The State of California is one of the strictest in regulating and protecting the rights and health of its citizens. The state is also strict on environmental and labor laws. All of these regulations are great for protecting residents. However, they do make finding a qualified buyer for certain businesses in California a challenging task.
The reason is that for a person to be a qualified buyer, they not only need to have sufficient funds or financing, but in some cases, they also require special licensing and permits. This means, for example, that while anyone can buy an HVAC business, the buyer must not only have a general contractor’s license but also meet specific qualifications or hire someone who has them.
While other states have some of these same laws, California’s are some of the toughest. This is because it takes both time and money to get the licenses. This simply means the deal can fall through if those requirements are not met.
Let’s take a quick look at a few examples.
General Contracting
Anyone undertaking a project with a value exceeding $500 in work must have a general contractor’s license. To become a general contractor, a person must pass two exams: one in business and law, and the other in their specific trade.
This came into play when selling a tree and landscaping business. The buyer had a general contractor’s license, so they only needed to sit for one exam, which was for the landscape business, and were able to skip some of the other initial steps.
One of those steps is that before you can even sit for your exams, the California State Board must approve your application. That means the applicant needs at least four years of experience in the field for which they are applying, such as a journeyman, foreman, supervisor, contractor, or other relevant experience. Contractors must also carry a $10,000 bond and have at least $2,500 in working capital.
All that sounds pretty standard, and it is, but as you get into individual fields, things can get tougher.
Service Industries and Hazardous Materials
While in general building, employees and supervisors seldom deal with hazardous materials, as soon as you are painting, doing pest control, HVAC work, landscaping, and weed control, and a variety of other jobs, your daily activities include handling these materials. When it comes to these things in California, the rules are strict and vigorously enforced.
So, for example, let’s say you have a pest control business. You handle pesticides and other materials daily. You also transport those materials to people’s homes, apply them, and store them somewhere when you’re not driving around.
This means that the place you store them must meet specific standards. Your vehicles must also meet those standards. You must have a qualified, licensed applicator on staff, and all individuals who apply pesticides must also be certified.
In addition, your business will need special licensing, permits to operate in certain areas, and you’ll need special permits from every county you operate in. This can become very expensive, and if your buyer is not already licensed, it can also take time, which is valuable time that could have been used to sell your business.
The Lease of Your Problems
Finally, one of the most common issues that can arise in the sale of a business is the lease. In fact, if you are planning to sell your business, negotiating your lease ahead of time is a good idea. The reason is simple.
You’re already permitted to operate where you are, and even if those permits are not transferrable to a new owner, it will be much easier to get them approved in your current location than a new one. The problem? If your landlord suddenly decides they don’t want to rent to the new owner, the deal can go sideways fast when that buyer determines the time and money it will cost to move the business.
Remember what you want as a seller: you want a fair price for your business and want to sell it as quickly as possible. What does the buyer want? They want as little risk as possible, and as much of a sure thing as they can get. Often, price is not the first problem in business deals; other terms are what get in the way, or obstacles like licensing and certification.
Be a Motivated Seller
What can you, as the seller, do to ensure a smooth transaction? Is there a way for you to help? There are a couple of key steps you can take in the process of listing and selling your business that will help immensely.
- Contact a professional: If you operate a business of any kind that requires special licensing, permitting, or certifications, contact a business broker even before you are ready to sell. They can help you determine the criteria a qualified buyer needs before considering buying your business.
- Ask for Proof: Know the right questions to ask, and the answers you should expect. Be careful not to take someone’s word that they have what they need to buy your business. Ask for appropriate documents.
- Negotiate Your Lease Ahead of Time: Ensure your lease can easily be transferred to a new owner, and be honest if it cannot.
- Be Prepared for Due Diligence: While a professional business broker based in California can tell you what you will need, they can’t do some of the work for you. Ensure that your financial records, taxes, and all relevant documentation are in order and readily available for review by a potential buyer. This will significantly speed up the process of selling your business.
Any business transaction takes a motivated seller and a motivated buyer. If you take care of your part, you can find the right person at the right time who is genuinely a qualified buyer, motivated to purchase your business.
Selling a Business by Yourself is Challenging
It is an effort that goes nowhere. You will need help, and that is where a business broker comes in. If you are looking for a business broker in California, contact us here at Rogerson Business Services. We can help you get started on the path to selling your business today.