Resources and Insight

There are challenges a business owner will encounter when first entering the business transfer market. Any owner who wants to make the most out of their equity should be aware of the following three:

• Unbiased Guidance: An unbiased understanding of the available options regarding the exit of your business, considering your desires, strengths, and weaknesses, is needed to make the best decision about what to do next. Unfortunately, most vendors and resources in the market represent a specific product or service. It is rare to get unbiased guidance due to these vendors and resources pushing what they represent. Their business model does not lend to educating owners regarding competitive options. If you walk into the market unprepared, you will likely be taken down the path that best suits the vendor you are speaking with, which may not be your best option.Markoa’s Business Transfer Preparation service is designed and delivered without bias of any kind giving the owner the ability to make the best decisions possible regarding how to proceed with the exit of their unique business.

• Customized, One on One Instruction: There are some quality business selling resources available to help educate owners. Books, websites, courses, seminars, etc., are available now from countless sources. Unfortunately, these offerings can only address general topics and situations, not to the uniqueness of your business. These services can only take you halfway, and you miss out on how it all applies to your specific opportunity and market conditions. General education is not enough.Markoa delivers one of the most customized, one on one services available. Our interaction is geared to you from beginning to end. We learn and validate your specific needs and create a strategic plan just for you.

• Ongoing Support: Having access to an expert when needed provides a tremendous advantage when moving forward with the business sales & acquisitions market. Questions come up that require experience and understanding. Some skills are necessary to make the most out of your opportunity, financial recasting, pricing, packaging, offer & negotiation, due diligence, etc. It is impossible to turn someone into an expert for each of these requirements in preparation for their first deal. Typically, ongoing support requires the high price of brokerages, CPAs, or lawyers.Markoa is always available as needed by our Business Transfer Preparation clients. We offer a free hour of support after our preparation session. At a fair price, we will remain a resource to you in your efforts as you fight to make the most of your life’s work.

The following discusses some potential negatives of working with traditional brokerages. It is not our intent to bash the industry or brokers/advisors. There are many highly qualified, trustworthy players in the game that we would recommend. The following is meant to point out some of the possible challenges you need to be aware of to help make your decision. In addition to what to avoid if you choose the brokerage path.

• Successful sellers pay for the unsuccessful: On average, a brokerage sells between 15% – 30% of their listing inventory. Some do better and some do worse. This leaves 70% – 85% of businesses listed going with little to no compensation to the brokerage or its agents. The unfortunate result is the requirement of a high commission fee for those businesses that sell to support the industry’s business model. Owners who sell their business compensate the brokerage at a rate that covers the losses for the listings that do not sell. We have always felt this was very unfair to the successful sellers. Markoa offers a better method.

• Confidentiality weak link: Although there are brokerages that handle confidentiality very well, it has been our experience that the one or two weak links can spoil confidentiality. When a new listing comes into a brokerage, an owner must rely on all the brokers they have not met to keep things confidential, often presenting unwanted challenges.

• The Broker, The Brand & Rookies: As it was for us, established brokerages can be an excellent way to learn the ropes as a rookie advisor. When it comes to the biggest payout of your career, you do not want the work facilitated by a rookie. Do not let your life’s work be an inexperienced broker’s learning experience. Make sure the lead on your sale is a seasoned professional.

• Who is the real client: Situations exist where a brokerage has sold multiple businesses to the same buying entity. Owners need to be sure their representatives have their priorities dictate negotiations and agreements, not the buyer. If a broker has collected multiple fees from a buyer and hopes to receive more from the same buyer in the future, who is the real customer?

• Bait and switch: When there is a brokerage with several listings, one listing can often be bait for other listings. Be sure the prospects that inquire about your listing are adequately sold on your product before presented another.

• Loss of control: Many successful entrepreneurs do not want to give over control (or cannot do so successfully) of the biggest payday of their careers. Brokerages and M&A Firms take ownership of the process. For many owners, this can be counterproductive. Markoa keeps you in control of each step of the sale process with access to the support and business selling resources you require.

We often use this phrase to define our goal in helping you prepare to sell your business. A good deal done right can mean different things depending on the seller and their situation. But, a good deal done right should include the following factors:

• Attain a market value sale price for the businesses.
• Confidentiality expectations met by all parties. 
• All parties well informed and satisfied with pre-sale and due diligence requirements.
• Appropriate representations and warranties, allowing a successful exit for the seller and a path to success for the Buyer.
• Amicable relationship between buyer and seller post-sale with a communication channel in place.
• All post-sale commitments accomplished.
• Clean and unencumbered transfer of defined business assets.
• No post-sale litigation between any of the parties involved with the business transfer.
• Appropriate and un-encumbering costs associated with the transfer of the business.

• Business Brokers typically work with small and Mainstreet businesses. Usually, with profits (Seller’s Discretionary Earnings) of $1,000,000 or less. The primary buyer type for business brokers are Own-Operators with some Financial buyers. Asset Sales are the standard type of transfer with a few stock sale exceptions.

• Merger & Acquisition firms typically work with mid-market businesses with profits (EBITDA) of $1,000,000 and higher. The primary buyer types for M&A transfers are financial buyers and strategic buyers. Both Asset Sales and Stock sales are standard. M&A transactions are typically more complex regarding valuation, taxation, funding, and contracts.

The ideal Markoa customer fits three categories.

• Ready – The seller has a legitimate and compelling reason to sell their business and has a post-sale plan for what comes next. These reasons could include retirement, health issues, divorce, partner dispute, relocation, etc.

• Willing – The seller is willing to seek ways for the deal to work and participate in all aspects of the selling process. They are also willing to provide the time and focus needed and prioritize the sales efforts.

• Able – The seller has the legal ability to sell the business, and the company is worth enough money to pay off all financial obligations (liens, debts, closing costs). No insurmountable encumbrances exist.

The following discusses the potential cost savings if an owner were to sell their business on their own by using Markoa’s Business Sale Coaching and Assistance services rather than traditional business brokers or M&A advisors.

Successful business brokerages often ask for upfront fees and 10% – 15% commission with varying versions of reduction for larger transactions. All compensation structures are negotiable, and a few brokers charge less. There will be additional expenses associated with the transfer, including but not limited to escrow, legal and accounting fees. These other expenses vary, but it is wise to plan on 1% to 3% of transfer value if working with a business brokerage or M&A firm. This means an owner who works with a traditional brokerage or M&A Firm can expect fees, commissions, and additional expenses to be in the range of 11% to 18% of total transfer value if there is a successful sale. Note the percentage of commissions often reduces as the sale price hits $1,000,000 or more. Commission structures vary and may be negotiable.

Markoa’s Business Sale Coaching & Assistance services offer significant savings regarding Transfer Expenses.

The following table shows the typical range of expenses for both the traditional brokerage model and the Markoa Business Sale Coaching service and the savings range potential.

Note: this table does not include the 1% to 3% for additional expenses. The actual seller’s costs would be 1% to 3% higher than the estimates shown here.

• Business Sale Price = The total transaction amount/value of the sale.

• Traditional Expense Range = The typical cost range for commission-based brokerages & firms.

• Markoa Expense Range = Our estimated range of expenses for our complete full service. There can be significant reductions in our cost based on which tasks you want to take on and which you prefer to give to us.

• Vendor Increase = Estimated increase in third-party vendor expense. Our coaching model will require an estimated increase of 1% of the sale price in vendor cost over the brokerage model.

• Savings Potential = Estimated range of cost savings of the Markoa Business Sales Coaching model.

The following discusses the potential cost savings if an owner were to sell their business on their own by using Markoa’s Business Sale Coaching and Assistance services rather than traditional business brokers or M&A advisors.

Successful business brokerages often ask for upfront fees and 10% – 15% commission with varying versions of reduction for larger transactions. All compensation structures are negotiable, and a few brokers charge less. There will be additional expenses associated with the transfer, including but not limited to escrow, legal and accounting fees. These other expenses vary, but it is wise to plan on 1% to 3% of transfer value if working with a business brokerage or M&A firm. This means an owner who works with a traditional brokerage or M&A Firm can expect fees, commissions, and additional expenses to be in the range of 11% to 18% of total transfer value if there is a successful sale. Note the percentage of commissions often reduces as the sale price hits $1,000,000 or more. Commission structures vary and may be negotiable.

Markoa’s Business Sale Coaching & Assistance services offer significant savings regarding Transfer Expenses.

The following table shows the typical range of expenses for both the traditional brokerage model and the Markoa Business Sale Coaching service and the savings range potential.

Note: this table does not include the 1% to 3% for additional expenses. The actual seller’s costs would be 1% to 3% higher than the estimates shown here.

• Business Sale Price = The total transaction amount/value of the sale.

• Traditional Expense Range = The typical cost range for commission-based brokerages & firms.

• Markoa Expense Range = Our estimated range of expenses for our complete full service. There can be significant reductions in our cost based on which tasks you want to take on and which you prefer to give to us.

• Vendor Increase = Estimated increase in third-party vendor expense. Our coaching model will require an estimated increase of 1% of the sale price in vendor cost over the brokerage model.

Most business owners should go with a traditional brokerage because of one or more of the following factors. It is the owner who has the following traits covered that should consider our Business Sale Coaching & Assistance services.

1. Available Time: Business transfers are very time-consuming. Although Markoa’s services can significantly reduce the amount of time required from the seller, the process is still time taxing. It is not just the amount of time but the interruption factor. To attain a good deal done right, a seller who has chosen to sell their business with coaching assistance needs to be available when the phone rings. Many owner-operators cannot interrupt their daily operations every time a business sales task needs attention without negatively impacting the business’s ongoing performance.

2. Skill Set: A wide variety of skills are required to accomplish a successful business sale. Although Markoa can handle much of the tasks and empower you with preparation and materials, sellers will still need the ability to negotiate and problem solve on the spot. Some degree of salesmanship is required on the part of the seller to attain best-case results.

3. Personality and Tolerance: The process of selling your business is like selling a child to a stranger. It sounds crazy, but it is not far from the truth. There are big emotions on both sides of the table. And each has their perspective and agenda. Many people struggle with others being critical of their life’s work, but it is the buyer’s job to question and find shortcomings with your enterprise. This can often lead to personality conflicts that can derail the process if not appropriately managed. Sellers need to maintain an open mind and work with buyers that may come across as offensive.

4. Ongoing Focus and Resolve: Every deal dies multiple times, and many promising prospects fall short. For those not familiar with consultative selling, dedicated focus and resolve are essential components for all business transfers. Not all goes as planned and sellers need to get back up, pump life back into the deal, or move on to the next prospect with a fresh attitude and commitment.

Markoa’s Business Sale Coaching services can help with each of the above challenges, but not solve them completely. Sellers will need to be sure they have the time, skill set, tolerance, and resolve required to sell their business without a broker.

1. Education, expectation setting, and strategizing.
2. Valuing and business analysis.
3. Value building efforts.
4. Pricing and desired deal profiling.
5. Packaging: Marketing material development (CBR) and SBA requirements.
6. Confidential marketing, direct exposure, and multiple listing services.
7. Buyer pre-qualifications and NDA.
8. Buyer communication and Q&A.
9. Letter of Intent or another form of offer.
10. Negotiations and contracts.
11. Due diligence and final resolutions. May require additional negotiation.
12. Closing contracts and escrow/closing –– Business transferred.

There are three primary buyer types of small and mid-market businesses.

• Owner-Operator: This is often an individual looking to purchase and operate a business rather than start one from scratch. They are entrepreneurs who want to control the company and be their own boss. These are the most common buyers for small and Mainstreet business opportunities. The type of business, their role in the operation, growth potential, and profitability are their essential decision factors.

• Financial Buyers: These buyers come in a variety of forms, most commonly a Private Equity Group. But they can be individual absentee owners. They are interested primarily in the financial performance and growth potential of a business. Often, they maintain a portfolio of synergistic companies and grow by acquisition. They may focus on a geographical territory or vertical niche. Either way, they come with a pre-defined method of valuing and purchasing target business opportunities. Financial buyers typically play in the M&A arena seeking businesses with significant profits, synergistic with existing companies, and growth potential.

• Strategic Buyer: These buyers come in many forms but usually own an existing business that would benefit uniquely through acquisition. This buyer type seeks to acquire companies, that for one reason or another, will improve their overall operation in a manner unique to them. Their motivation can be to expand into new markets, access to new distribution channels, reduction in production costs, patents, skilled employees, etc. These buyers have the objective of integrating new companies into the one they currently own. Strategic Buyers are found in small business transactions but are predominantly in the M&A arena. Each strategic buyer has their own unique points of interest when valuing and purchasing a business. Stategic Buyers are desired by sellers because they can often find higher value in a company than Owner-Operators and Financial Buyers.