?, and Seller's Discretionary Earnings (SDE).
What is the capitalization rate or cap rate for a particular business?
The capitalization rate or cap rate is the ratio between the net operating income (NOI) of a business and the fair market value or sales price of the business. Many factors go into determining cap rates.
What is the Wall Street Journal Prime Rate?
The Wall Street Journal (WSJ) Prime Rate is the aggregate average of the prime rates changed by the ten largest banks in the United States to their highest credit quality clients for loans with short term maturities. The Wall Street Journal updates their published prime rates when seven or more of the ten banks change their prime rates. Historically the Wall Street Journal Prime Rate averages about 3% above the federal funds rate. This is the rate at which commercial banks borrow or lend their excess reserves to each other overnight. Loans that may be tied to the WSJ Prime Rate include real estate loans, car loans, and business lines of credit.
What is an earnout provision and how does it work?
Earnout provisions are found in business-purchase sales contracts where the parties to the transaction agree that the purchase price of the business will be increased subject to the achievement of increased revenue. See: Business Sales - Payment Structures and Payment Options.
What is a holdback and how does a holdback work?
A holdback represents a part of the purchase price of a business that is held back in escrow until such time as a condition has been satisfied. An example is when the seller of a business agrees to provide training for period of time. Funds may be held back until the training is completed.
What is a reverse earnout provision and how does it work?
Reverse earnout provisions are found in business purchase-sales contracts where the parties to the transaction agree that the purchase price the business will be decreased subject to certain conditions, usually the failure of the buyer to achieve defined revenue levels within defined time periods. A reverse earnout provision is the opposite of an earnout provision.
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.
What is a Buy-Sell Agreement and are they really needed?
A buy-sell agreement is usually part of a Shareholders' Agreement. These agreements are very important to protect all co-owners of businesses, particularly in the event of a co-owner's death. These agreements should be drafted by a qualified attorney.
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.
What are the most common reasons existing operating companies acquire other companies?
Following are some of the most common reasons: (1) They want to grow fast and understand that organic growth is generally a slow process, (2) Diversification, (3) Achieving economies of scale, (4) Increased synergy, (5) To eliminate competition, (6) To achieve vertical integration, and (7) They intend to sell at some point and know that larger companies generally demand higher multiples when they sell.
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.
What is the process you take when you are hired as a consultant to solve a problem for a business client?
When we are hired purely as a consultant, we first thoroughly identify and analyze the problem, enumerate all available options, present them in an easily digestible fashion, and then help the client choose a cost effective and practical course of action.
What is the Franchise Rule?
According to the Federal Trade Commission, the Franchise Rule gives prospective purchasers of franchises the material information they need in order to weigh the risks and benefits of such an investment. The Rule requires franchisors to provide all potential franchisees with a disclosure document containing 23 specific items of information about the offered franchise, its officers, and other franchisees. See: Franchise Disclosures Document (FDD) and Sample Franchise Disclosure Document (FDD) Table of Contents. Note that the FDD was referred to as the Uniform Franchise Officing Circular (UFOC) before July of 2007. Marry people still use the older term.
What is a Franchise Disclosure Document and what is included in it?
A Franchise Disclosure Document (FDD) is a legal disclosure document that must be given to individuals interested in buying a franchise as part of the presale due diligence process. See: Franchise Disclosure Document (FDD), Sample FDD Table of Contents, and Franchise Questions and Answers.
What is a most-favored-nation clause in a contract?
A most-favored-nation clause in a contract is also commonly called a most favored-customer clause. These clauses are common in contracts for the purchase of a franchise where the franchisor agrees that the price paid by a franchisee will be no higher than the price charged by all other franchisees. These types of clauses are sometimes included in contracts with major suppliers.
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.
What are some of the alternative business models to franchising?
Alternatives include: (1) distributorships in which the distributor is familiar with both local markets and customers, buys from a supplier or wholesaler in bulk, and then sells to retailers in smaller quantities, and (2) licensing in which the licensee pays for the right to use a particular trademark or name. Unlike franchisors, licensors usually exercise less control over the owner of the business.
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. See: Business Startup Checklist
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 hypothecation and how does it work?
A hypothecation is a pledge. It usually consists of a person or company pledging or hypothecating an asset as collateral for a loan. The advantage to the borrower is that the interest rate is usually lower than for an unsecured loan and the borrower retains possession of the pledged asset along with any earnings generated by the asset. The advantage to the lender is that these types of loans are safer than unsecured loans. It is common for mortgage bankers to hypothecate a group of loans to secure a warehousing line of credit.
What is an SBA Preferred Lender?
An SBA Preferred Lender can help get business borrowers the funds they need faster than a non-preferred SBA lender. When a bank or other financial institution has a preferred lender status, they have the authority to make credit decisions on SBA guaranteed loans. By contrast, a non-preferred lender must submit loan applications directly to the SBA for approval which makes the process longer. Pacific Business Advisors works only with SBA Preferred Lenders.
Can Pacific Business Advisors assist our business in obtaining an SBA (Small Business Administration) loan?
Yes. We do business with several lenders that make SBA loans to our clients anywhere in California. See SBA Loans.
Is it possible to obtain a Small Business Administration (SBA) loan to purchase a motel in California?
Yes. The SBA guarantees bank loans for the acquisition of motels. Pacific Business Advisors can assist you in locating the right motel property, negotiating the acquisition terms, and obtaining SBA financing.
Can Pacific Business Advisors act as our corporation's registered agent or agent for service of process in California?
The owner of the company, Michael Chulak is available to act as the agent for service of process for corporations, limited liability companies, limited partnerships, and limited liability partnerships in California. See: Selecting an Agent for Service of Process for Your Business.
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 firm needs someone to take professional minutes by Zoom at our corporate meetings of directors. Do you have any suggestions?
Yes. You may contact HOARecordingSecretary.com. While they primarily take minutes for homeowner association boards throughout California, they also take minutes for other corporations.
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.
Our expanding business needs to add one or more corporate directors to our board to assist us in growing the company. Does your consulting service include helping businesses find and recruit corporate directors?
Absolutely. We have many resources and can probably assist you in meeting your goal. See: Selecting Corporate Directors and Duties and Structure of Corporate Boards. You may also want to review: Advisory Board.
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.
What is a Board of Advisors and does Pacific Business Advisors recommend that we establish one?
A Board of Advisors makes a great deal of business sense for medium sized companies that are too small to pay and attract outside directors. Unlike directors, a board of advisors has no voting power or corporate liability, but they can be very valuable to the company by helping to develop new business, by providing expertise, by providing contacts, by adding prestige, by helping to raise capital, and more. While members of a board of advisors often expect to be paid for attending meetings, the cost is usually far less than the cost of paying directors, who have potential liability. Pacific Business Advisors can assist most businesses establish a highly valuable board of advisors.
Are any of the top-level executives with Pacific Business Advisors available to serve on an advisory board or a corporate board of directors?
Possibly. Please contact Michael Chulak to discuss.
Does Pacific Business Advisors represent buyers and sellers of online businesses?
Yes. Online or e-businesses are becoming more common every year and are often purchased and sold.
What is reverse engineering as it applies to business?
Following a detailed analysis of a successful competitor's product or service, it involves reproducing the product or service while making improvements in it. It is an attempt to out complete another company that is financially successful.
What is a Point of Sale (POS) device and what does it do?
Today, most pas devices are electronic terminals that can process credit cards, debit cards, and cash. They allow retailers to monitor inventory levels, buying trends, and more. They also allow retailers to minimize inventory levels which allows them to minimize their bank lines of credit and interest expense. Many modern pas systems are cloud based. These systems have replaced ordinary cash registers.
What is a burning limits liability insurance policy?
With a burning limits insurance policy, all defense costs and expenses incurred reduce the limits of the policy needed to settle a case or pay a judgment. See: Burning Limits Liability Insurance Policies.
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.
Does Pacific Business Advisors represent buyers and sellers of ATM businesses or routes?
Absolutely. We represent buyers and sellers of ATM routes, vending machine routes, pool maintenance routes, and other business routes.
May we distribute your articles to others and add them to our website?
Yes, provided we are given credit for writing the article. Every one of our articles includes our identifying information at the bottom which must be included. There is no cost for using our articles.
What is the International Franchise Association?
The International Franchise Association (IFA) is an advocacy and trade organization for the franchise industry. The IFA also publishes data in partnership with the U. S. Census Bureau.
What is the NAICS classification system?
The North American Industry Classification System (NAICS) is the standard used by U.S. government agencies in classifying businesses for the purpose of collecting statistical data. It was adopted in 1997 to replace the Standard Industrial Classification (SIC) system. The website for the United States Census Bureau contains information about NAICS.