Transworld Blog

From business brokerage to mergers and acquisitions; we are the business sale specialists.

All Posts

Buying A Business From A Family Member: How Advisors Can Help

A great deal

I got a call from someone who was in the process of purchasing a business from an Uncle. The Uncle wants a million dollars for the business which includes real estate, and is willing to sell to his niece on a contract for deed. The niece would pay for the business over time with the proceeds of the business. The niece, who currently works in the business, would eventually be the owner, without having to get approved for a bank loan or provide cash for a deposit. Seems like a win-win, right?

What To Consider

Not necessarily. The buyer, in her twenties, knows nothing about buying a business, let alone valuing one. The Uncle, like most business owners, thinks his business is worth much more than what it might sell for on the open market. The niece was not only afraid to ask too many questions of her Uncle, which might kill the deal and her dream, create hard feelings, or interfere with family relations; but she also didn't know what to ask, if she felt comfortable doing so.

How We Can Help

Buying a partner out, or buying a business from a family member can be emotional and tricky. The owner  wants the most they can get for their business, having worked hard and grown the business for years. The buyer wants the path of least resistance and a fair price, but may not realize the importance of determining first, if the business proceeds can cover the loan payments for the length of the loan (in this case 15 years) whether the loan is from a bank or from the seller. The parties may also not realize the importance of keeping the transaction confidential, so that employees and customers don't hear about it before the buyer and seller are ready for them to.  Having an objective third party with mergers and acquisitions experience, who can provide information and advice, is paramount to the health of the business and the relationships of the family and/or partnership.

Role Of Advisors

An Advisor can work either on behalf of the buyer, be the intermediary between the buyer and seller, or work on behalf of the seller, depending on what the parties hire them for. When working on behalf of the buyer, an Advisor will be a resource for the buyer from beginning to end.  This could mean guiding the buyer on what information to get from the seller, providing a Broker Opinion of Value using the businesses financials, industry standards and comp sales from similar businesses across the country, explaining the valuation to the buyer, and negotiating on behalf of the buyer, which helps ease the stress buyers face when working with a family member or business partner.  

Other Types Of Advisors To The Transaction

Business Advisors have relationships with commercial real estate brokers, accountants, M&A attorneys and bankers. These professionals help parties to the transaction with appraisals (when real estate is included), due diligence (verifying financials, looking at trends and considering future expenses) creating a pro forma (cash flow projection based on the business's financials), writing the offer letter or reading over the sale documents (using an attorney with M&A experience is the best course of action) understanding how risky a deal might be (if the businesses cash flow can finance the deal, plus pay the buyer a salary).

In this case, the Uncle wanted to use his business attorney to draft the transaction documents. If the attorney does not have experience with mergers and acquisitions, they may not draft the best agreement for either the Uncle or his niece.  An Advisor, who is an objective third party, will guide the parties to the transaction, keep the deal moving forward, help buyer and seller avoid unnecessary pitfalls, and make suggestions based on their experience with similar transactions and best practices.   

No Question Is A Dumb Question

If you are considering a partner buy-out or purchase from a family member, don't hesitate to contact us for help. We offer broker opinion of value, answer questions, provide insight, help with referrals, and provide questions you can ask the seller before you decide to move forward. No deal is too big or too small, and no question is a dumb one.

Lauren Altschuler
Business Advisor, Member, IBBA
Transworld Business Advisors

 

Lauren Altschuler
Lauren Altschuler
I assist buyers and sellers of privately held businesses in the buying and selling process. We help value your business for the best price, advertise it confidentially to qualified buyers, handle buyer interviews, discussions, negotiations and facilitate the due diligence investigation and the sale of the business.

Related Posts

Is Buying A Business A Good Idea?

Yes!  Buying a business is a good idea.  Why?

Ten Steps To Selling Your Busines

Our Sellers except us to achieve the highest and best offer for their business while taking the least amount of their time away from it as possible. That is because the absolute best use of their time is to continue to run and grow the company.  If revenue or profits begin to decline, buyers will walk away or decrease their offer. Transworld's philosophy can be summed up in a ten step, how-to strategy that culminates with the sale of a company. This proven method has been used to sell hundreds of businesses.  Here are the steps. Step1 Comprehensive Business Analysis and Feedback As your business broker, the first thing in our how-to strategy is to analyze your operation, finances, market potential and industry trends. We take that information and advise you on steps to prepare your business for sale, and  generate a business profile that represents your company in the most attractive way possible. Step2 Sale Structure We identify the best possible price range to sell your company. This is based on solid facts, the condition of the market, projected growth, sales potential and the sale of similar businesses within your industry. Transworld’s experts apply sophisticated, time-proven valuation techniques to ensure that your price is appropriate for the current market condition. The price must not be too high or too low. Yet, it must represent an attractive investment potential for the buyer. Step3 Confidentially Network The Business For Sale During the selling process, we utilize the latest technology to present your company to other business brokers and strategic buyers all over the world. This greatly multiplies the effort in your favor. With Transworld Business Advisors, you have literally thousands of industry professionals confidentially representing your company to buyers.   Step4 Confidentially Advertise To Buyers Our aggressive marketing program ensures your confidentiality and provides maximum exposure for your company. Your listing is placed in various industry databases, Internet sites, and publications which are constantly updated. We spend more money in advertising and marketing for buyers than anyone else in our industry. Step5 Control The Information Flow We organize all necessary documentation and release information only as needed. We use limited information when advertising to maintain confidentiality. Buyers are pre-qualified and required to execute a confidentiality agreement before receiving any sensitive business information. Step6 Create Competition For Your Company We attract thousands of buyers, creating competition for your business. Buyers are qualified for financial ability to meet the offer, and we engage you with only the most qualified buyers. Once you meet the best of the buyers, we urge them to prepare and present all offers. We can continue to engage potential buyers on your behalf as negotiation on an offer is in process and have another interested party ready to go should a buyer change their mind. Step7 We Negotiate For You To Achieve The Best Price Appropriate negotiation is crucial to achieving your best price and terms. We have the expertise to establish sound and resourceful negotiating techniques on your behalf. Transworld has trained all of its agents in the art of negotiating through curriculum that we have created specifically for our industry. Never negotiate without planning, expertise, or from a position of weakness. Step8 We Provide Exceptional Support To You Through The Due Diligence Process We take pride in our exceptional service. Only half of the job is finding the right buyer who will pay your price and meet your terms. The other half is getting that buyer to the closing table. We quarterback the deal, work with the accountants, lawyers, banks, landlords, and other third parties that could jeopardize the success of the transaction. We realize that you depend on us to guide you through the sale of your business. We make the transition simple and easy for you. We know when an opportunity for you may arise and are always there to take advantage of it. We also know when someone is trying to kill your deal or is being unreasonable and how to handle those situations. Step9 We Are There From Beginning To The Closing We help manage all administrative procedures, licenses, inventory counts and lease assignments that may be required. Transworld works closely with your advisors to ensure a smooth transition. Using the latest technology, we strive to be ready to work on your behalf to get the deal done! Step10 We Are There For The Transitional Phase And Beyond! Because we are in the business community, you may want to consult us from time to time after the sale. We will provide you with the assistance after closing. Transworld will always remain in your corner! Schedule Consultation Now

5 Tips For Keeping Your Business Sale Confidential

When selling your company, it is crucial for the health of the business and its future that the sale remain confidential. If your customers, vendors or employees learn it is for sale, it could have a negative impact on value.  Learning of a business sale may encourage customers to replace your product or service, employees to look for more secure employment, and vendors to demand payment of invoices.   If the value of your business is impacted, you will lose negotiating power with buyers and will not get the highest and best offer for it.  One way to protect the confidentiality during the sales process is to work with a business advisor, who will work on your behalf, use best practices, and allow you to continue to run your business.  Here are some tips we share with sellers on  keeping a sale confidential.

Your Goals Are Just the Beginning

Talk to one of our Advisors today about next steps.

Free Consultation

E-mail address

minnesota@tworld.com

Contact us

+(888) 290-5232

Confidential Consultation

Talk to an Advisor