Sun Acquisitions | Chicago Business Broker and M&A Firm

Sun Acquisitions is a Chicago-based business broker and M&A firm. Our team of advisors specialize in buying, selling, and acquiring privately held companies. We can help you sell your business.

Blog Posts

Why Hiring a Business Broker/M&A Advisor Can Help You Successfully Sell Your Business Faster

Selling Your Business to the Right Buyer: How to Find the Perfect Match

The Dos and Don’ts of Due Diligence in Mergers and Acquisitions

Rivals to Partners: The Surprising Benefits of Merging with Your Competitors

How to Sell a Hotel Business

How To Sell Your Business with a PPP Loan

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How to Sell Your Business with a PPP LoanPerhaps you’ve asked, “Can I sell my business if I got a PPP loan?”

The long and short is yes, it’s possible, however, there’s a series of considerations from the Small Business Administration (SBA), the holder of your PPP loan debt that you need to comply with.

In this post, we explore what those terms are and how you can satisfy each one to sell your company.

The Payment Protection Program Loan

At the onset of the coronavirus crisis, the SBA launched its Payment Protection Program Loan in 2020. This relief program was developed to assist business owners.

As can be imagined, selling a business encumbered by a government loan requires you to tread cautiously.

So, the first thing you should do before approaching investors to sell your business is to apply for the Small Business Administration PPP Loan Forgiveness scheme. You want to be free of this debt as soon as possible.

But what exactly does the SBA consider as a change of business ownership? When:

  • At least 20% of the common stock or the ownership interest is sold or transferred;
  • At least 50% of the assets are transferred or sold;
  • Your company is merged with another business.

For the sale to go through and ownership to change, you’ll need SBA approval. Thankfully, there’s official SBA procedural guidance to help navigate business sales involving PPP loans.

The Process of Selling a Business With a PPP Loan

As the PPP borrower, you’re obliged to inform the PPP lender of the planned merger or acquisition in writing. This must be done before the closing or change of ownership is enacted.

To get a sign-off from the PPP lender, you’ll need to furnish the PPP lender with copies proving that:

  • You’ve completely satisfied and completed the loan forgiveness process.
  • The PPP lender has received their funds as stated in the PPP Note from the SBA.
  • You’ve fully paid off any outstanding balance on the PPP loan.

There are four possible pathways you can follow when selling your company:

Pathway #1 Get PPP Loan Forgiveness

The PPP debt you have must be fully forgiven before you’ll be given approval by the SBA to sell the business or change ownership. Alternatively, you can pay an agreed-upon sum – a maximum payable amount – to complete the closing.

Pathway #2 A 50% or Less Stock Sale

If your intended transaction is a stock sale in which you’re selling a maximum of 50% or less of the company, there’s no requirement to notify the SBA. The transaction can go on without interruption.

Pathway #3 A 50% or more Stock/Asset Sale

If you’re intending on selling more than 50% in stock or assets and your PPP loan is unforgiven, you’re required to first obtain loan forgiveness.

To receive forgiveness, the aggregate loan sum including interest must be placed in escrow until the loan forgiveness application has been completed.

Whatever has been forgiven can be remitted to you and what wasn’t forgiven will be deducted from the escrow account. This escrow fund is controlled by the SBA lender and they’ll have direct access to the money during the processing of your loan forgiveness.

Pathway #4 SBA Lender Intervention

What happens in the case where you don’t have enough funds to place into an escrow account? In this case, you must engage with the SBA for ownership transfer approval.

A letter explaining your situation regarding why you cannot escrow the funds needed to fulfill the PPP loan must be sent to the SBA lender who will forward it to their SBA Loan Servicing Center.

You’ll be asked to provide them with copies of

  • The PPP Loan
  • The PPP Note
  • The Sale Agreement

NB: You must also disclose the following:

  • Whether or not the potential buyer is also on a government relief program or has a PPP loan and,
  • The names of stakeholders with a 20% stake in the entity purchasing your business.

Engage a Business Broker to Ease the Selling Process

Getting a business ready to present to investors requires the assistance of experienced brokers who will help you gather and prepare financial documents, conduct business valuation, and screen and qualify buyers.

If you’re thinking of selling your business, contact us  at Sun Acquisitions. Let’s help you get the best returns on your investment.

Looking for more insight on selling a business? Check out these links:

Disclaimer: Any information provided in this blog is not intended to replace legal, financial, or taxation advice given by qualified professionals.

Sell Your Business to Employees

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How to Sell Your Business to EmployeesHow do you sell your business to employees?

Selling your business to key employees provides you with an alternative exit plan. There are several main deal structures that both buyer and seller can lean on to facilitate the transaction:

  • Long-term installment sale
  • Leveraged management buyout
  • Employee Stock Ownership Plan (ESOP)

In this post, we’re going to explore the pros and cons of each strategy mentioned above.

Long-term Installment Sale

This is the orthodox way of transferring ownership to employees. The process begins with a business valuation to establish how much the company is worth. This is followed up by identifying the interested buyers/employees. Discussions as to the repayment period and how the deal will be financed are then entered upon.

Pros

  • The installment sale is secured by the business’s assets
  • Business continuity is guaranteed as new management are current employees
  • Assurance of a steady payout for the seller over time
  • You can negotiate to retain your salary and benefits throughout the transition

Cons

  • Your remuneration as a seller is dependent on the company’s future success
  • There are no big payouts at closing
  • The management style of the buyer/employee might run the company aground
  • Failure to close the deal with the employee can lead to a contentious work environment
  • Full ownership transference can take years

Leveraged Management Buyout

One of the major stumbling blocks for employees keen to purchase a business is a lack of financing. With a leveraged management buyout, the buyer or seller can opt to bring on board a third party in the form of a private equity firm (PE), venture capitalist (VC), or conventional lender.

It’s worth noting that this type of deal structure works best when the business valuation is at least $5 million. The VC/PE will also want to see a competent management team and request that the company have a sizeable asset base to expedite debt financing before proceeding.

Pros

  • Provides a quicker exit route for the seller (than a long-term installment sale)
  • The seller receives a full and immediate cash payout
  • VC/PE can provide future cash to stimulate business growth
  • Employees are given an opportunity to grow their equity stake in the company over time

Cons

  • This deal structure doesn’t work for every type of business
  • The business is plunged into debt
  • A third-party financer can introduce strenuous terms and conditions for both employees and seller
  • Interested employees might not be welcoming of the initial minority stake offer wanting full control from the get-go
  • Allowing employees to find the VC/PE introduces considerable risk as you don’t know what company information has been floated out to the public in their bid to secure funding

Employee Stock Ownership Plan (ESOP)

ESOP is one of the more defined techniques you can use to sell your business to employees. It’s especially useful if you plan on a gradual transition while you remain involved as the main owner.

ESOP is mostly a profit-sharing strategy that gives employees the opportunity to become part-owners. As the seller, you initiate tax-deferred contributions that are invested only into the business’ stock.

Pros

  • ESOPs are great for sellers that are seeking the highest value and returns for their company
  • ESOPs allow the business to be sold to many employees instead of a single interested employee
  • Interested employees receive operating control of the company
  • As a co-operative involving many employees, everyone works harder and is motivated to ensure business growth and success
  • Seller receives a cash settlement at closing
  • ESOPs come with tax-deductible benefits including being tax-free for buyers/participating employees

Cons

  • It is difficult for a third party to purchase your seller’s stake in the company
  • As the seller, you lose out on the initial funding money that you would have received in your payout
  • An ESOP has financial responsibilities tied to it as well as a slew of administrative considerations

Wrap Up

Deciding to sell your business to employees can be a rewarding way to exit the business. Knowing that you’re leaving the company to people who’re already familiar with the operations and who care for the business can give you the peace of mind needed to let go.

However, no business transaction is without its risks. That’s why if you’re thinking of selling you should consult with a seasoned M&A broker.

For businesses in Chicago looking for brokers, our team here at Sun Acquisitions is ready to help you map a way forward. Contact us today.

Looking for more insight on selling a business? Check out these links:

Disclaimer: Any information provided in this blog is not intended to replace legal, financial, or taxation advice given by qualified professionals.

Sell a Business Fast

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If you came to this article it’s likely you are looking to sell your business fast.  But what is the timeline for a fast business sale?  54% of brokers say it takes anywhere from 6 to 11 months for a business to sell. The United States Small Business Administration puts the timeline at 24 months (2 years). However, this isn’t to say that it’s not possible to sell in a shorter time frame.

So, in this post, we lay down seven steps demonstrating how you can sell a private business fast.

Step 1: Figure out your reason for selling

Every business owner markets their business as a successful and profitable venture. Astute buyers will be keen to know why then you’d sell it.

You must have an answer ready and it must be a legitimate reason. Acceptable propositions for selling include illness, death, change in marital status, impending retirement, and the business growing beyond your ability to manage it.

Saying that you’re selling the business because it is in distress and struggling is a turn-off for any investor. If the business is indeed in trouble, it’s key that you first attempt to raise its profile by boosting sales, building a stronger client base, and accruing regular revenue.

Step 2: Determine when you plan to sell

When should you sell your business? Timing is everything. Selling should not be a rash decision. Careful thought and consideration should go into making this decision. Furthermore, getting a business ready for sale is a process that in and of itself requires at least a year or two of preparation.

Next, you need to evaluate the existing market and economic conditions.

Attempting to sell your private business during an economic downturn can prove disastrous. The business may be undervalued and the quality of offers received might not reflect the company’s real worth. And speaking of valuation…

Step 3: Get a business valuation done

Business valuation, according to Investopedia.com is:

“…a general process of determining the economic value of a whole business or company unit.”

It’s an excellent way to establish a business’ fair value as the valuation itself is conducted by an independent third party. Business valuation experts may look into the organization’s earnings multipliers, market cap, and book value in order to give an objective estimation of the company’s worth.

The document generated by the appraiser can be used to lend credibility to the seller’s asking price as well as justify the listing price.

Step 4: Hire a qualified business broker

It can be tough to sell a private business fast without assistance from an experienced business broker. You see, seasoned brokers will guide you through the selling process, develop a marketing plan to quickly sell your company, and assist with obtaining a current business valuation, on top of negotiating on your behalf with the buyer side.

Now, how to select a business broker? What should you be looking for?

  • The Track Record of successful deals completed by the brokerage firm will speak volumes about their capabilities and experience.
  • Accreditations from the International Business Brokers Association (IBBA).
  • The number of listings a broker currently has and is actively managing. ·
  • The broker’s intended marketing strategy for the sale of your business including details of how they plan to keep the sale confidential.
  • The broker’s screening process and what it involves. You want a broker with a well-established and vetted screening process.

Step 5: Get business documents in order

Numbers excite investors. Buyers pay a great deal of attention to businesses whose financial records are in meticulous order. Therefore, having your business documents readily available works in your favor as this demonstrates your seriousness, your reliability, and the business’ track record.

If you’re not sure what documents are needed to sell a business your broker can provide you will a comprehensive list. There are mainly two sets of documents – legal and financial – that need to be prepared. For example

  • A Non-Disclosure Confidentiality Agreement
  • Offer-to-Purchase Agreement
  • Existing Lease Agreements
  • Employment Agreements
  • Internal Profit & Loss Statements
  • Balance Sheet
  • Corporate Tax Returns

Step 6: Start looking for buyers

Most people wishing to sell a business discretely or who want to sell a business privately don’t always know where to sell a business. This is where experienced business brokers can help.

Through a rich network of contacts cultivated over many years, they’ll be able to source and connect you to retired executives, private equity firms, and interested competitors among other prospective buyers.

Such brokers can easily wade through buyer motivations, pre-screen and qualify hopeful candidates and verify whether they actually have the necessary finance to close the deal or not.

Step 7: Close the sale and handover

After signing on the dotted line, the transition period begins. This stage can be complex if not handled strategically. For this is generally when vendors and employees need to be brought up to speed regarding the change of owners. Communicated poorly this can complicate relationships with suppliers and lead to mass employee exodus.

What further aggravates the situation is whether the previous owner wishes to remain to help or not and whether the new owners want them there or not.

As it stands:

48% of previous owners don’t want anything to do with the business after the sale is closed, while 18% do wish to stay on and help through the transition.

On the flip side, 49% of new owners want the previous owner to remain and help out at least 3 days per week while 11% of new owners don’t want the old owners anywhere near the business.

Looking for a reliable business broker?

If you want to sell a private business fast, our expert Sun Acquisitions team can help. Discuss buying/selling a business with our M&A consultants. Contact us today.

Looking for more insight on selling a business? Check out these links:

Disclaimer: Any information provided in this blog is not intended to replace legal, financial, or taxation advice given by qualified professionals.

How to Sell Business Equity

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How to Sell Business EquityShould you sell business goodwill?

If it makes financial sense and you understand the dilution aspect of selling equity and the potential interference from investors, then yes, go ahead. It’s a common enough practice.

People sell business ownership for a variety of reasons:

  • Needing capital to actually start the company;
  • Swapping equity for additional capital to grow the business;
  • Sourcing money to pay down existing liabilities and debts;
  • Raising venture capital to expand into new markets and;
  • Desiring to diversify their own business risk as the sole owner.

Whatever your motives for giving up part ownership in your company, there are things M&A brokers want you to be aware of.

In this post, we’re going to address what these are, some of the challenges to expect, how to sell the equity, and who to sell it to. But first, here’s a look at the pros and cons of the practice.

Selling equity – the good, the bad, the ugly

One of the biggest advantages of raising capital via the selling of equity is that, unlike debt, the business owner isn’t weighed down with payback quotas and inflated interest rates. Another favorable argument for giving up equity is that again unlike debt, the money received isn’t secured by business assets.

However, with that said, most of today’s investors aren’t content with just being silent partners. They do expect to be involved in the daily operations. Some will even contest for equal standing with you and negotiate board positions where they have the power to vote.

If you enjoy being a solo entrepreneur, then selling business equity may not be the right path for you. That’s mainly to do with the fact that your equity partners are your business co-owners. What does this mean practically?

With this background in mind, who should you sell equity to?

Who to sell your business equity to

When it comes to selling business equity you need to keep two things in mind:

Who you’re selling to and how much equity you’re prepared to give up.

Equity partners can be family members, startup colleagues, venture capitalists, or angel investors.

It’s worth mentioning that selling equity doesn’t necessarily entail receiving capital investment. It can also mean the investment of time and skills.

A good case study of why it’s essential to be mindful of who you sell to and the equity you give up can be seen in the following story:

In 2006 Greg Alexander founded Sales Benchmark Index (SBI) a growth advisory firm. He gave two of his employees a 25% stake each in the company. Fast forward 10 years, the business was worth $162 million. However, because of his disastrously generous equity offer at the onset, his two employees walked away with nearly half the money – a cool $80 million – when the company was eventually sold to New York-based private equity firm CIP Capital.

The point of the story is to be careful who you sell to and how much equity you give away.

This brings us to the next issue – the process of selling business goodwill.

How to sell your business equity

First things first, you’ve got to get the business up to a respectable state. Fix whatever needs fixing before presenting your business to investors. For example, get your financial records in order and have a business valuation done through an independent consultant.

An experienced broker is able to facilitate the preparation needed and position your business as an attractive investment.

Furthermore, a broker will be able to help you solicit interest from various avenues. Ultimately you’ll likely be opting for one of the following:

  • Going public with your sale through a public listing (an expensive and highly demanding process but whose tradeoff is the ability to raise colossal amounts of capital)
  • Peddling to big private investors (enter venture capitalists and angel investors)
  • Selling to lesser-known investors (private business owners you may know already)
  • Selling within to employees (an excellent way to boost employee loyalty)

If you’re interested in selling business goodwill, it’s always a good idea to consult with a seasoned broker. Here at Sun Acquisitions, our team is ready to help you map a way forward.

Looking for more insight on selling a business? Check out these links:

Disclaimer: Any information provided in this blog is not intended to replace legal, financial, or taxation advice given by qualified professionals.

 

 

 

Selling a Business During Lawsuit

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Can you sell a business during a lawsuit?

Can you sell your business during a lawsuit?

While it is certainly not impossible, it’s going to be an uphill battle trying to convince your buyers otherwise.

In this post, we take a look at the issues you need to address if you’re facing litigation but are still intent on going ahead with the sale.

Issue #1 Disclosure of litigation details to your buyers

You have an implied obligation as a seller to inform buyers of any lawsuits.

Perhaps you the business owner have been implicated in a filing and you’re personally named in the lawsuit but the company name is not.

Or, it may happen that you and the business are both implicated in the claim.

Regardless of which of these two lawsuits you’re facing, it’s imperative to tell potential buyers about it. Failure to disclose the fact that you’re being sued can lead to a secondary lawsuit post-closing from the buyer for misrepresentation.

Issue #2 Anticipation of a lower price offering

It can sometimes happen that you’re hit with a lawsuit after you’ve completed a business valuation. This is incredibly inconvenient because, following valuation, most owners will have already worked out a reasonably just price for the business.

Unfortunately, an existing legal problem will give investors leverage to drive down the price. It is advisable to settle the lawsuit first and then try selling your business again after some time has passed.

But if you’re pressed because you’re ready to retire immediately, or suffer from chronic health problems, or can’t envision working anymore, you may have to take the lower offer on the table.

Issue #3 Be aware of your seller’s responsibilities

If you want a smoother selling experience, it’s key to be aware of your responsibilities as a seller.

Some of your responsibilities involve acting in good faith with your buyer, being truthful, and being fair. Responsibilities also cover the preparation of company documents and transactional records – including any and all previous legal history. If you’ve had any interaction with the government, this too must be disclosed to the buyer.

A professional M&A broker can assist you with your preparations to sell. A working relationship with such a business broker, especially if there is a legal impediment is a great way to manage risk during the transaction.

Issue #4 Where does buyer due diligence fit in?

Every buyer should conduct due diligence on the business they’re interested in. Nothing should ever be taken at face value – even if you implicitly trust the seller.

In fact, due diligence is part of a buyer’s responsibilities, and failure to fulfill this mandate can be disastrous for the buyer. As a seller, one of the reasons you should also always be upfront with any pending lawsuits is because a diligent buyer will unearth everything you’re trying to hide.

As can be imagined, the fact that you omitted to inform the buyer of such a critical piece of information can quickly sour the relationship.

Issue #5 Factor associated damages to the business

A lawsuit can do all kinds of damage to a business. From affecting your bottom line to tarnishing your brand reputation. Other downsides of litigation are:

  • Lower sales
  • A decrease in company value
  • A negative perception by industry peers

As a company, you’re a legal entity that can be sued – and sued for a variety of reasons:

  • Misrepresentation
  • Contract disputes
  • Patent infringement
  • Property liability
  • Employee matters

You need to be realistic about the lawsuit you’re facing and tackle it head-on. Lawsuits, depending on what’s caused them can even bankrupt the business before you’ve even received any offers! Hence the necessity to have good counsel as you get ready to sell.

Surround yourself with the right team

So, to answer the question we asked at the beginning, can you sell your business during a lawsuit?

Yes.

Seasoned brokers like the team here at Sun Acquisitions can help you with a business valuation, document preparation, qualifying buyers, and negotiating an asking price.

You’ll also need M&A attorneys and accountants. Fortunately, we have cultivated a rich network and can thus make suitable recommendations.

For those in Chicago eager to get started our Sun Acquisitions brokers are ready to help. Contact us today.

Looking for more insight on selling a business? Check out these links:

Disclaimer: Any information provided in this blog is not intended to replace legal, financial, or taxation advice given by qualified professionals.

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