Prospective business-for-sale buyers should be able to picture themselves as the owner.  This can be different pictures for different buyers.  Lets say the business is an engineering firm and the current owner is an engineer.  The firm is large with plenty of engineers.  One new owner could replace the owner as the lead engineer.  Because of the size of the firm and the depth of engineering strength, another new owner might take an administrative role and put another engineer into the lead engineering role.  In a smaller firm, it may be that the new owner MUST be an engineer, working as an engineer.

This decision can be financial as well.  The newly elevated lead engineer in our example may reduce the profit from the new owner.

In some companies the lead person is the best sales person and must be because the breadth of staff is slim.  If the prospective buyer hates sales and sees no way around the owner being the sales person, they should not buy.

When buying a business, the prospective buyer could be making the decision on likes and dislikes, skills, necessity, expected development of the company.  In small businesses, the buyer is, by necessity, a jack of all trades and trades can include sweeping the floor.

Don’t ignore this evaluation of a business for sale.  It is important as for only so long can one find the energy and enthusiasm for doing something one detests.


Your business is for sale and you are planning your next adventure.  What is reasonable for a buyer to expect you to not do?

In a boilerplate offer I have, the text reads

“COVENANT NOT TO COMPETE. Seller hereby agrees not to engage in any business or activity anywhere in the United States, directly or indirectly, as an owner, employee, consultant, or otherwise, which competes with Purchaser’s operation of the Business for a period of ____ ( __) years following closing. If the time period or geographic area or both of this restriction is declared by a court or an arbitrator to exceed the maximum time period or geographic area which is reasonable and enforceable, then the time period or geographic area or both shall be deemed to become and shall thereafter be the maximum time period or geographic area which is reasonable and enforceable. This restriction may be specifically enforced in the event of a breach or anticipated breach by Seller.”

Of course a seller might protest this as they pretty much can’t do anything anywhere.  But is it unreasonable?  Perhaps not in some circumstances.  If it is a national company or a company poised to become national, it makes sense.  In fact, if the company was poised to go internationally, the limit of the United States may be too narrow.

For me there needs to be a reasonableness test for each deal.

Recently a unique jewelry store was sold in Santa Fe.  The former owner is one of the vendors, supplying some of the jewelry.  Is this business for sale different than the ice cream shop in the same town?  It could be as the former owner may want to sell her items wholesale to others after the sale of the store.  It was resolved by allowing the jeweler to sell wholesale anywhere her line of jewelry but she gave exclusive rights to the buyers of the store in Santa Fe.  For me, this meets the reasonableness test.

There is more to read on this topic at:

What creative non-competes have you seen?

My editor husband would say, “You don’t grow a business.  You develop a business.”

One of the goals a business owner might explore is that of selling the business for more than it was purchased for.  Buying right, at a discount, or increasing the net to owner can achieve this.

Since selling a small business is usually based on cash flow to owner, to sell it for more means you need to develop more sales or reduce cost or both, thus increasing cash flow.

Based on each small business owner’s personal needs both psychic and monetary, the drive to increase the value of the business will vary or vary from time to time.  Perhaps, rather than investing excess cash in company enhancements to improve the bottom line, the owner needs the cash at home to resolve a personal need, e.g. repair to the roof of their home.

Some owners are not concerned about the future value of the business because they want to die owning and operating it, have no heirs, and would rather have the psychic returns much more than the financial returns.  Unless there is enough personal wealth, this owner may find their plan to die on the job thwarted by a long term illness.  Having not paid attention to the financial aspects of the company may leave the owner without the financial means necessary to live comfortably while unable to work.

Regardless of your real interests in having your own business, it is wise to consider the future value, just in case you HAVE to sell it in the future, making the most of the transaction.

Dakin Business Group, co-sponsoring with Cole Financial Services and Kanaly Trust, recently held a seminar focused on the business owner’s business investment as a piece of their entire portfolio…looking for balance.  At the beginning of the seminar, we asked the participants to identify why someone wants to own their own business.

Psychic reasons:

Satisfaction of building and owning your own: Love it and have fun! Be part of the community: Freedom & flexibility: Be your own boss: Live your passion: Fill a need: Have a job: Help people: Live the American Dream: Control quality and people and tasks: Showcase talent: Relationships & Collaboration: To do at retirement age: Challenge

Practical reasons

Make it to keep for the future: Fill a need: Have a job: Provide a legacy: American Dream: Tax benefits: Wealth building


If you want to learn more about balancing your portfolio as you are fulfilling these business, contact

Jennifer J. Cole, MBA, CFA, Cole Financial Services 505-286-7915

Deborah Trouw, CFP, Waddell and Reed 505- 986-0125

Don’t underestimate the inventory process in a business-for-sale transaction.  It can be daunting, contentious, and a deal-breaker.

The inventory process can be done by any number of people.  It can be seller and buyer, employees, hired counters.  The more vested the individuals in the process, the more accurate the count.  Having people count in twos, one calling out and one writing down is a handy method, helping to speed the process.  Obviously, in some cases, there are bar codes to be scanned.  Hopefully in every case there is a master list of unique items that require counting with the right cost assigned.  Get organized in advance.  (Note:  The buyer can merely accept the inventory maintained by the seller as accurate but I don’t recommend it.  At a minimum do spot checks to determine accuracy of the seller’s system.)

Whatever the methods, in the small business transaction, inventory may or may not be involved.  Some service companies may have only some paper and envelops to count.  The key is to have enough people with enough time if a physical inventory is to be done.

In a small business, often the inventory is done the day prior to sale, reducing the opportunity for shrinkage, need for adjustments for items sold before or after inventory and the actual close of the business.

Don’t underestimate the time it will take.  In a recent business for sale transaction, the store, approximately 1500 square feet with various display cases and inventory in back, took eight hours with four people to count.  Then there was a reconciliation of the count to the perpetual inventory.  It was still being reconciled when closing was to happen.  The answer was to close dependent on finishing the reconciliation within a few days.

It is important to do the count correctly, to give satisfaction to the business-for-sale owner and buyer that they have a good deal.  Usually the count adjusts the sale price one way or the other.  The value of the inventory, a.k.a. money, is important.

For more about inventory in the sale of a business…

Got your attorney and accountant all ready, do you?  In any transaction business-for-sale transaction, the closer you get to having a transaction completed, the more time you may want to spend with your personal business attorney and accountant and more need there is for asking well in advance for their time.

As due diligence is performed, documents created, closing approaches with the myriad of forms to sign, it is likely you will want consult from your professionals.  The clock is ticking and you need the professional’s attention to get through the process and due diligence.

Remember they have other clients and a life outside the office.  What!  Going on vacation!.  It is happening to a deal I am currently working on now.  We will receive closing documents on Monday.  The seller’s attorney is going on a two week vacation on Thursday.  He is getting ready to leave for two weeks.  You too have had the pile of must dos that await any departing professional.  How is he to fit in the review of closing documents and if he can’t, do we delay close by another two weeks?


In a (real estate/business) sales class, the example of cows for escrow came up.  The lecturer used cows as an example of possible escrow.  It was a true story.  This is New Mexico after all.

In fact a number of things can be escrowed.  In the example being used in class, the cows’ owner wanted to buy something and had to put up escrow.  He did not want to sell the cows unless the sale was to be finalized.  The Seller, needing escrow to confirm intent of the owner, to figure out whether the value stated was sufficient (after all a cow could die while in escrow;) to be comfortable that the cows would be safe in the pasture; and, would he be able to sell the cows in the case of escrow forfeiture.

Cows are not the norm but it does give perspective to the fact that not every escrow company can or will do everything.   In business-for-sale transactions the needs for escrow are perhaps not fulfilled by the typical escrow company for a house for sale.

Before you get too fancy in defining the terms of your purchase, ensure escrow management is available.

For a more in depth explanation of when escrow can be used:

When you are buying / selling a business, when are you ready to close?

Sometimes the answer is NEVER!  In some cases, everything seems to be moving just as it should and then the littlest but most significant piece is undone and can not be gotten over.  Perhaps it is the transfer of the phone number.  The buyer obviously wants, and usually needs, it and the seller can’t part with it because Mom calls on that line. The deal goes sour and that is that.  A broker can help the parties through these situations but the buyers and sellers need to WANT to do the deal.

On the other hand, when the parties want to do the deal the biggest obstacles can just melt away.  Take the example of the demand of the seller that a certain employee maintain a position.  In the seller’s mind, this will help to secure his financing of the transaction and perhaps it will.  The buyer agrees and the steps to close continue.  Then, the employee decides they don’t really want to work for the buyer.  Because the Seller wanted to close, the requirement was dropped and the parties moved forward.

You are ready to go to close when all contingencies have been removed and the buyer and seller say “Lets Go!”  Then and only then should the closing documents for the sale of the business be drafted and expense that should not go to waste.  A broker may have the parties sign off that all requirements have been met and they are willing to go to close AND assume the costs of closing whether they arrive at the table or not.

Today I was speaking to a gentleman looking for a business to buy.  He was lamenting his experience of having to dig out the problems during due diligence in case after case.  Then walking away from the deal because it was not as it originally appeared.  On the one hand he was apologizing for all of his questions but knowing that he had to ask.

A business broker typically appraises the business on the items they receive from the owner.  The better the broker is at asking for information, the more likely their package will reveal a level of reality.  However, the buyer should not take that information at face value.  Even tax returns can be incorrect.

As examples of things that might not be reveled in an initial marketing package and could be positive or negative for the buyer:

1)  The degree to which the seller is using the business to write off personal items.

2)  The payments under the table to the help or vendors.

3)  Inventory that has been over or understated.

4)  Stated receipts do not match the receipts reported for taxes.

5)  Claims on equipment and other property.

6)  Unpaid taxes.

These are only a few.  Do your due diligence.

For easily understood overview of due diligence go to:

And from another source, a list:

When a buyer looks at a business for sale they really want to know three things.

What is the business for sale for and what financial performance substantiates that price?  The business that can show year after year of growth, the longer the better and net to owner that also demonstrates growth will be more successful at achieving a great price.

What is the outlook for the company?  Is there opportunity for the company to do more wonderful things?  A business where the seller can articulate the next steps in development and show that the differentiation of the business makes it unique or one of few in a market will have more appeal.  As a colleague once said, “this is the sex appeal of the business for sale.”

Are all things well put together?  Systems, good staff, client relationships should be in shape for the best offer.

Whether a business has a selling value of $50K or $500MM, the story  is the same.

Perhaps you have some examples of how these three can be achieved?