Questions from owners and buyers
Selling or acquiring a business involves terminology and decisions that most people encounter only once. The answers below address the questions we hear most often, and we are glad to discuss any of them directly.
Questions from business owners
What is my business worth?
A business is worth what a qualified buyer will pay for it, and that figure is driven principally by normalized earnings and the risk a buyer attaches to them. We recast your financial statements, compare the business with relevant market evidence and provide a supportable range, together with the factors most likely to move it.
Why engage an M&A advisor rather than sell independently?
A sale process places substantial demands on an owner’s time at the same moment the business needs to perform. An advisor prepares the company for market, defines and approaches the buyer universe, qualifies buyers and manages negotiation and diligence, which allows you to remain focused on operations. A competitive, well-documented process also gives you a clearer basis for comparing offers on value, structure and certainty of close.
How are engagement terms set?
Engagement terms are discussed privately after an initial confidential conversation, once we understand the business and your objectives. Scope and terms are documented in writing before any work begins.
Will my employees or customers find out?
Not through us. The business is marketed under a project name, every buyer signs an NDA and is qualified before learning its identity, and buyers are not permitted to contact employees, customers or suppliers. When the time comes to inform key employees, we help you plan the timing and the message.
What is the difference between Main Street and lower middle market?
There is no formal definition. We generally regard businesses valued under $2 million as Main Street and those above $2 million as lower middle market. Main Street transactions more often involve individual buyers and asset purchases, frequently with SBA financing. Lower middle market companies attract private equity groups, strategic acquirers and buyers from outside the region, and transaction structures are typically more involved, often including seller notes, earnouts or rollover equity.
What is a confidential information memorandum?
The confidential information memorandum is the principal marketing document for the business. It presents the company’s history, operations, customers, workforce and recast financial performance, and it is provided only to buyers who have signed an NDA and been qualified.
What is a quality of earnings review?
A quality of earnings review is an independent analysis, usually engaged by the buyer or its lender in larger transactions, that tests whether reported earnings are accurate and sustainable. Sellers who have prepared clean, reconciled financial statements and documented their adjustments are in a much stronger position when that review takes place.
What is a working capital peg?
Most purchase agreements assume the business will be delivered with a normal level of working capital. The peg is that agreed target, and the purchase price is adjusted at closing if actual working capital falls above or below it. Because it bears directly on the proceeds you receive, it should be negotiated carefully at the letter of intent stage.
How long does a sale usually take?
Timing depends on the size and complexity of the business, the condition of its financial records and the buyer’s financing. Thorough preparation is the most reliable way to shorten the process. After an initial conversation we can give you a realistic view of timing for your situation.
Questions from buyers
What are the advantages of acquiring an established business?
An established business provides cash flow from the outset, along with trained employees, customer relationships and operating systems that would take years to build. Lenders are also generally more willing to finance the acquisition of a business with a documented earnings history than a startup.
How are most Main Street acquisitions financed?
Most transactions combine buyer equity, a seller note and senior debt, often an SBA 7(a) loan for Main Street acquisitions. Some buyers use retirement funds through a qualified structure. The appropriate mix depends on your capital, the business and current lending conditions, and it should be reviewed early with your CPA and lender.
How do I find lower middle market businesses for sale?
Many companies valued above $2 million are never listed publicly. They are marketed to a defined group of buyers through a confidential process. Registering with us and providing specific acquisition criteria is the most direct way to be considered for those opportunities.
Where should I start my search?
Public listing sites are a reasonable starting point. Once we understand your criteria, background and financing, we can tell you about companies we represent, often before they are marketed more broadly.
Speak with an advisor
Every conversation is confidential and carries no obligation.