Want to buy a business successfully?
The decision to move forward with successful business acquisitions is a big decision, as well as a substantial investment of time, money, and effort.
There’s a significant upside to this decision, including the ability to build critical mass, enhance market position and brand awareness, and capitalize on opportunities in new markets and product offerings. Additionally, economies of scale can help your company expand into new territories and leverage operational and administrative efficiencies.
The acquisition process is typically broken down into four stages:
- Pre-acquisition,
- Due diligence,
- Deal negotiation,
- Post-acquisition.
It starts with an Independent Business Valuation.
An integral component of the pre-acquisition and due diligence stages of the acquisition process is conducting an independent valuation by a business professional specializing in the valuation of companies for mergers and acquisitions.
This professional valuation should serve as your benchmark for managing expectations about your company’s market value. As the person most closely ingrained with the operation, the business owner’s opinion may be subjective; business owners tend to have somewhat unrealistic ideas of their business value.
That’s the rationale for an independent valuation. It will provide you with a more accurate assessment of the business’s value and help you avoid overpaying for it. A professional will examine not only your prospective business acquisition, but also the competition, the Sacramento area economy and business climate, and past business transactions similar to your situation.
Stick with what they tell you. If you have a preconceived and unrealistic idea of the business’s value, you set the stage for an unsuccessful and difficult sale. The process becomes frustrating, tedious, and stale.
Expect your business advisor to prepare you for a successful business acquisition.
Your business advisor, who will be experienced in mergers and acquisitions (M&As), will significantly reduce the time and effort required for the sales process, allowing you to focus on preparing for the new business operations. A business broker will play a key part in the negotiation stage of the acquisition process, including:
- Communicating with decision-makers at the target company, including your understanding of their business and sharing your target company research;
- “Selling” or promoting your company’s strengths, upside, and plans for the company targeted for acquisition; and
- Routinely relaying your company’s strategic wins and successes;
The acquisition process is frequently very emotional. It requires a deft and experienced hand at the helm. While it’s your money and your potential business growth, you need to give an expert some leeway to help you achieve a successful result.
Think of the caption of the ocean liner. Even the most highly regarded captain welcomes aboard a local professional pilot to navigate the ship through dangerous waters and complete the berthing operation in port. That’s what Andrew Rogerson will do for your business opportunity. He has been a part of the Sacramento business community for many years, assisting in the closure of business sales, acquisitions, and mergers.
It’s typically a 5 to 10-month journey.
The acquisition process typically takes between five and 10 months. Your business broker knows that anything longer than that may signal untold obstacles or issues. This is the time to identify the issues and determine how to proceed, including whether to continue with the acquisition process.
As you can see, there’s quite a bit of information to keep straight when acquiring a business. Working with a qualified and experienced business broker will pay dividends. Your business valuation consultant will guide you through the process and help you make a wise decision that will build your business for the future.
When Selling or Acquiring Your Business with Real Estate
There is simply no “one size fits all” approach, whether selling or acquiring a business with real estate. Here are some other factors to consider.
- Some California business owners who also own real estate simply prefer to keep the Real Estate and offer a lease to the Buyer of the business. Suppose a decision has been made to sell the business, before a final decision is made about whether to also offer the commercial property for sale. In that case, the following are essential items to consider.
- How critical is the Real Estate to the operation of the business? For example, if the business is a gas station or a car wash built on the Real Estate the business operates from, it may be hard to sell just the business and offer a lease to a Buyer. This is because the business cannot be moved easily and readily.
- Is the Real Estate just land, or does it include buildings or structures on the Real Estate? If it includes buildings or structures, are they in good condition, or do they need repairs and maintenance? If repairs and maintenance are required, is the Seller willing to pay those costs so that the buildings and structures are brought up to date and in compliance with the latest building code?
- The Buyer will probably want a lease for the Real Estate. If the Buyer wanted a three- or five-year lease with options but only stayed for the initial lease and then left, would the Real Estate owner easily find a replacement tenant? If the Buyer is obtaining an SBA loan, they will require a lease that matches the loan’s term, which is typically 10 years.
Other questions about the real estate to ask.
- Has the owner or Seller of the business been allocating an amount for rent, and is this amount a market rate or the amount the owner of the Real Estate is willing to accept as rent? If there is no rent allocation or the rent is below the market rate, and the Buyer has to pay a higher rent, it will lower the value of the business as expenses are higher.
- This also applies if the business owner has not been paying property taxes, building insurance, or maintaining the Real Estate and now expects the Buyer of the business and Real Estate to cover these costs.
- Are there any environmental issues on or near the real estate? If so, this may lower the value of the Real Estate and the business.
- When was the last time local zoning ordinances were reviewed, so that if the Real Estate is put on the market, it is ‘smooth sailing’ to close the sale?
- Related to local zoning ordinances are local Use requirements typically defined at the municipality level.
- Is the Real Estate part of a flood zone?
- Sample report of California Commercial Real Estate with basic property overview, environment, building, value, and more.
- Sample report of California Commercial Real Estate with climate check including flood, fire, storm, heat, and more.
- California Commercial Real Estate sample report on a property’s environmental impact with a regulatory summary and neighborhood information.
- Sample report of California Commercial Real Estate flood certificate.
- Sample report of California Commercial Real Estate with property condition report, site summary, building summary, hazard risks, and more.
- California Commercial Real Estate sample report of the estimate of value.
How to Sell a Commercial Property Fast with a Business in California?
Are you looking to sell your commercial property and business in California?
A crucial first step is to get an accurate business valuation.
This is not only important for you as the Seller, but also for potential buyers and lenders if the Buyer needs financing.
Other Commercial Real Estate topics to consider.
Commercial Real Estate Valuation
Commercial Real Estate Due Diligence
Taxes and 1031 Exchange for Commercial Real Estate Finance, Taxes and 1031 Exchange