In many small-business-sale transactions, an asset sale is the method.  The buyer is buying the name, phone/email/etc numbers, goodwill, inventory but not receivables and payables.  As the transaction approaches, closing buyers and sellers begin to think of the reality of the receivables.  Can the seller really collect after the business is no longer there and do they really want to?  The payments are likely to come to the same old address no matter what communication efforts are made AND if you change the address for the old accounts will the clients maintain using that address for new accounts?  If a check comes in to the routine address and has no invoice number associated with it, is it for old business or new business.  It is all very messy.

To solve this, there are a number of methods to resolve it.

1)  The seller can sell the receivables (likely at a discounted rate) to the buyer.

2)  The seller can pay the buyer to receive payments and make agreement to apply checks in a specific fashion.  Example:  Apply receipts to oldest accounts first unless the payment has specific invoices referenced.  This could be further refined to specify applying to accounts no more than three months old first, then buyer’s new accounts

3)  Each check that arrives with no invoice referenced can be researched through the client’s office for appropriate application.

Note that having an address change for old payments and a new address for the new can be very confusing to clients.  In business-sale transactions really, really try hard to not confuse the clients.

There are a number of other methods.  Each business has unique billing cycles and collection track records.  The process for each business-sale transaction will have a unique resolution.  However, a wise seller will be working accounts hard before the close and immediately after to maximize collections before the new owner’s billings begin to  go out.


Several years ago (lets call her) Sue wanted to buy a business thousands of miles from home.  She and husband Ralph found the right business and made an offer contingent, in part, on financing.  The business for sale was negotiated to a price of $425,000.  The structure was $80,000 from Sue and Ralph, $40,000 from angel financiers at 12%, $125,000 from the bank at prime plus two, and the balance from the owner at 5%.  It was a business in a service industry and the only collateral available in the business was the accounts receivable.

The business for sale was not in a field that Sue had ever worked in before.  Many banks required a couple of years of experience in the specific field before lending.  However, Sue and Ralph had a nice net worth and credit scores of 750/800.  With a personal guaranty the bank loaned the money.

In today’s world that bank loan might not happen.

Increasingly the business sellers are having to finance and sellers have different ideas about what they want…just as banks do.

Two different banks working with SBA have two different formulas and ten different banks might also have ten different formulas.  Of two I am familiar with, one requires three years of increasing revenues and net-to-owner returns.  Another considers the purchase of a business just like a start up and they will not loan to start ups.

In addition to inventory, receivables, etc. an owner may require a net worth in excess of three times the amount to be loaned.  Some require money or hard assets that have clearly defined values.  Some will not take land.  Some may require 50% down and others only 30%.  Still others require cash only.

While all of this variation existed before, it is more likely more stringent than before as a whole because the recent economic downturn has most, if not all, more cautious and distrusting the value of anything.

Buyers, understand.

Sellers, find flexibility.

When is a deal in a business-for-sale transaction not going to be completed?

A broker working with a multi-million dollar transaction has heard about six times in the due diligence phase “I am out of here and not going through with the transaction.”  His patience, continued listening to the clients, and pointing out the errors in the thought process has continued to bring the parties back to the table.

That particular deal is not yet closed but there is promise.

One I recently worked on did not close.  I too listened and decided that the buyer’s reluctance was such that getting to close was likely impossible and likely not right for the business anyway.

As a buyer, you should be nervous and questioning.  It is important to look closely.

As a seller, having the right deal is important and being a bit nervous is important for you as well.

The broker has the responsibility to bring the parties to the table with reasonableness, point out the flaws in thinking and opportunities if you go forward.  Of course the business is not perfect.  Just like all of life, perfect is elusive.  Each side should listen, try to be calm, be reasonably flexible and look for the right avenue to the right conclusion.

Recently there was a business-for-sale transaction where the listing sales person (not me) said to me (the broker bringing the buyer to the table) “drive for the higher price as it is a higher commission for you.”

I was appalled.  Perhaps in the minds of some I would be considered naive or stupid.

It is good for a buyer and seller to understand in a business-for-sale or other transaction what the basic driver is for the broker.  Is it to have a fair transaction?  Is it to earn the highest commission possible?

When there is a duty to the seller, as often there is in such brokering transactions, where is the fairness for the buyer.  Is the highest price the only right answer for the seller?

My personal values hang in the arena of “do the right thing for the client and you will find ultimately you will have the right balance for yourself as well.”

My response to the broker mentioned in paragraph one above was “I won’t press the issue for myself.  I won’t do that.”

Was that the right response, naive, or stupid?

Think about it.  What are you going to do after you sell your business?

Before you put your business on the market, have some future mapped out, if not in detail, generally.  Know you really want to sell.

Once, when searching for a business to buy, I found one through a broker.  Based on information presented to me, it fit the characteristics required, except one.  At the first meeting with the owner, the seller began to ask about being able to keep his personal items stored in the building and asking whether helping after the purchase, more than just training.  The owner did not really want to sell.  He had no plan or interests outside the business and he had built the business from little to something well respected.  Where would his identity be if not as the owner?

For some, it may require therapy.  Regardless how you figure out that you want to sell your business, know.

Priscilla’s Top-Ten Transition Tips

1)    Do as much in advance as you can of the things that must be done in the first 2 months of ownership.

  • Set up bank accounts
  • Establish merchant services
  • Buy the software you know you will need that does not come with the business, i.e. accounting, design, inventory control, etc.
  • Establish professional relationships…accountant, lawyer, banker, bookkeeper
  • Find the place to live and the things to live with
  • Have your business ownership form and d/b/a established and registered with the state (sales tax, employment rights, locally (if applicable usually a license to operate), federal (employment rights, tax id)

2)    Consider carefully business management software.  Usually it is best to have integrated systems managing orders, sales (and sales person performance record keeping), invoicing, inventory control, receipts and reporting.  Make this decision in advance, if the business situation requires a transition, starting out fresh and does not require larger than a box system solution. Import critical client and staff information upon taking ownership.  Most often this recommendation applies to asset sales where the new owner is starting record keeping anew on their own books rather than a sale of the entire entity where it is ongoing business.

3)    Don’t change much about the business for quite a long time, until you really understand it.  This includes vendors, employees, contractors, clients, routines.

4)    While the seller may not become your best friend, you want to make every effort to have them enjoy working with you.  In some respects they can make or break your orientation and initial success in the business.

5)    Take care of other unfinished business with an expectation that time will not permit once you and closed and taken control of the business.

6)    Apologize in advance to friends and family that you will be focused on just the business for at least two months.

7)    Keep track of what you are told during the training period with an expectation of making your own standard operating procedures and your own directory of individuals and companies that are resources, vendors, staff, and clients.  Listen well but write it down.  There is a lot to learn.

8)    Accept that staff know things and include them in discussion about operations.  Sometimes the prior owner did not and the staff may have much to learn about improvements, keeping them with you, and outside relations.

9)    Know, after buying the business for sale, you are likely going to be sweeping the floor.

10)  Relax.

Entrepreneurs looking for businesses for sale can benefit by working through a broker.

Brokers are not necessary for any sale and they are not only for Sellers.  Some brokers work exclusively with buyers and are paid by buyers, not sellers.

What about the money side of things?   The buyer working through a business broker may spend more money for the business as a seller not paying a commission may have a lesser price tag than otherwise.  The buyer may also find that the business is incorrectly valued, higher or lower, if a broker is not involved.  The buyer working with a buyer’s broker will pay the broker and have the advantage of buying the business at the right value.  The broker can provide perspective on price/value that the buyer does not have or appreciates perspective on.  But, frankly, there are no guarantees on money one way or the other.

Why else would a buyer looking for the right business for sale prefer to work with a broker?  A broker provides the value of an intermediary for difficult negotiations.  The broker has a professional responsibility to disclose critical information (they are aware of) about the business.  The broker can bring forward a number of businesses for sale meeting the requirements of the buyer, reducing the time to find such a business.  The broker can provide proper forms to work through the process of offers and due diligence.  The broker provides perspective on value, operations, fit for the buyer, and opportunity looking forward.

And, as I have said before

Some great purchases are made from the perspective of both sides without brokers.


whether a broker is used or not when selling a business, it is wise to engage an attorney and an accountant on both sides of the transaction, buyer and seller.  A broker can help to reduce professional expenditures but cannot serve as such a professional consultant unless they are professionally licensed.

It is good to note that the person who pays the broker is the person to whom the broker owes their primary duty, though they should be honest and fair to all.  Some brokers represent only buyers and are paid by the buyer.

To learn more about brokers and buyers go to

Recently someone was about to sign a listing agreement, for the sale of their business.  At the last minute, they elected to try to sell the business themselves.  At this point they had received some of the materials a broker might typically use for the sale of the business, a list of the places any business might be marketed on the internet, and input from the broker as to the general nature of selling the business.

Q:  Why shouldn’t the entrepreneur selling a business try themselves?

A:  They should if they are comfortable with the identifying the value to a potential buyer, the challenges of finding appropriate buyers, know the conflicts that can arise when representing yourself, and understand the potential cost of doing it on their own.

Advantages to the seller working alone are to save money if the costs of selling on their own do not exceed the commission the broker offers.

Disadvantages include:  confidentiality is difficult if you represent your own business;  putting a value on the business does not mean merely opening a book;   the time and unknown costs of finding a buyer and executing the process; not having someone to negotiate on their behalf; not having a buyer roster waiting in the wings to find just the right business; not having a neutral attorney with a fixed fee for the closing documents; not having the time-tested documents leading up to the close that are often provided by the broker; not having systems in place to move the buyer and seller through the process, including the difficult parts.

Obviously a good number of business buyers and sellers find each other and all goes well.  Sometimes, in either scenario the process can go badly.  So, it is both the buyer and seller’s choice, which they are most comfortable with.  A seller might try their own effort and, at some time if a buyer has not been found, it is time to use a broker.  Or perhaps use a broker after the potential buyer has been identified to manage the process.  For the buyer, it may be a better choice to only work through a broker.  See more on this in another blog.

Whether a broker is used or not when selling a business, it is wise to engage an attorney and an accountant on both sides of the transaction, buyer and seller.  A broker can help to reduce professional expenditures but cannot serve as such a professional consultant unless they are professionally licensed.

Susie has a business for sale.  The business is a marketing company.  She has been in business for ten years and has made a nice income, kept reasonable records,  built a list of clients, has a company name beyond her own, and has evidence of her services in the market place in a permanent fashion, one that carry forward. Being conservative, Susie has never had an office, uses her own car to get around, her personal phone is her business phone.

Does Susie have something to sell?

Yes but there are things she can do to make the sale easier, more likely to happen.  

If you have a company with few hard assets, your challenge in selling is to be able to clearly demonstrate that the new owner will have something to visualize as owning:

Make certain

1)   your income is well documented with tax returns.

2)  you are willing to give up your personal phone number or start now to transition the business clients and ensure all documents, signs etc are reflective of a phone number that can go with the business.

3) have a snail mailing address that can be utilized by a new owner, perhaps a post office box, an email address dedicated to the business.

4)  have clear records of client activity, such as percent of renewals from year to year, percent of the market, etc.

5)  have letterhead, cards, invoice, and other forms that are formal, not casual documents.

6)  be willing to identify a means to transition the new owner that will have to move into the business in a fashion that will cause the least upheaval to the clients.

7)  have signed agreements if it makes sense.

8)  have marketing pieces that demonstrate value and recognition in the market place, i.e. signs, website, etc.

9)  have a name that is separate from your name.

Basically make the business as formal as possible.

My own story:  I bought such a business for sale.  Basically there were no contracts.  However, it had visibility in the market place.  Perhaps only 1% of the price I paid was for hard assets.  I bought this blue sky business and exceed the prior owner’s income for five years…then the economy hit.

Many businesses for sale are primarily blue sky and they can be highly profitable.

(Do you see that happy face above?  Well, I just can not get rid of it and put in the #8.)

Yesterday I met with an attorney.  We were chatting about the sale of a business and the implications of inventory.

Imagine, it is the day before close, after a month or two of due diligence.  The demands of the buyer have been slightly on the nerves of the seller.  After all, did the buyer not realize the great value of this business?  The buyer feels like he had to slug through the due diligence and is tired, glad to see the end of the road, close.  The only remaining issue is the inventory.  It should be a snap. Right? Ha!

In a perfect world the inventory would be very current, all bought within the last six months perhaps.  The perpetual inventory, with current purchase prices that every business-for-sale owner wishes he had is in place and completely matches with the hand count.  There are only 1,000 items to count and they are neatly in place.  And, to enhance it all, the invoices with pricing matching the perpetual inventory records are right in the draw and all pricing is accurate.

May every buyer and seller have just this case and we are fit to close.

It does not always go that way.  Each of the perfect conditions represented in paragraph three can break down, even for the most perfect shop keeper.  The seller can help prevent an issue by having worked up to this day in cleaning out the old, spot checking the pricing if doing the entirety does no make sense, have invoices available, and ensuring the inventory is in order before the count begins.  It could take a year to get it all ready.  Start early.  For both buyer and seller, coming into the inventory count with a clearn, steam-free, and flexible mental state can help.

My attorney friend in paragraph one gave a great solution to old inventory.  In the buy / sell or purchase agreement, the seller can agree to take the old inventory (however defined) and have the non-compete exclude the seller’s divesting of that old inventory.  Short of this the inventory can be eliminated from the count or greatly devalued in the count as the business-for-sale close approaches the next day.

Some buyers and sellers agree to parameters for counting and valuing the inventory and then hiring a neutral party to actually perform the task.

My recommendation is that the inventory be done the day prior to the close, so the close and dispersement is not further delayed to have final numbers.