Representing A Business Opportunity

<<<<I would love to hear from brokers/agents who are expert at business opportunity transfer transactions. One of my agents is interested in specializing in this type of transaction and I am not an expert at it, though I have done a couple in the distant past. UCC searches, inventory, transitioning, etc. What are the most important things to remember/know (besides making sure E/O will cover)? :)>>>>

I have a background in mergers and acquisitions (See "About Me" at www.DesertAreaGolfHomes.com) I am assuming you are talking about small business as opposed to larger multi-million businesses (which believe it or not, are much easier due to these companies having the financial resources as well as "people resources" to do the due diligence work). With respect to smaller business, the one thing I would mention is the amount of UPFRONT work involved, as compared to selling a home. (i.e., gathering historical financial data, preparing a prospectus or some kind of business summary, preparing pro-forma cash flow analyses and business valuations, etc.). If you don't have this expertise in-house, this can be farmed out however as the agent involved, you will still need to understand all of the financial and operating details (not just gross sales).

Secondly, be prepared to work with a LOT of potential buyers. People tend to get excited at the prospect of buying a business and working for themselves, only to find out later (usually when they visit their banker) that the numbers don't pencil out financially. In buying a home, it is usually easy for a buyer to find out if they can afford the home and obtain financing (the current mortgage crisis and fiasco aside) . Buying a business is entirely different. When you buy a house, you know what you are buying (supposedly).

When you buy a business, what you are really buying is not the business itself, but rather the (sustainable) "future cash flow" the business is capable (hopefully) of generating, and whether that cash flow is sufficient to pay off the debt required to purchase the business, pay all operating and capital expenditures, and pay yourself a salary you can live off of (assuming no other source of income to live on). You are buying into the "future" and will need a bank to buy into that future with you.

Painting an accurate picture of that "future" (through financials, cash flow analyses, and so on), is not easy to do. You will be surprised at how many potential buyers will think buying a business will sort of "pay for itself" (just look at those gross sales!) until they finally sit down with their ban, to review the business historical financials, pro-forma cash flow projections, future capital expenditures necessary for the business, their personal financial statements and their own cash flow to live on, outside the business they are buying. Be prepared to do a lot of work just getting these people to the point where they can sit down to have this discussion with their bank and then be prepared for the vast majority finding out they don't have the financial resources, or the bank considers the business too great a financial risk.

Good luck in your efforts, and if I can be of any assistance along the way, let me know.

Larry Hansen, Broker-Associate, e-PRO

Realty Executives

Ph: (760) 668-2486

Fax: (760) 262-3918

Texting: (760) 668-2486

Email: Larry@HansenDesertRealty.com

Website: www.DesertAreaGolfHomes.com