Top 3 Issues Involved When Buying or Selling a Business

By William Bruce

America is a nation of small business owners.  In fact, there are over 22 million of us.

Why do people want to go into business for themselves?  In surveys done several years ago, the number one response was the potential for higher income.  But now in the most recent survey, the top reason was “control of one’s own destiny.”  The change is most likely a reaction to the recent economic times.

More and more individuals are now viewing small business ownership as a viable alternative to the vagaries of corporate America.  As a friend said recently, “There is no more job security.  The only job security you’ve got nowadays is the person looking at you in the mirror.”

As a business broker, I’m often asked about the issues involved in buying or selling an existing  business.  In my opinion, these are the top three issues:

1. Confidentiality

Confidentiality is critical to the successful transfer of a business.  If word gets out that a business is for sale, several things start happening and none of them are good for the seller or buyer of the business.  First, key employees start looking for other jobs, fearing that a new owner may not retain them.  In the uncertainty, customers may begin shopping elsewhere.  Suppliers get nervous.  Competitors can take advantage of the situation.

This is why a prospective business buyer will be asked to sign a non-disclosure confidentiality agreement early in the process of looking at a possible business acquisition. In this agreement, the potential buyer confirms that he/she will not disclose the fact that the business is for sale except to professional advisors.

If you show that you take the need for confidentiality seriously, you will be regarded as the professional that you are.

2. Valuation

Nothing causes the buyers and sellers of businesses more anxiety than the problem of valuation. The question of selling price haunts both parties. The seller doesn’t want to price his business too low and “leave money on the table.”  On the other hand, the buyer of the business is afraid he’ll pay too much and not get the best possible price.

Formal, fully documented business appraisals are now readily available.  In addition, there are rule of thumb guidelines that can be used to quickly estimate the value of a business.  As just one example, we know that a full service restaurant with liquor license is worth about 30% of its annual gross revenue as an ongoing business.  This assumes – big assumption – that the business is earning the average bottom line profit for its peer group.

There are rule of thumb guidelines for almost all categories of business from ice cream stands to manufacturing plants.  But again, these guidelines provide only quick estimates.  And written, fully documented business appraisals are now done by several respected national firms at a cost similar to real estate appraisals.

3. Financing

The toughest problem facing business buyers and sellers for the past several years has been financing.  No question about it.

These are five possible sources for business acquisition loans:

BANKS – Although most people seeking a loan to buy a business will think first of a traditional bank loan, I can tell you from years of business brokerage experience that banks generally do not make business acquisition loans.  There are exceptions but this is more true than ever in today’s economy.

SBA – The SBA, through its approved lenders, provides business acquisition loans.  The SBA does not make direct loans, but rather guarantees a portion of the loan that is made by the approved lender.   It’s known as the SBA 7(a) program.  Wells Fargo Bank is currently the top volume SBA lender nationally.

The SBA route for a business acquisition loan is sometimes frustrating because of the time and detail that is involved.  However, keep in mind that the SBA will approve loans that others have turned down and will usually approve them with a smaller down payment.  In most cases, it’s worth the wait.

FAMILY – Many times the older generation in a family will loan the down payment or the entire amount needed to a promising member of the family’s younger generation.  If your family is willing to loan you the money, one word of advice is in order.  Have a very clear understanding as to how the debt is to be handled and put it in writing in the form of a legal note.

THE SELLER – In the majority of the business transfers that I handle as a business broker, the owner of the business finances a portion of the purchase price for the buyer.  Some sellers cannot offer owner financing for a variety of reasons, but when they can, it conveniently solves the problem of financing.

The fact that the business owner is willing to finance the sale of his company provides more than a convenient finance plan.  More importantly, it provides a strong validation of the owner’s belief that the business will support the owner and earn enough cash to pay back the loan.  You can’t get any better recommendation on the business than this.

The normal down payment for owner financing ranges generally from around 30% to 50% of the purchase price of the business.  Interest rates are generally market driven but there is more flexibility here than in other forms of financing.

401(K) FUNDS AND IRA ACCOUNTS – The use of these funds to buy a business, without tax penalty, is a fairly recent development.  Several national CPA and attorney groups have developed a plan, approved by the IRS, which allows you to use your funds for business acquisition.  There are legal and accounting fees involved, but they are a small fraction of the tax penalty that would be assessed for cashing in these accounts early.

The above ­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­five sources of financing are not exclusive to each other.  I recently handled a transaction in which three of the five sources were used to buy the business.

It’s called creativity!

For further reading, here are additional related articles:

And now for the ad.  (Hey, you don’t mind a promotional item stuck in here, do you?)  You can take a look at the businesses I have listed for sale at

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William Bruce is an Accredited Business Broker and Appraiser assisting buyers and sellers of privately held businesses in the transfer of ownership.  His practice includes consulting services nationally on issues of business valuation and transfer.  He may be reached at (251) 990-5934 or by email at  His business brokerage website may be viewed at
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Ownership Transfers of Small Businesses at Record Level

uptrending graph 2By William Bruce, the Internet’s largest business-for-sale marketplace, reported recently that third quarter 2014 small business transactions were at historically high levels.

Completed transactions for business ownership transfers are reported to on a voluntary basis by business brokers nationwide.  The author of this article participated in the survey as a business broker.

A total of 1,987 closed transactions were reported in the third quarter this year, representing both a 17.9 percent increase from last year and the highest number of small business sales recorded in a third quarter since BizBuySell began tracking data in 2007.  It keeps 2014 on pace to record the highest number of small business transactions recorded by

“After seeing a return to robust transaction activity during 2013, it’s good to see that we have not plateaued and both buyers and sellers are still eager to make deals happen,” said Bob House, General Manager of “There remains a strong supply of quality small businesses on the market. As the economy and financing options continue to improve, buyers remain very interested in acquiring small businesses.”

The median sale price for businesses sold in the third quarter rose 5 percent compared to last year, increasing from $180,000 to $189,000.

In addition to an increasing number of closed sales in the third quarter, there were also a growing number of businesses listed for sale. Total listings were up 2.2 percent from the same time last year, with the most notable growth in manufacturing businesses (up 4.1 percent), service-industry businesses (up 3.9 percent) and restaurants (up 3.5 percent).

On a personal note and locally in the Gulf Coast area, my practice in business mergers, sales and acquisitions tracks closely the national trend.  We are very busy!

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William Bruce is an Accredited Business Broker and Appraiser assisting buyers and sellers of privately held businesses in the transfer of ownership.  His practice includes consulting services nationally on issues of business valuation and transfer.  He may be reached at (251) 990-5934 or by email at  His business brokerage website may be viewed at  He participated in this survey.
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Selling a Business: Taking Your Business to Market

How to Sell a Business

How to Sell a Business

Please keep in mind that selling your business is not an overnight project.  It takes time.  My experience has been that six to eight months is about average.

Previous articles have discussed the importance of having a good reason for selling your business, getting the business ready for sale and how to set the right asking price for your business.

You are now ready to take your business to the marketplace.  So let’s first discuss a couple of documents you’ll need to have handy.


As you are already aware, confidentiality is important in the sale of a business.  If word gets out that the business is for sale, bad things can start to happen.  Employees start looking for other jobs, fearing that the new owner may not retain them.  Customers may wonder about the business and start shopping elsewhere.  Suppliers can get nervous.

So first, you’ll need a confidentiality agreement already drawn up and ready for signatures.  This is a must.  Anyone who replies to a generic ad for your business must sign a confidentiality agreement before being furnished any identifying details of the business.  This enforceable contract is also referred to as a non-disclosure agreement.

If you’re using a business broker in your sales effort, he already has a strong non-disclosure agreement drawn up and rigorously enforces the requirement for getting it signed before disclosure of any specific information.

And if you don’t mind me slipping in a commercial here for business brokers – remember, that’s the way I make my living – it is much easier to maintain confidentiality by using a professional business intermediary than by trying to advertise and sell the business yourself.  And national statistics show that business brokers will sell a business quicker and with fewer problems than owners trying to do the job themselves.  I’ve found that most business owners are very good at running their businesses, but few have sold a business before.  It’s a process that is fraught with landmines.

But hey, you already know I’m prejudiced!

The confidentiality agreement should require the name and home address of the person making the inquiry plus contact information including phone numbers and email address.  In my business brokerage practice, I also require that the prospect give me some information on his finances and business experience.  I’ve never had a legitimate prospect who was sincerely interested balk at signing the agreement.  If a person balks, it’s almost always an indication that he or she is a gossipy “tire kicker” who’s looking just out of curiosity.

The Marketing Package

The next document you’ll need to have ready is a multi-page marketing package on the business.  This summary should include a brief history of the business, a description of your current operation and a recap of the financial numbers.  This marketing package is sometimes referred to as the Executive Summary or the Confidential Business Review, which is the term I use most often.  Business brokers have a finely tuned template that is used for this important document.

This Confidential Business Review serves as an accurate and informative synopsis of your total business operation.  This document is very important in the process of selling your business. It is your primary marketing vehicle.  Once a prospective buyer expresses a sincere interest in the business, has signed a confidentiality agreement and passed a preliminary screening, he is then given a copy of this document.

The Confidential Business Review serves two purposes.  First, it allows the prospect to make an informed judgment as to whether he is interested in pursuing the business after reviewing the information contained in the document.  And secondly, the Confidential Business Review provides an outline that the prospect will use in a more thorough investigation of the business during the due diligence phase of the sales process.

The prospect will quite naturally be checking the numbers and information provided in the Confidential Business Review.  For this reason (and other good reasons), it is extremely important that no erroneous information be included in the document.  Even an honest mistake can arouse suspicion and kill the transaction.

While it’s important to paint as favorable a picture of your business in the Confidential Business Review as the facts will allow, it is imperative that you don’t step over the line and make any false representations.  Any erroneous information in the document will definitely come back to bite you!


Now that we have the confidentiality agreement and the Confidential Business Review ready, we can start the advertising phase of marketing your business.

A few years ago, my office obtained most of our buyer prospects from our classified advertisement in the Sunday newspaper.  However, technology has changed the world, and we now receive the majority of our inquiries from the various websites we use on the Internet.  These  websites are particularly important for obtaining out of area prospects, but even local folks here in town are looking at the websites and will call to inquire about a business that interests them.

My office pays several thousand dollars a year in subscriptions to post our listings to 24 different business-for-sale websites.  The Internet is where the action is today.  No question about it.

What’s Next

To recap, you have spruced up your business premises, brought the books and records up to date, computed your yearly cash flow, put a reasonable asking price on the business, made arrangements for maintaining confidentiality, drawn up a business marketing package  and placed the business on the market with appropriate – but non identifying – advertising.  What happens next?

Let’s optimistically assume that a genuinely interested prospect has seen one of the ads for your business and called or emailed  to inquire.  If you’re using a business broker, the broker (1) has explained the need for signing the confidentiality agreement and obtained the necessary information and signatures on the agreement, (2) has questioned the prospect on his purchase criteria and (3) obtained some preliminary information on the prospect’s financial situation, business experience and his capacity to buy your business, and (4) briefed the buyer on the process – the steps involved – in buying a business.  Most prospects will be first time business buyers and really don’t have a clear idea of the actual step-by-step process one goes through in buying a business, so we spend some time with them doing a little buyer education.

If all of the above indicates that your business might be a good match for the prospect’s purchase criteria and if the prospect is deemed serious and sincere with the financial capacity to make the purchase, then he is given the Confidential Business Review of your business.

Let’s again be optimistic and assume that after reviewing your Confidential Business Review, the prospect calls back a few days later and says he is genuinely interested in the possibility of buying your company and wants to proceed with a more detailed look at the business.

The next logical step is a meeting between you and the prospect.  The next article will discuss ways to make the meeting a success.

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William Bruce is a business broker, an Accredited Business Intermediary (ABI) and a business appraiser assisting buyers and sellers of privately held businesses in the transfer of ownership.  He currently serves as president of the American Business Brokers Association.  His practice includes consulting services nationally for business buyers and sellers.  He may be reached at (251) 990-5934 or
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How to Sell a Business: The Issue of Financing

A discussion of business acquisition loans.

A discussion of business acquisition loans.

Previous articles have dealt with being able to give a good reason for selling your business, getting your business ready to sell, and how to price it.

In this article, we’ll discuss the issue of financing.  As the seller of a business, you’re going to be involved in one way or another in the buyer’s quest for acquisition financing.

Financing is always an issue in selling a business.  Almost all business buyers will need some amount of financing to complete the transaction.  Of all the business sales that I’ve seen, over 90% involved financing of some description.

Very few business buyers are sitting on enough cash to buy a business without financing.  People with that much money are usually “clipping coupons” and not interested in jumping into the challenges of daily business management.

So where do business buyers get the necessary financing?  There are three sources and let’s briefly discuss each.


Although most people seeking a loan to buy a business will think first of banks, I can tell you from years of business brokerage experience that banks generally do not make business acquisition loans.

That statement will surprise most people.  Once you’re in business, banks will compete for your patronage, but most will not stick their necks out in the beginning to make you a business acquisition loan.  Bank advertising would lead you to believe they would do so, but in more than 90% of the cases, they will find some reason to decline the business acquisition loan application.

The exception might be if you have a strong, years-long relationship with a bank and you can offer some other collateral such as Certificates of Deposits.  Or if the bank participates in the SBA loan program, they might be able to approve a SBA guaranteed loan (see below).

So don’t be surprised if a bank turns down your buyer.  And don’t take it as a reflection on your business or the buyer.  It’s just the way things are.

Now this is the humorous part of the situation.  It’s ironic but it has happened more than once.  After your business buyer has been in business for a number of months or a year or so, the same bank that turned him down for a loan to buy the business may come calling on him soliciting his banking business.  One of my buyers in this situation responded to the banker by assuming a serious air and in a somber tone, said, “Well now Mr. Banker, we’ll be happy to consider your application for our business.  Let’s see, we’ll need your financial statement and a list of references and your business plan for five years into the future.  Once we have your completed application, I’ll be glad to take it before my committee and let you know of our decision.”

The banker was taken aback.


The Small Business Administration (SBA), an agency of the federal government, provides for business acquisition loans through its approved lenders.  The SBA generally does not make direct loans, but rather the agency guarantees the loan that is made by the approved lender.   It’s known as the SBA 7(a) program.

The SBA list of approved lenders includes many banks and some non-bank lenders.  Some of these lenders will include in the loan total an amount for working capital in addition to the price of the business.  Down payment requirements range from 20% to 30% plus there are usually up-front fees paid by the buyer for various requirements.  Interest rates are competitive with the marketplace.

Your business must be profitable to be approved by the SBA.  And another SBA disqualifier is the requirement that the business buyer have experience in your industry or some closely related field.

The SBA route for a business acquisition loan is sometimes frustrating because of the time, detail and documentation that are involved.  If your buyer goes this route, be patient.  And stay on top of the SBA requests for information.  The quicker you can get the information and documentation to the SBA underwriter, the quicker the loan will close.

The Seller

In many transfers that I handle, the owner of the business finances a portion of the purchase price for the buyer.  Some sellers are initially reluctant to offer financing.  However, with a strong down payment from a buyer with a good credit bureau report and personal financial statement, the advantages to a business seller can be significant.

Not only is the tax bite usually lower for a seller who finances, but national surveys consistently show that businesses with seller financing (1) sell for more money and (2) sell in a shorter time frame.

In one recent survey of 3,965 business sales as reported by Toby Tatum in Transaction Patterns, the median selling price of businesses with seller financing was 15 percent higher that those without it.  The average down payment on seller-financed businesses in the survey was 37 percent.

And of course, there is the obvious benefit to the seller of additional income from the interest charged on the note.  The going rate as this is being written is around 6 ½ percent.  This is significantly more than you could earn if you invested the money in a Certificate of Deposit.

And keep in mind, we’re not talking about you financing just anybody.  We’re talking about a buyer whom you have approved after checking his credit report and references, and who has made a down payment of usually between 25% and 50% of the selling price of the business.  Plus, you have a mortgage on the business and all it’s assets for the term of the note and the personal guarantee of the buyer.

Most seller financing – though not all — is in the form of a balloon note.  The balloon note solves two opposing desires.  The buyer of the business wants to keep his payments low; however, the seller usually wants his money as soon as possible.  By amortizing the note – calculating the payments – on, say, a 12-year payback schedule, the payments are kept reasonable while the new owner assumes management responsibility.  But the inclusion of a 5-year balloon requires that the remaining balance be paid off at the end of five years.

After the new owner has been in business for five years and has built a track record for himself at the bank, he should have no trouble going to his bank and refinancing the balloon.  In the low interest rate environment of recent years, I’ve seen new owners refinancing the balloon even before it came due to save money.  The balloon note has been a win-win vehicle for both buyers and sellers.

To recap, if you are willing to consider financing the sale of your business to a credit worthy buyer after an appropriate down payment, the advantages you can usually expect are:

  1. A lower tax on the proceeds of the sale.
  2. A higher selling price.
  3. A shorter timeframe to close the transaction.
  4. Additional income from the interest on the note.

Should you have any questions about the issues discussed above, please don’t hesitate to phone or email.  Contact information is below.

In the next article, we’ll talk about how to actively market your business while maintaining strict confidentiality.

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William Bruce is a business broker, an Accredited Business Intermediary and a business appraiser.  His practice includes consultations nationally on matters involving business valuations and transfers.  He currently serves as president of the American Business Brokers Association.  William may be reached at (251) 990-5934 or by email at  His business brokerage website may be viewed
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Thinking of becoming a business broker? Looking for business broker training programs?

Become a business broker with training.

Become a business broker with training.

As an instructor for the business broker training programs of the American Business Brokers Association, I’ve had the rewarding opportunity of offering training to numerous individuals. Many of these folks have gone on to very prosperous careers in business brokerage (and become good friends in the process).

What I’ve learned is this: A business background is essential to success as a business broker. Even better is prior ownership of a small to medium size business.

Beyond this, other personal assets that are important for success are (1) a sales aptitude, (2) an ability to be diplomatic in difficult situations and (3) a stick-to-it determination to work hard and independently on your own schedule without becoming lazy. (I’ve been a business broker for over two decades, and I’ve seen laziness doom a few individuals.)

Also important is the ability to budget your personal finances. While the income potential from business brokerage is significantly into the six figures, it tends to be “lumpy.”  My point: Don’t go out and buy a new Mercedes with your first commission!

So what else do you need to become a successful business broker?

Well obviously, you will need some training specific to business brokerage. Regardless of your education and business background, there are many considerations specific to the profession that you’ll want to become familiar with. Just a few of these are:

  • Should I buy a business brokerage franchise or go independent?
  • What about office space: home office or “real” office?
  • How do I get listings if I’m just starting my practice?
  • What’s percentage commission should I charge?
  • How do I recast financial statements for discretionary cash flow?
  • What are the most common business appraisal methodologies?
  • How do I build a marketing package for each type of business?
  • How do I maintain strict confidentiality while marketing nationally?
  • What advertising venues are appropriate for marketing a business for sale?
  • How do conduct the initial buyer / seller meeting?
  • What are the do’s and don’ts of successful negotiations on price and terms?
  • How do I get the transaction to the closing table (and get paid!)?
  • What documents are involved in closing?

To read our article on the duties and responsibilities of business brokers, please click “What Are Business Brokers and What Do They Do?

There are several business broker training alternatives available for individuals who want to enter the profession. The American Business Brokers Association conducts a two day training seminar offered four times a year at various locations around the country.  For additional offerings, a quick Google of “Business Broker Training” will return many options.

Some final thoughts:

  • When considering your professional training options, check references of previous students.
  • Make sure the training program you select offers post-classroom support, preferably at no cost.
  • Check your state laws. Currently 17 states require business brokers to have a real estate license regardless of whether actual real property is being transferred.
  • Before you commit to a business brokerage franchise or licensing arrangement (both of which can be expensive), investigate your options as an independent.  Some franchises are very good, but it’s easier than ever to be an independent. The decision depends on your personal needs and preferences.

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William Bruce currently serves as president of the American Business Brokers Association.  He is a business broker, an Accredited Business Intermediary (ABI) and a business appraiser assisting buyers and sellers of privately held businesses in the transfer of ownership.  His practice includes consulting services nationally for business buyers and sellers.  He may be reached at (251) 990-5934 or
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How to Sell a Business: The Critical Question of Price When Selling a Business

Businesses for SaleBy William Bruce, President, American Business Brokers Association

Nothing causes the buyers and sellers of privately held businesses more anxiety than the problem of valuation.  The question of selling price haunts both parties.  The seller doesn’t want to price his business too cheap and “leave money on the table.”  On the other hand, the buyer of the business is afraid he’ll pay too much and not get the best possible deal.

In our first article, we talked about the importance of being able to give a good reason for selling.  In the second article, we discussed how to get a business ready to sell.

In this article, we explore the critical issue of pricing.

The most common mistake that I’ve seen in my years as a business broker, is that business owners tend to overprice their business.  It’s quite natural to do so, particularly if you’ve started the business from scratch and grown it into a successful company.  You quite understandably have an emotional investment in the business in addition to a financial interest.

It’s the same phenomenon that some of us have experienced when we sell our home.  I thought my first home, with all the improvements my wife and I had made, was worth much more that it actually was.  I soon learned that the market, not the owner, dictates price.

The disadvantages of overpricing a business are serious.  As we discussed, the first question most business buyers ask is “Why is the business for sale?”  Frequently the second question is “How long has the business been for sale?”  If the business has been on the market for a long time and hasn’t sold, it raises real doubt in the buyer’s mind, which is hard to overcome.

Another problem with an overpriced business is that if you’re using a business brokerage firm, the agents in the office will immediately recognize that the business is overpriced and give it very little exposure.  Most business brokers work strictly on commission.  They don’t get paid until the business is sold, and they will not waste time on a business that will not sell because it is overpriced.

And today’s business buyers are pretty savvy.  All of the appraisal guidelines and rules-of-thumb on valuing businesses are available on the Internet to anyone who will take a little time to find them.  So most buyers will have a fairly accurate idea of what a particular business is worth.   If a business is grossly overpriced, the buyer prospect will not even look – and you’ve lost some of your best prospects who will go on to buy another business for its fair market value.

So, if you don’t retain anything else from this article, let it be this from the voice of experience and the school of hard knocks: Nothing is harder to sell than a business that is overpriced.

The appraisal of privately held businesses is not an exact science but there are guidelines and rules-of-thumb that can be used for a quick approximation of value.  And formal business appraisals are now readily available.

Certain situations require a formal business appraisal such as the larger merger-acquisition situations, large loan applications, management performance tracking, estate planning, divorce and the most dreaded of all — IRS issues.  And you might want to order a formal appraisal of your company.  After all, it certainly takes the guesswork out of the situation.

However, what we will discuss here is not a formal appraisal but rather the informal methods of quickly approximating the value of a business entity.  All of the guidelines we’ll quote are averages derived from hundreds of completed transactions reported to national and regional databases.

Let’s First Define What You’re Selling

Most small business transfers are asset sales.  This means that the buyer of the business buys certain assets of the business – usually the furniture, fixtures, equipment, inventory, the business name, and goodwill.  These assets are transferred to the buyer at closing free and clear of any financial encumbrances.  Generally not included in an asset sale are the cash on hand and the accounts receivable.  These two items are usually retained by the seller.

The opposite of an asset sale is a corporate stock sale.  In this case the purchaser buys the outstanding shares of stock in the corporation, thereby taking control of all the assets and debts of the business.

And a basic word on business value might be in order here.  An on-going business entity that is earning a profit is worth more than the sum of its tangible assets.  What is really being transferred in the sale of a business is an income stream.  Business appraisers seek to put a value on that income stream.

There are two kinds of business appraisal guidelines.  The first one — and the easiest to use — says that a business should sell for a certain percentage of annual revenue.  The other formula works off of the discretionary cash flow of the business.  These guidelines include all furniture, fixtures and equipment needed to do business.  Inventory value, at cost, is added to the guideline results.  And as stated above, the sellers of most small-to-medium size businesses do not include in the sale any cash or accounts receivable.  Hence, the guidelines do not include these items.

Nor do the guidelines include any allowance for real estate.  The guidelines assume that the business is in a leased location at a competitive lease rate.  If real estate, cash or accounts receivable are to be included in the sale of a business, their value should be added to the guideline results.

And these guidelines assume that the business is making a net profit percentage that is average for the type of business.  If the business is above or below average in profit percentage for its category, the resulting values would need to be adjusted accordingly.

If, in the worst case, the business is only breaking even or loosing money, even after the adjustments used to determine true cash flow, then these guidelines do not apply.  If the business has no positive income stream to sell, then about the best price a business owner could hope for in this case would be the discounted value of the inventory, furniture, fixtures and equipment.

(1) Value as a Percentage of Annual Revenue

First, almost all profitable privately held businesses with annual sales under $5 million will sell for somewhere in the range of 20% to 80% of annual revenue.  In one large database, the average price in the year 2000 of 3,8000 transactions was 44% of revenue.

Exactly where in this range of 20% to 80% of revenue the selling price of a specific business falls depends on the kind of business.  Convenience stores, for example, are at the low end of the range and dry cleaners are at the high end.

If you’re working with a business broker, ask him to look up the appraisal formulas for your type of business.

(2) Value as a Multiple of Cash Flow

The other set of guidelines seeks to approximate the value of a business by applying a multiple to the discretionary cash flow that a business generates.  This second guideline states that most businesses will sell for between one to six times owner’s discretionary cash flow.   Exactly where in this range that a specific business falls, again, depends on the type of business.

From the database of completed transactions, we know that retail establishments sell for a lower multiple than manufacturing businesses.  Again, ask your professional advisor for the multiple that applies to your kind of business.

In Summary

Remember, the market determines price.  Make sure that you understand the market for your kind of business.  It’s a sure bet that your prospective buyers will.

And finally, if you are using a business broker in the sale of your business, work with him.  He has access to myriad resources for all types of businesses.   And your broker can assist you in obtaining, if you desire one, a professional and fully documented, independent third party written appraisal of your company that will take any doubt out of the situation.

After you’ve come to a fairly accurate conclusion of your company’s value, then you need to price the business for sale.  Because all buyers will want to negotiate from whatever price you quote them, you need to add in a “fudge factor” for negotiating purposes.  I usually suggest 10% to 15% “padding.”  Then you can use this margin as “wiggle room” as the negotiations proceed.

In the next article, we will discuss the available finance sources for your business buyer.

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William Bruce is a business broker, an Accredited Business Intermediary (ABI) and a business appraiser assisting buyers and sellers of privately held businesses in the transfer of ownership.  His practice includes consulting services nationally for business buyers and sellers.  He may be reached at (251) 990-5934 or
Posted in Business Valuation & Appraisal, Buying or Selling a Business | Tagged , , , , , , , | 2 Comments

The List: Categories of Businesses Most and Least Likely to Receive SBA Loans

George Heaslip, "The Loan Professor"

George Heaslip, “The Loan Professor”

By William Bruce

It’s well known that some types of small to medium size businesses are more likely to receive SBA loans than others.

We are indebted to George Heaslip, “The Loan Professor” for the following ranking.  George is an independent SBA loan originator of many years experience.  He is based in South Florida and can be reached at (561) 329-1315 or by email at

Based on his experience and opinion, George periodically issues a ranking of business categories most and least likely to receive SBA loan application approval.  It’s a star rating method with five stars being the most likely to receive loan approval.

The list is updated quarterly and is the only one of its kind in the U.S.

This is George’s latest ranking, listed alphabetically, as of June 2014:

*** A/C and Heating

** Advertising/Promotion

zero Adult Merchandise

*** Agricultural (sod, seeds, equipment)

** Aircraft Maintenance

* Air Duct Cleaning

** Alarm Companies, Residential and Industrial

** Amusement/Theme Parks established, with real estate

**** Animal Care and Grooming Facilities, with real estate (Cats, dogs, horses)

**1/2 Animal Grooming, no real estate

zero Apartment Houses and centers (investment properties)

*** Appliance Sales/Repairs

** Art Gallery

** Arts & Crafts

** Art Framing

**** Assisted Living Facilities With R/E (Dropped from 5-stars based on the economy)

**** Auto Body Shop with Real Estate

*** Auto Body Shop, leased facility

*** Auto Car Wash with real estate

zero Auto Car Wash, no real estate

*** Auto Dealership (new, larger facility)

zero Auto Delivery

** Auto Glass

zero Automobiles/Rental

**** Auto Parts Shops with real estate (including tires)

*** Auto Painting with real estate, otherwise **

** Antiques Dealer

Proprietary / Trade Secret – May Not Be Transmitted Without George Heaslip Approval

*** Auto Parts/Accessories, leased facility

** Auto Repair Shops with Real Estate (Might be environmentally clean today, but

**1/2 Auto Sales Centers with real estate Auto Salvage

* Awards/Prizes/Engraving*

* Bed & Breakfasts

**1/2 Bagel Restaurant

** Barber Shop (Franchise)

***1/2 Bakery, with real estate, in business for several years. Otherwise

** Barges (sea transport)

***1/2 Bar/Restaurant, with real estate, in business for several years. Otherwise **

* Beauty Salons/Tanning Salons

*** Bed & Breakfast, established, and with real estate

* Billiard Parlor

*** Boat Storage Facilities, with real estate

zero Boat Tours

* Book Store

*1/2 Bookkeeping Services

*1/2 Boutiques

***1/2 Bowling Alley/Lounge/Restaurant, with real estate

** Bridal/Baby Shops

**1/2 Building Materials

**1/2 Building Renovations

*** Business Lines Of Credit

*1/2 Business Brokerage Franchise Offices

zero Cards, Greeting

** Carpet Cleaning

** Car Wash, established, with real estate

*1/2 Cartridges Refill (Printer)

zero Casino

not tomorrow)

Aviation (service centers)

Proprietary / Trade Secret – May Not Be Transmitted Without George Heaslip Approval

*** Catering Facilities with real estate, established

** Catering – Home/Office/Hall

*** Cement Products Manufacturer With Real Estate, otherwise *

***1/2 Cemeteries

zero Charter Schools

**** Child Care Centers (Favorite by banks, if land and building are included)

** Child Care Center, no real estate

**** Children Party Facility, with real estate

* Children’s Party Services

*1/2 Chiropractic

zero Churches

zero Cigar Store

** Cleaning/Clothing

*** Cleaning & Janitorial

*** Closet Interior Manufacturers

** Clothing

*** Coin Laundry

zero Collection Agency

***** Commercial Building/Condo For Business Expansion

* Computer Supplies (since they can be ordered on-line)

** Construction/General Contractor

**** Consulting Companies with fine tax returns (Legal, Accounting, Insurance,

*** Consignment Shops with real estate, fine sales records

*** Contractor, established, government accounts

* Contractor, non-government

zero Convenience Store

*** Crane Services – Construction/Equipment Install

** Damage Restoration

zero Data Management

Immigration Related)

Proprietary / Trade Secret – May Not Be Transmitted Without George Heaslip Approval

*** Delis with real estate

** Delivery Services

***** Dentists/Dental Practices (If a new center is to be purchased, this is an easy

**** Distribution Centers, with real estate, otherwise ***

***** Doctors (Very easy deals!)

**** Doctors with a patented product ready for production and sales

** Document Shredding

****1/2 Dog and Cat Kennels with real estate

*** Dry Cleaners and Laundromats without real estate

** Dry Cleaners with real estate

** Educational/Schools

** Embroidery Services with commercial accounts

*** Electrical Contractors

**1/2 Employment Placement Companies

***1/2 Environmental Cleanup

* Electronics/Computers

** Equipment Sales, Services & Rentals

*** Above, If established and with real estate

**** Equipment Suppliers/Installers

* Event Planning

***** Export Products Manufacturers

**** Exterminating Companies (Franchise) otherwise ***

****1/2 Farm And Ranch Loans, continental US and Hawaii

**** Fabrication Factories, with real estate.

***** Factories (Manufacturing)

***** Farms, Expanding, Needing Facilities and Equipment

*** Farm Equipment Sales and Servicing

**** Fast Food Franchises, with real estate, and on the Franchise Registry

*1/2 Film Production Companies, Independent


Proprietary / Trade Secret – May Not Be Transmitted Without George Heaslip Approval

* Financial Related

** Firearms

***1/2 Fireplace and Furniture Manufacturers

** Fish Farm (Example: Tilapia)

zero Fishing Vessels

*** Fitness Health Club (Expansion to new facility, not leased)

*** Flooring Contractor

** Floral Centers

** Food Business Retail

** Flowers

***** Franchises (With 100 or more locations, and on the SBA Franchise Registry -

Example: Taco Bell and Subway). Note: I will not submit a loan request for a

franchise buyer, seeking a loan, unless he or she has a copy of the FDD, has read it,

and sends me a copy. Note that 7-Eleven and Quiznos are on the “no” list.

**** Franchises – Subway, suddenly down from 5 stars due to no profit promotions.

zero New Franchises

*** Freight Forwarding, with real estate

zero Fund Raising Services

***** Funeral Homes with Real Estate

*** Furniture Retail, if real estate is included

zero Game Room

***1/2 Garden Centers, Indoor and outdoor, established, growing sales

** Gas Station/Truck Stop, if real estate is included

* Gas Stations with Convenience Stores

zero Gift Shop

*** Glass Company

**1/2 Golf Courses, with real estate, solid 3-year growth records

* Golf Store (number of golfers per year is dropping!)

* * Gourmet Catering

***1/2 Gravel Pits & Dredge Companies

Proprietary / Trade Secret – May Not Be Transmitted Without George Heaslip Approval

*** Grocery Store With Real Estate, otherwise * *

* Group Transportation

** Guard Company, security

* Guided Tour

* * Gyms

* zero Hair Salon

***** Hardware Stores With Real Estate (If no competition from Home Depot or Lowes.

Ace is a good example)

*** Health Products Store

* Hobby Shops

**** Home Health Care Services

***1/2 Home Health Care Staffing Services

** Home Owners Property Management Companies

**** Hostels with growing rent rolls, and with real estate

**** Hotels/Flagship, otherwise **

** Hotels and Motels/Non Flagship (Forget about these!)

* Ice Cream/Yogurt/Ice

zero Import Companies

zero Income/Investment Properties, like strip malls, apartment houses

**** Industrial Buildings/Condos & Warehouses, 51% Owner Occupied

** Insurance Agencies (Franchise)

**** Interior/Exterior Design Units Manufacturers (Closets, Fireplaces, BBQ Patios)

* Internet Related

*** Janitorial

**** Janitorial Services Companies (including parking lots maintenance)

zero Jet Ski Rental

** Jewelry/Retail

** Land, only if 51% owner occupied construction in 6 to 8 months

***1/2 Landscaping with commercial accounts. Otherwise * ½

** Landscape Companies with legal employees

Proprietary / Trade Secret – May Not Be Transmitted Without George Heaslip Approval

**** Law Firm

zero Limo Business

*** Liquor Package Store with real estate, otherwise **

** Locksmith

*** Lounge/Liquor with real estate, otherwise *

**** Machine Shop, with real estate, otherwise ***

* Maid Services

** Mail Package Services

***** Manufacturing Facilities with Real Estate (Lenders love these deals).

***** Manufacturing Facilities that export

**** Manufacturing Facilities without real estate

*** Marinas with real estate

***1/2 Marinas with established restaurant and real estate

** Marine Related

* Marketing Company

* * Massage

***** Medical Related, except chiropractic

Home Health Care

Doctors, Dentist and Vets

MRI/CT/PET Scan Facilities (with real estate)

zero Medical Software

***** Medical Product Distribution Centers with real estate

**** Medical/Supplies Distribution Businesses, leased facility

***1/2 Metal Fabricators, with real estate, track record of business growth

zero Micro Breweries

***1/2 Millwrights

zero Mobile Homes

***** Motel/Flagship with real estate, otherwise **

** Movers

* Movie Theaters (Attendance is down over 18%)

Proprietary / Trade Secret – May Not Be Transmitted Without George Heaslip Approval

** Music

***** New Building or Upgrade/Expansion (Not a problem for expanding businesses

that have tax returns showing net profit growth over the last three years.)

zero Not For Profit Organizations

zero Nail Salon

**1/2 Nursery/Plants

****1/2 Nursing Home, with real estate

*** Nursing Homes without real estate

** Nutritional Stores, if a franchise on the registry

zero Office Building, not 51% applicant occupied

***** Office Building/Office Condo 51% applicant occupied

** Painters

zero Parasailing

**1/2 Parking Lot Cleaning and Maintenance Companies

* Party Goods

**** Pawn Shops (If in a freestanding building, otherwise ** stars)

** Personal Services

zero Personnel and Staffing (unless medical related)

**** Personnel and Staffing, Medical Services

**** Pest Control Companies Franchise, otherwise *1/2

**** Pet Centers with real estate

**** Pharmacies (No compounding)

***** Pharmacies that do compounding

* Pizza Shop (Famous for hiding money!)

zero Pressure Cleaning

zero Phone Sales

**1/2 Pool Supplies/Retail Site

***1/2 if with real estate.

**** Pre-School With Real Estate, otherwise **1/2

Proprietary / Trade Secret – May Not Be Transmitted Without George Heaslip Approval

* Printer cartridge refill stores

* Printing and Typesetting

**** Professional Service Companies (Accounting, Legal) that want to move to a larger

*** Plumbing Supply Companies

****1/2 Pool and Spa Supplies, Franchise ***** With Real Estate

zero Independent Pool Cleaning/Repair Services

* Residential Realtors

location or eliminate high interest loans

Pet Kennels (See Dog above)

***** Recycling Facilities, established, with real estate

* Rental Businesses

** Repair Services, if licensed

****1/2 Restaurants, free standing building, in business many years

*** Restaurants (That are franchises, and have excellent financial statements)

** Restaurants, other

*** Retail Miscellaneous, free standing business, in business many years

**** Retail Businesses (With three years of fine historical cash flow)

*** Roofing Contractor

**** Roofing Maintenance Companies

* Independent Roof Cleaners

* Routes

zero Satellite Dishes

** Security Systems

***** Self-Storage Facilities

** Sign Companies

** Site Preparation, For Construction

zero Skin & Massage

* Startups, unless customers are lined up and letters of intent are in

zero Strip Malls

**1/2 Recreational Facilities and Clubs

Proprietary / Trade Secret – May Not Be Transmitted Without George Heaslip Approval

* Security Related

* Shoes/Shoe Repairs

* * Skating Rinks with real estate

* * Sod Distribution

*** Software Services Companies (With 3 years of steady growth)

*** Sports Bar, established, with real estate

** Sports Related, non franchise

**** Sports Related, franchise with real estate

* Start Up Businesses (difficult, requires 30% down, heavy collateral backup)

***1/2 Start Up Businesses, Medical Related, with real estate and medical professional(s)

zero Strip Malls

** Sub Shop (Sandwiches)

*** Supermarkets (Flag)

* Surf/Activewear Shop

* Tailoring

zero Tanning Salons

zero Taxi Business

* Tax Preparation

* Teeth Whitening (non-Dentist location)

zero Telemarketing

* Telephone Related

***** Therapy Centers, and Therapy In-Home Services

* Tobacco Related

*** Towing Services (Cars)

**** Towing Services (Trucks)

*** Trade Contractors

**** Training Schools (established and for-profit) with Real Estate, otherwise **

** Transportation Services

zero Travel Agencies


Proprietary / Trade Secret – May Not Be Transmitted Without George Heaslip Approval

**1.2 Tree Farm

*** Truck Repairs (with real estate, otherwise **)

**** Truck (and Car) Washes with real estate

****1/2 Truck Fleet Services (Towing and Repair), with real estate

* Tutoring

zero Vacant Commercial Land

*** Vacant Commercial Land with permits to build 51% owner occupied in 9 months

zero Valet Parking

** Variety Store non franchise

*** Variety Store, franchise with real estate

zero Vending Machine Routes

zero Video Related

**** Uniforms Manufacturing, with real estate

zero Used Car Dealerships/Lots

***** Warehouses, where the buyer occupies 51% or more of the floor space.(For

** Water/Damage Repair

** Water Purification

* Web Hosting

* Wedding Gowns

** Well Drilling

***1/2 Wholesale Distribution, with real estate, otherwise **

** Yogurt Store

If you have any questions about this list, or are interested in submitting a SBA loan application, contact George Heaslip  at (561) 329-1315 or by email at

#     #     #

William Bruce is an Accredited Business Broker and Appraiser assisting buyers and sellers of privately held businesses in the transfer of ownership.  He currently serves as president of the American Business Brokers Association.  His practice includes consulting services nationally on issues of business valuation and transfer.  He may be reached at (251) 990-5934 or by email at  His business brokerage website may be viewed at



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Banks Rated Strongest to Weakest in Mobile and Baldwin Counties, Alabama

by William Bruce

It’s been six months since we visited the local banking scene, so we offer this update.

bank of the ozarks

Bank of the Ozarks and Wells Fargo are the only 5 star rated banks in Mobile and Baldwin Counties

Banks are often placed on a pedestal in the public mind, but they are like any other category of businesses; some are stronger and better managed than others.

One publicly available bank rating service is  This system employs more than 20 tests to measure the capital adequacy, asset quality, profitability and liquidity of each rated financial institution. Individual performance levels are determined from publicly available regulatory filings and are compared to asset-size peer norms, industry standards and key benchmarks. Combined results form the basis for the star ratings. assigns a 1-to-5 star ranking with five stars representing the highest rating. Institutions with satisfactory performance will generally receive a rating of three or better stars with the majority of banks falling into the three to four-star range.  Ratings are believed to be reliable but the information is not guaranteed.

In addition, events since the information was collected may have altered an institution’s financial condition.  The current ratings are based on the banks’ financial statement as of December 31, 2013.

Since our last report, four banks have improved their ratings, all moving up one notch.  Improving their standings were Iberia Bank, First Community Bank, Southpoint Bank and United Bank.

Two banks have slipped. Synovus Bank, operating locally as Coastal Bank and Trust, slipped from 4 stars to three.  The most dramatic downgrade in rating was suffered by Commonwealth National Bank which slipped from a 4 stars ranking to the lowest rated one star.

As in our previous report six months ago, Bank of the Ozarks and Wells Fargo are the only two top rated 5 star banks in the local market.

The following results for Mobile and Baldwin Counties, Alabama, are based the banks’ financial statements as of December 31, 2013 as ranked by

5 Stars (superior, top rated):

  • Bank of the Ozarks
  • Wells Fargo Bank

4 Stars (sound, indicative of a sound financial condition):

  • Bancorp South
  • BB&T
  • BBVA Compass
  • Bryant Bank
  • Centennial Bank
  • Century Bank
  • Community Bank
  • First Federal Bank of Florida
  • Hancock Bank
  • Iberia Bank
  • National Bank of Commerce
  • PNC Bank
  • Regions Bank
  • ServisFirst Bank
  • Woodforest (found only in WalMart stores)

3 Stars (performing, indicative of a generally satisfactory financial condition):

  • Bay Bank
  • First Community Bank
  • Merchants Bank
  • Southpoint Bank
  • Synovus Bank (operating locally as Coastal Bank & Trust)
  • TrustMark
  • United Bank

2 Stars (below peer group, indicative of a below average financial condition):

  • No banks in the local market were rated 2 stars

One Star (lowest rated)

  • Commonwealth National Bank

In analyzing Commonwealth National Bank, the rating service cited the bank for being below average on balance sheet liquidity,  return on equity, non performing asset ratio and net worth to total assets. The report also noted higher than average overhead.

However, did state that the bank’s regulatory capital requirement ratio substantially exceeds the legal requirements, so maybe Commonwealth has adequate capital to work through the problems.

And again, keep in mind that these ratings are based on information furnished by the banks as of December 31, 2013.  Things could have changed since then.  And there are other bank rating services whose rankings may differ.

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William Bruce is a business broker, an Accredited Business Intermediary and appraiser.  He consults nationally on issues involved in business transfers and valuation.  He may be reached or (251) 990-5934.  His business brokerage website may be viewed at  He currently serves as president of the American business Brokers Association.

Posted in Alabama's Economy, Mobile, Fairhope & Gulf Shores, Alabama | Tagged , , , , , , , | Leave a comment