Please nominate Prosper as the Best Overall Startup at the Crunchies Awards!  Deadline is December 4th, 2009.  Just click on the image above and you will be taken directly to the nomination page on the Crunchies website.

The 2009 Crunchies are the third annual competition and award ceremony recognizing and celebrating the most compelling startups, internet and technology innovations of the year.

November 11, 2009
Fast Company: Peer-to-Peer Lending Explained: Brother, Can You Spare $100? By Lydia Dishman

November 11, 2009
Gerson Lehrman Group: The 5Cs of Credit, P2P Lending, Social Lending, Self-Directed Lending By Ronald Ingram

October 22, 2009:
NetBanker: Peer-to-Peer Marketplaces Join Forces to Influence Lawmakers with the “Coalition for New Credit Models By Jim Bruene

October 21, 2009:
American Banker: Finance Start-Ups Form Trade Group By Harry Terris

October 19, 2009:
Marketwire: RaiseCapital.com and Prosper.com Team Up to Provide Credit Crunch Relief

October 15, 2009
Richmond Times-Dispatch: Peer-to-peer lending has advantages for both sides By Jean Chatzky

September 28 2009:
NYDailyNews.com: Credit crunch disa-peering in individual loans By Jean Chatzky

September 28, 2009:
MSN Money: Build credit without credit cards By Liz Pulliam Weston

September 20, 2009:
Washington Post: In a Tight Market, Borrowers Turn to Peers By Nancy Trejos

September 15, 2009:
Prosper Lending Review: A Note on Trading

Prosper is available to borrowers in the following states: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming.

By way of background,  Nigel Morris co-founded Capital One in the early 1990’s, and during his ten-year tenure, Capital One’s customer base grew to over 40 million, managed loans increased to more than $70 billion and the company emerged as one of the top seven issuers of MasterCard and Visa credit cards in the world.

Mr. Morris is currently the managing partner of QED Investors, a direct investment fund focused on high-growth companies that leverage the power of data strategies.  In addition, he works in an advisory capacity with General Atlantic Partners, Columbia Capital, and Oliver Wyman.  He also serves on the board of The Economist Group, London Business School, and Venture Philanthropy Partners.

There’s nothing more frustrating than a listed business that attracts a lot of attention, but no buyers who are willing to seal the deal. Unfortunately, that’s exactly the situation many business owners are facing in today’s marketplace.

Most of the time, the business isn’t the problem. In fact, a business that generates significant attention in the marketplace is usually a good candidate for a sale. Instead, the issue is most often the buyers’ inability to secure financing at the owner’s asking price. That leaves owners with two options:  Either lower the asking price or work with the buyer to overcome sale barriers.

Rather than leaving money on the table, many owners are deciding to finance the sale themselves. Is it a gamble? Absolutely, but under the right circumstances it can also be a financial boon. If financing the sale of your business sounds like a good idea, don’t make another move until you’ve carefully considered the lessons being learned by other seller-financers.

DO Assess the Risk

A cash sale is an essentially risk-free transaction for the seller. Once the deal is done, the seller can comfortably walk away from the business with money in the bank. In an owner-financed transaction, the seller continues to be tied to the business long after the sale is complete. If the business succeeds, the new owner pays back the principal with interest and everyone is happy. But if the new owner is unable to make the business profitable, the seller could suffer the loss of interest income and incur additional costs to collect the debt.

The bottom line is that an owner-financed sale needs to be evaluated as a business investment. Like any other investment, there is a certain amount of risk inherent in the decision. If you are comfortable enough to invest in the new owner, then it could be beneficial to finance the sale yourself. But if you aren’t confident the buyer can make the business a success, offering financing as an enticement to close the deal is the worst decision you can make.

DO Leverage the Benefits

If the buyer is, in fact, a good investment risk, the seller stands to reap substantial benefits from self-financing. Too many sellers view financing as a desperate measure to unload the business when they should be viewing it as a resource for enhancing the benefits of the sale.

Right out of the gate, your willingness to hold paper increases the final selling price of the business. Partially-financed sales typically result in a price that is more than 15 percent higher than their cash sale counterparts. That means you can leverage your willingness to finance as a bargaining tool during negotiations.

The other big benefit of financing the sale is the potential to multiply the principal value of your business through future interest payments.  As you might expect, a financed sale garners a much higher rate of return than many other investment vehicles with a five to seven year note at 8 to 10 percent interest as the norm.  Don’t succumb to your buyer’s pleas of poverty. Remain firm on charging the amount of interest you feel is appropriate for the market and the level of risk you are assuming.

DO Advertise Your Willingness to Finance

Sometimes sellers are hesitant to advertise a financing option because they aren’t totally sold on the idea and are only willing to offer financing if they get backed into a corner during the negotiation process. 

If you aren’t comfortable with the idea of financing, then you shouldn’t consider it as an option at all, not even during negotiation. But if you are comfortable with financing part of the sale, you should include that information as a selling point in your marketing efforts. 

One of the most productive avenues for advertising a seller-financed company is online. On BizBuySell.com, the largest online business-for-sale marketplace, we see that listings containing information about owner financing yield a noticeably higher volume of hits than those that don’t. 

DON’T Waive the Down Payment

An owner-financed sale can be a risky venture. However, a healthy down payment can minimize your exposure by distributing an equal or greater amount of the risk to the buyer.

If you are new to the business financing game, forget everything you think you know about down payments. A business and a home are two entirely different things. While your home mortgage lender typically requires a minimum down payment of 15 percent or less, business loans usually require a much higher upfront investment.
 
Generally speaking, it’s in your best interest to finance no more than 1/3 to 2/3 of the sale price. If you decide to finance more than that, you need to have a legitimate reason for doing so. For example, if you are selling the business to a family member, you may have a vested interest in financing an amount beyond the normal range. Just be aware that as your financing commitment increases, so does your risk.

DON’T Do It Yourself

By definition, an owner-financed sale contains shades of a do-it-yourself transaction. Instead of relying on professional lenders for financing, the seller assumes the responsibility for a percentage of the buyer’s investment.

However, don’t get too caught up in the do-it-yourself mentality. A loan between a seller and a buyer is subject to limitless structures and variations, many of which require the input of professionals in order to secure airtight collateral, coherent loan terms and adequate insurance coverage. Before you agree to financing, obtain legal and financial advice from a professional you trust.

DON’T Be Pressured

There’s a good chance that potential buyers will try to push for a seller-financed deal. This is particularly true for buyers that are unable to secure financing from traditional lending sources due to an inadequate down payment or other borrowing obstacles. 

No matter how anxious you are to sell the business, caving into buyer pressure for the sole purpose of closing the deal is a big mistake. When a buyer pushes too hard for financing, take a step back and conduct a simple reality check. If you aren’t completely comfortable with financing the buyer’s purchase, walk away and wait for a better buyer candidate to emerge.

About the Author
Mike Handelsman is General Manager for BizBuySell, the Internet’s largest business for sale marketplace. Since 1995, BizBuySell has offered tools that make it easy for business owners and brokers to sell a business, and potential buyers to find the business of their dreams. BizBuySell lists over 50,000 businesses - spanning 80 countries - for sale at any time, with over 4,500 added or updated each month. BizBuySell also has one of the largest databases of sale comparables for recently sold businesses and one of the industry’s leading franchise directories. Please visit www.bizbuysell.com.

Mike Handelsman, general manager of San Francisco-based BizBuySell, the internet’s largest business-for-sale marketplace, answers sellers’ questions about listing a business for sale online.

Q: What should a seller do to prepare for listing a business for sale online?

A: Allowing yourself enough time is key. Too often, people try to rush their business to market and run into complications during the selling process as a result. Allow several months between making the decision to sell and making the business available online. During this time, figure out your company’s financial situation so that you can present this information to prospective buyers.
Once you put the business up for sale, have all of the information relating to potential growth and revenue, past performance and business costs on hand. Putting the time and effort into preparing these figures in advance will tell potential buyers that you know what you’re doing and give them more confidence in you.

Q: How can sellers determine a fair asking price for a particular business when using an online marketplace?

A: Online marketplaces often provide tools for determining a fair, standard selling price based on comparable businesses, geographic area, gross income and cash flow.
For example, if you’re listing a restaurant, you could access a report that breaks down pricing information for that specific type of business and its location. A full-service restaurant might be priced at 33 percent of annual sales, as opposed to 40 to 50 percent for a fast food restaurant. More specifically, a fast food restaurant specializing in hamburgers might sell for 35 percent of annual sales, while a pizza restaurant would generally sell for around 30 percent.
Also, our data indicate that restaurants typically sell for an average of 85 percent of sellers’ original asking prices. So if you’re a restaurant owner wanting to sell your business for $200,000, you may want to ask for $235,000.

Q: Are certain types of businesses easier to sell online than others?

A: Our data from 2006 show that the largest category–nearly 15 percent–of business listings were restaurants, so those are the type most frequently purchased. Another popular category is service establishments, including auto repair shops and dry cleaners.
However, people have listed and sold a variety of businesses, from web design firms to furniture manufacturers.

Q: Are business in certain geographic areas bought and sold online more frequently?

A: Yes, last year Florida had the most business listings on our site, at nearly 15 percent, followed by California, New York, Texas, New Jersey and Arizona.

Q: What tips do you have for creating a business-for-sale listing

A: Providing the right information is imperative. There’s a fine line between providing so few details that prospects don’t take notice and providing so many that your business’ confidentiality is compromised.
The key is providing the most information possible without giving away the identity of the business. It’s important to give viewers an idea of the general location of the business, but don’t post the street address, phone number or address in the listing. Instead, create a separate e-mail address and phone number for inquiries from potential buyers. If you have to provide further detail, make the recipient sign a nondisclosure agreement.
It sometimes helps to tell potential buyers why you’re selling the business. If you’re honest, people tend to be less skeptical.
Once you list your business, you might find that certain questions come up repeatedly in inquiries. This can serve as a guide for what you should add to your listing if ongoing editing is possible.

Q: How can a seller tell a serious buyer from one who isn’t likely to follow through?

A: The best way to pick out serious prospects from the rest is to ask potential buyers questions about how long they have planned on buying, how they  plan on financing the business and how much money they have for a down payment. This kind of informal interview will allow you to determine whether the prospect is worth pursuing.
On the other hand, sellers also should be sure to follow through. We hear from many buyers who say they’re interested in a specific business listed, but can’t get the seller to communicate.
Using an online business-for-sale marketplace is a two-way street. Successful transactions require open communication and attention to detail from both buyers and sellers.

Check back tomorrow for Part 7 of 7: The Dos and Don’ts of Seller Financing

About the Author
Mike Handelsman is General Manager for BizBuySell, the Internet’s largest business for sale marketplace. Since 1995, BizBuySell has offered tools that make it easy for business owners and brokers to sell a business, and potential buyers to find the business of their dreams. BizBuySell lists over 45,000 businesses - spanning 80 countries - for sale at any time, with over 4,500 added or updated each month. Please visit www.bizbuysell.com.

To realize the most success in selling your business online, it is imperative to maximize the effectiveness of your listing. A well thought-out and well-written listing will allow you to attract more prospects and better sort out the serious buyers from the rest.

By keeping in mind the following “10 commandments of quality online listings,” you can help ensure that your business attracts the best potential buyers, and that the selling process goes quickly and smoothly.

1. Include Key Financials

It is essential to include as much financial information in your listing as you can. Including the numbers, such as revenue and cash flow, can greatly increase the amount of views for your business listing, as this is the most common way potential buyers search for businesses.

Disclosing the financial information of your business in a listing is likely to build confidence in potential buyers. If you do not include the information, buyers might get the impression that you have something to hide and quickly navigate away from your listing.

2. Provide Maximum Geographic Information

When adding a business for sale to an online business marketplace, sellers will have the option to make details about the state and county of the business confidential. In almost all cases, it is not a good idea to choose that option.

Instead, sellers should provide as much geographic information they can without revealing the exact identity of the business. Most buyers search at the county level, and by hiding the county of your business in your listing, you eliminate your listing from their search results.

Many sellers are hesitant to provide details on their business’s location, but doing so will almost always result in more messages from potential buyers.

3. Be Creative with Your Headline

While the details in your listing will get potential buyers to click the “reply” button, your headline is what gets them to click on the listing in the first place.

An eye-catching, well thought out headline will help separate your business for sale listing from the pack.

Before listing your business, put yourself in a buyer’s frame of mind. It will help to draft a list of the qualities of your business that would most make you want to buy. If you bought the business from someone else, remember what features first made you interested. Was it an ideal location, or a great-looking space? Decide what is best about the business you are selling, and prominently feature those details in a headline that effectively conveys what is special about the business.

4. Include the Right Contact Information

It is crucial to include a phone number in your business listing to reassure potential buyers and maximize contacts. To maintain confidentiality, though, it is not a good idea to provide the phone number of the business you are selling. Instead, provide a personal or alternate phone number people can call to inquire about the listing.

Although it can help to provide a variety of ways in which a buyer can contact you if interested, you should generally avoid including your personal e-mail address to protect against spam and protect confidentiality. Instead, it is a good idea to create a new e-mail address specifically for responses from your listing. If you do so, make sure you check the account daily to avoid missing any responses.

Whichever forms of contact you choose to include in your listing, be sure you have a strong follow-up process. Respond to questions about your listing right away, and if prospective buyers seem serious, do not keep them waiting too long for information, or they will likely become discouraged and look elsewhere.

5. Use Two Categories to List Your Business

When listing a business online you will probably have the option of listing the business under two categories – a “best matching business type” and a “next best matching business type.” Even though a business might at first seem as though it would only fit within one category, it is best to use both categories to maximize exposure. In fact, passing up the opportunity to list your business under a second category is almost like passing up a free second listing.

For example, while a category such as “Hotels and Other Lodging Places” would be your first choice if you wanted to list a hotel for sale, choosing categories such as “Other Business Services” or “Miscellaneous Services” can only help you by ensuring that more prospective buyers view your listing.

6. Be Descriptive

The most effective way to instill confidence in prospective buyers and get them to respond to your listing is to use a generous amount of description.

When a seller provides very limited details about the business for sale, buyers will probably think it is because the seller has something to hide. In order to ensure prospective buyers are confident in what you are selling, you have to appear confident.

Many times, it is helpful to include the reason why you have decided to sell the business in your listing. Buyers appreciate honesty, and if you openly provide them this information you can establish a sense of trust that is essential to a buyer-seller relationship.

7. Include Pictures

One of the most effective ways to differentiate your business for sale listing from the rest is to include photos. While you should probably not include a picture of the outside or any obvious interior section of your business to maintain confidentiality, there are other ways to mix images into the text.

For example, taking a photo of one of the rooms of your business – making sure to capture its best features – can give potential buyers a good look at what you have to offer without sacrificing too much confidentiality.

Free online images databases such as Google Images can also serve as a useful source of imagery that you can help you create your listing to stand out from the crowd. However, be careful not to select images of any part of any specific business that is not yours. Instead, find generic images. Does the business your selling offer dining? If so, try to find a generic image of a table setting showing the kind of food the restaurant serves, for example.

8. Work around Confidentiality

In order to keep the business running smoothly during the selling process, you will probably want to be extremely careful not to let customers, employees and competitors know you are selling. This means that certain details should be kept at a minimum when posting an online ad. At the same time, it is not a good idea to post so little information that nobody will be interested in the listing. The key is providing the most information possible without giving away the identity of the business.

Finding images to include in your business for sale listing that do not disclose too much information is just one example of working around confidentiality. The idea also applies to the text that you include in the listing.

You can almost always disclose the state and county of your business without disclosing the actual identity of the business. It is a good idea to avoid including your business’s actual address, or even the street on which it is located. Instead, be non-specific and communicate benefits with information such as “near major highway,” “one of this town’s busiest streets,” or “one of the leading players in the industry.”

9. Upgrade (if Necessary)

If you feel the business you are selling is particularly high-value or hard-to-sell, you might want to consider upgrading your listing.

For many businesses a standard listing will do, but if you would like to apply an extra boost to help sell your business, you can invest in a “showcase ad,” which places your listing above others, sends it via e-mail to potential buyers who match business criteria and provides you with a prospect list you can contact. In this way, choosing a showcase ad can multiply your listing’s amount of exposure and leads.

Sellers who want to upgrade can choose the duration of time they would like to have their listing featured. For example, sellers can choose to upgrade listings per day, or choose a two-month showcase.

10. Proof Read

Spelling and grammar errors are simple to avoid, yet many users post listings that include mistakes. While small errors might not seem important to you, they can instantly detract valuable buyers who are looking for a seller who appears buttoned-up in every way.

Your listing will not be automatically proofread by anyone else before it appears to buyers, so it is your responsibility to double check all the text you include. It is a good idea to write the text of your listing in a Word document, or other application that automatically checks your spelling instead of entering it directly into an online form. You should also proofread your ad multiple times before posting to ensure it is error-free.

Check back Monday for Part 6 of 7: Selling Your Business Online: A Q&A with Mike Handelsman of BizBuySell

About the Author
Mike Handelsman is General Manager for BizBuySell, the Internet’s largest business for sale marketplace. Since 1995, BizBuySell has offered tools that make it easy for business owners and brokers to sell a business, and potential buyers to find the business of their dreams. BizBuySell lists over 45,000 businesses - spanning 80 countries - for sale at any time, with over 4,500 added or updated each month. Please visit www.bizbuysell.com.

Any business owner can put a business on the market, but selling successfully is another story. With thousands of dollars hanging in the balance, today’s do-it-yourself sellers need to learn the fine art of negotiation before it’s too late.

As selling businesses independently has become an increasingly viable method for entrepreneurs, many business owners have learned how to prepare their companies for sale and effectively market them to potential buyers. Negotiation, though, is perhaps the one area in which for-sale-by-owner (FSBO) sellers most frequently drop the ball. It’s also one of the most important.

In a typical business sale, the negotiating skills of the buyer and seller can result in dramatic swings in the final selling price – regardless of how diligently the seller has prepared the business for sale. If the seller isn’t up to the task, almost all the work that has gone into the listing can be undone in a single negotiation session.  

Unfortunately, this undesirable situation frequently becomes a reality for many sellers in the FSBO marketplace. The good news is that by equipping themselves with a basic understanding of the negotiation process, FSBO sellers can learn how to stand their ground and get every dollar they deserve.

The overarching principle of successful negotiation is to negotiate from a position of strength. That’s sometimes easier said than done, but in today’s business marketplace there are many ways for sellers to favorably and accurately position themselves before the negotiation process even gets underway. 

Avoid a Distressed Sale

A stressed business is easy prey. Although sellers don’t always have a choice about the timing of the sale, many times they do. Unless the business is in imminent danger of going belly up or is being forced to be sold by family circumstances such as death or divorce, sellers should plan for the sale far in advance and be prepared to list it when market conditions are ripe.

This often means a concerted effort to reduce expenses and liabilities and to increase market share in the years leading up to the sale. Faced with the evidence of a thriving, top-shelf establishment, buyers will have a difficult time arguing for anything the less than the business’ actual value.

Leverage Valuation

The valuation process is designed to provide a rational basis for the asking price.  Sellers who throw together a flimsy, guesswork valuation at the last minute automatically put themselves at a disadvantage during negotiations.

FSBO sellers are better off conducting the valuation through a third-party provider, including reliable online services such as bizbuysell.com. There are also experienced and reputable valuation professionals available to help. Outside valuation is an added expense, but it more than pays for itself because it gives the seller a stronger leg to stand on when the buyer tries to poke holes in the asking price. It also gives the seller confidence in the asking price and increases his or her resistance to buyer demands.

Create a Bidding War

Almost everyone knows someone who sold a house above the asking price because more than one buyer expressed interest at the same time. It’s possible to create a similar scenario in the sale of a business, but to do it the seller needs to maximize the attention the business receives in the marketplace.

One of the best ways to maximize exposure is to list the sale online. The majority of small business buyers conduct their search themselves, and increasingly, the place they do so is on the Internet. By listing online, sellers have the ability to customize their listing in ways that can make it truly attractive and boost visibility to stir up competitive interest among buyers, all of which can give the seller the ultimate upper-hand in negotiations.

Consider Concessions in Advance

Sooner or later, the buyer will want to discuss the subject of seller concessions.  Concession requests run the gamut and can include everything from seller financing to on-the-job training. Although concessions may not directly impact the sales price, they often amount to a financial loss, a major inconvenience, or both.

The worst time for a seller to determine whether he or she is agreeable to a concession is during the middle of a negotiation. At this point, the temptation to make concessions simply to close the deal is usually too high. Instead, sellers need to consider the specific concessions that are agreeable before they begin negotiating with buyers, especially in a market where buyers view concessions as standard practice. 

If a concession isn’t acceptable to the seller before negotiations begin, then it shouldn’t be acceptable in the middle of the process.

Be Patient

Patience may be a virtue, but when it comes to selling a business it’s also a necessity. The owner of a well-positioned business should have the ability to wait until the right buyer - and the right price - comes along. If the business absolutely must be sold in a short time period (six months or less), then the sale begins to exhibit the qualities of a distressed sale and the seller will be at a significant disadvantage in negotiations.

The patience factor really comes into play during negotiations when it impacts who wants the sale to happen more – the buyer or the seller. Even though the seller may be anxious to seal the deal, the person who appears to want the sale to happen the most is at a disadvantage.

The good news for sellers is that aspiring business owners can rarely contain their enthusiasm. If the buyer is convinced that the seller’s establishment is the right company for his first (or second or third) foray in small business, sellers have a statistical advantage, provided they can demonstrate their intention to stand firm until a buyer emerges who will meet their expectations.

However, there is a limit to seller patience. If the seller experiences a succession of serious buyers but is unable to finalize the deal, it’s probably a sign that the seller’s expectations are too high even though his or her negotiation skills are hitting the mark.

As more business owners seek to sell their businesses on their own, negotiation skills will continue to become more and more critical. The better sellers can prepare in advance and stand firm on the terms they desire, the greater success they’ll have for a smooth and satisfying sale.

Check back tomorrow for Part 5 of 7: The Ten Commandments of a Successful Online Business for Sale Listing

About the Author
Mike Handelsman is General Manager for BizBuySell, the Internet’s largest business for sale marketplace. BizBuySell currently has an inventory of over 50,000 businesses for sale, and more than 800,000 monthly visits. BizBuySell also has one of the largest databases of sale comparables for recently sold businesses and one of the industry’s leading franchise directories. Please visit www.bizbuysell.com.

Putting your business for sale on an online business marketplace is cheaper than a newspaper classified ad, and will ensure much more widespread exposure. Brokers and business owners selling independently have found a great deal of success in posting on the Web. Before placing the ad, though, you’ll want to remember four key points – preparation, using Web tools, providing the right information and screening buyers.

Prepare

Selling a business is not something to rush. Ideally, many months should come between making the decision to sell and putting a business on the market. This will allow you to properly assess the financial situation of your business and create reports detailing potential growth and revenue. It will also give you enough time to modernize any out of date systems that might deter buyers once the business hits the market.

Have all the information potential buyers might want – past performance, business costs, strengths and weaknesses, for example – prepared in advance. Business must go on as usual while the business is for sale, and once buyer inquiries begin coming in you might find yourself too busy to put together all the necessary information and keep the business running simultaneously.

Use Web tools

Online business marketplaces offer tools that can help make preparation for selling easier. For example, a “valuation report” can provide estimates of fair selling and buying prices for businesses based on comparable establishments, chosen geographic area, gross income and cash flow ranges. For example, this report can break down pricing information for restaurants – a broad category – into more specific guidelines. A full service business might be priced at around 33 percent of annual sales, as opposed to 40-to-50 percent for a fast food business. More specifically, a fast food business specializing in hamburgers might sell for 35 percent of annual sales, while a pizza business would generally sell for around 30 percent.

An online marketplace can also provide a listing of brokers in case site users want additional help in buying or selling a business. 

The option to upgrade a listing to featured or showcased status can also help users sell their business more quickly and easily through the ability to include more descriptive text in an ad search result, as well as highlighted, eye-catching placement. Standard listings often give sellers the chance to capture potential buyers’ attention with one headline. If this is the option you choose, make sure the title is concise and clear, but attention-getting. The title should convey why potential buyers should be interested in finding out more. If there’s anything about your business that makes it particularly desirable, such as location, make sure to include it in the headline as a selling point.

Provide the right information

Confidentiality is a significant factor for business sellers. In order to keep the business running smoothly during the selling process, you’ll probably want to be extremely careful not to let customers, employees and competitors know you’re selling. This means that certain details should be kept at a minimum when posting an online ad.

At the same time, it isn’t a good idea to post so little information that nobody will be interested in the listing. The key is providing the most information possible without giving away the identity of the business. It is important to give viewers an idea of the general location of the business, but do not post the business street address, phone number, or e-mail address in the listing. Instead, create a separate e-mail address and phone number for inquiries from potential buyers. If you have to provide further detail, have the recipient sign a nondisclosure agreement.

It would be wise, though, to include certain details that can benefit your ad, but won’t give away the identity of the business. For example, tell potential buyers why you’re selling the business. If you’re honest, people will tend to be less skeptical, and you’ll probably sell your business faster.

Once you place an ad, you might find that certain questions come up repeatedly in inquiries. This can serve as a good guiding point for what you should change or add to your listing if ongoing editing is possible.

Screen buyers

Another potential issue to prepare for is inquiries from people who aren’t serious about buying. According to a 2006 Yahoo Inc. poll, two-thirds of Americans dream of owning their own business. As a result, sellers often encounter people who have the dream, but no realistic intention of buying.

It is difficult for online marketplaces to screen potential buyers, so sellers have to determine the validity of prospects on their own. The best way to do this is by asking potential buyers direct questions about how long they’ve planned on buying, how they plan on financing the business and how much they have for a down payment. This kind of informal interview will allow you to determine early on whether the prospect is worth pursuing.

Check back tomorrow for Part 4 of 7: Negotiation 101:  Tips for Business Sellers

About the Author
Mike Handelsman is General Manager for BizBuySell, the Internet’s largest business for sale marketplace. Since 1995, BizBuySell has offered tools that make it easy for business owners and brokers to sell a business, and potential buyers to find the business of their dreams. BizBuySell lists over 50,000 businesses - spanning 80 countries - for sale at any time, with over 4,500 added or updated each month. BizBuySell also has one of the largest databases of sale comparables for recently sold businesses and one of the industry’s leading franchise directories. Please visit www.bizbuysell.com.

Once placed with the firm, these accounts were sent a “demand letter” stating that the balance would be accelerated in 30 days if an acceptable payment arrangement was not negotiated. Three days after the letters were sent, the collections department of the law firm started a calling campaign. At the 30 day mark, a second letter was sent stating that the law firm had been engaged to sue the accountholder if the debt was not brought current or settled. In mid January, a “last chance” letter was sent. Through this time, phone efforts continued.

During this “pre-legal” phase, a total of $39,997.98 was collected from 14 different accounts. Five of the accounts “cured” returning to a current status. Three accounts filed for bankruptcy. The collections in the pre-legal phase were low, but not statistically outside of the expected range.

In mid-February, the law firm began filing suit against the remaining 66 accountholders. This is the point at which the indication of changes started to become apparent. 16 of the cases had to be closed because either the debtor had moved out of state (3 cases) or we were unable to obtain service. Of the 13 cases in which we were unable to obtain service, 11 of them were homeowners.

How could we be so stupid as to file a suit against a person using the wrong address? This is a real annoying one. Having the right address is critical to success of a legal strategy. So how did we confirm we had the right address? In the past, I have been successful at using a combination of information from the Lexis-Nexis Accurint service with the results of mailing first class letters to the target address. 

In previous testing, the Accurint “best address” was found to be correct more than 70% of the time – by applying some additional criteria, the confidence level on the address could be increased to almost 85%. In separate testing, it was shown that the USPS return mail process was approximately 60% effective (meaning that a letter mailed to an inaccurate address would be returned within a month 60% of the time).  Furthermore, we preformed a second round test in which the addresses on which no return letter had been received were sent a second letter – again approximately 60% of these were returned within a month of mailing.

What does all of that mean? It says that using the Accurint best address combined with at least two first class letters that have not been returned (with a month of return time), you have an expected confidence level on the address of 95+% of the time. Clearly that expectation did not apply to this population. At the time that the files were closed, Accurint was still reporting the same address as “best” in 13 of the 16 cases. A subsequent review of the 11 homeowners, show that 10 had foreclosure proceedings started during the summer of 2008.

The second major deviation from the expected results was in the bankruptcy rate. Traditionally, you expect 10 to 15% of accounts to respond to the threat of legal action by filing bankruptcy. Of the original 74 accounts in the test, 21 filed bankruptcy. 

The third and most disturbing deviation was the level of payment induced by the filing of suits. Traditionally, you expect a significant amount of collections to be received once the debtor knows that they have been sued – the rule of thumb is that post-filing/pre-judgment collections will be 50% more than the amount received during the pre-legal phase. In this test, the gross collections were less than $3,000 ($2,879) as compared to more than $17,000 in filing and service fees.

The final issue encountered was environmental.  In California, there are two types of default judgments – a Clerk’s Judgment vs. a Court Judgment. A Clerk’s Judgment is used in “cut and dried” cases. At the recommendation of the law firm, we initially filed Clerk’s Judgments on these cases. We knew there was a chance that the courts might not accept this approach due to the novel nature of the Prosper loans, but H&H felt that it was worth trying for the Clerk’s Judgment with its lesser level of required documentation. As it turned out, the vast majority of courts rejected the requested Clerk’s Judgment.

The environmental aspect is twofold. The courts have exercised a marked increase in consumer protectionism as foreclosures and mortgage related defaults have skyrocketed. The second aspect involves the timing of these suits versus Prosper entering its quiet period. In October, 2008, I met with H&H to develop an account affidavit and documentation package necessary to support a Request for Default Court Judgment. Before the new motions were filed, we entered the quiet period. At the recommendation of the law firm, we decided to wait for completion of the registration process to pursue the cases. The length of our quiet period resulted in some cases being dismissed without prejudice rather than risk losing a motion in front of a leery judge.

So what does all this mean? Is Prosper just incapable of having a legal strategy? No, I still believe that a legal strategy is critical to Prosper’s collections. Let me address this in two parts, first what happens with the rest of the test and second the future of legal collections at Prosper.

Regarding the accounts in this test – in cases on which service was not obtained or were dismissed due to the quiet period – if they are still suit worthy, new cases will be filed. In some cases, the debtor has moved out of state or their credit score has dropped so low that re-filing is not worthwhile (there are several accounts that had credit scores above 700 that now have a score in the low 400’s).

The request for Court Judgment are being filed in open, uncontested cases. The contested cases will be brought to trial – we’re finally starting to get court dates scheduled for those trials.

At this point, I have no expectation that this legal test is going to be the financial success that I had predicted. However, there is still value in getting the courts used to dealing with the enforcement of peer-to-peer loans.

For the long term, I have great hopes for developing an effective legal strategy. In the pre-registration phase, we had two significant challenges regarding pursuing legal action. Most critical was that since Prosper did not own the loans, it took an extraordinary act for Prosper to have the standing to bring a lawsuit (the loans had to be assigned back to Prosper – and each step of assignment increases the complexity of a debt collection case). This is resolved with the new loan/Payment Dependent Note structure. Since Prosper owns the loan, there is no question of our standing to bring suit.

The second issue is creating a mechanism to pay upfront court costs. In the case of the current test Prosper paid the upfront court costs. Depending on state, this can be between $150 and $400 dollars per loan. Typically these costs are covered by “pooling” legal accounts – meaning that recoveries from accounts with recoveries pay the costs of the sued accounts on which no recovery is made. This approach does not work with the Prosper concept of lenders receiving the revenue from the specific loans that they selected for investment. We have some ideas and will be working out a viable plan to address this problem.

Another key question is how to determine what loan would be suit eligible given the current environment. For the last 10 to 15 years, the fact of homeownership has been the most important determinant for suit eligibility. That is no longer the case. We are investigating possible mechanisms for recovery scoring. 

Creating an effective legal strategy is a critical component of collection efforts in unsecured lending. Given the environment and the uniqueness of the Prosper structure, developing the optimal strategy is going to take work. The reason for testing is to learn while minimizing the economic impact. Although the results of this test were not what we hoped, we will continue to learn from it – and from additional tests that we undertake in the future. This is a work in process.

When business owners make the decision to put their businesses on the market, they are faced with a number of choices on how to handle the process. For many, working with a business broker is the solution, while others choose to go it alone – but what should you know before selling independently?

The business-for-sale marketplace is filled with options. Many business owners decide to market and sell their companies themselves rather than rely on professional brokers to do it for them. In fact, only around 10 percent of small businesses sell through brokers, while the rest make use of other transaction methods. Independent sellers are called FSBO (For-Sale-By-Owner) sellers, and they represent a significant portion of business owners who list establishments for sale.

The obvious question that arises from the FSBO method is whether it will continue to grow, or if more sellers will choose to rely on the expertise of professional business brokers. Although selling a company independently can be more complicated than many sellers anticipate, there are also signs that FSBO listings may have staying power.

Perhaps one of the most telling signs that FSBO listings may be around for a while is the reason they are gaining popularity in the first place. Contrary to popular belief, the primary influence behind the shift toward FSBO isn’t widespread dissatisfaction with traditional brokerage. Brokers continue to play a vital role in selling businesses in the U.S.  Instead, many sellers are choosing to handle the sale themselves for the simple fact that there are more resources at their disposal than ever before. 

Unlike previous generations, today’s business sellers can leverage the Internet and other technology-based resources to effectively market their companies and connect with potential buyers. Considering the sheer volume of “do it yourself” resources available to industrious entrepreneurs, it is safe to say that technology has tipped the scales for otherwise cautious sellers by providing an arsenal of selling tools at their fingertips.

Why FSBO?

Clearly, FSBO scenarios aren’t for everyone. A lot of sellers are uncomfortable handling the mechanics of the sale on their own and prefer to leave marketing, negotiation and other tasks to the professionals. After all, most traditional business brokers come with years of expertise and experience.

But for certain sellers, the prospect of a FSBO sale is a perfect fit.  FSBO sellers believe that they are the best person to present their company to potential buyers since they are most familiar with its strengths and limitations. They enjoy talking about the business and feel equipped to generate interest in the marketplace.

Another reason FSBO is popular among small business sellers is the entrepreneurial spirit itself. Most small business owners built their companies through hard work and common sense. By applying that same ethic to the sale process, they hope to maximize the price and minimize the amount of time the company sits on the market.

However, it’s doubtful that many of these sellers would be willing to assume responsibility for the sale without the help of information technology. The Internet – and online business-for-sale Web sites in particular – have created a ready-made conduit for sellers to connect with potential buyers and exercise their entrepreneurial skills on their own behalf.

Advantages of a FSBO Sale

It’s commonly assumed that the primary advantage of FSBO is an economic one because FSBO sellers avoid paying a broker’s commission. Although the financial benefit is a clear incentive for many sellers, it’s not the only advantage of a FSBO listing.

FSBO sellers also enjoy the ability to stay intimately connected to the selling process.  For a lot of sellers, that’s a huge advantage because it keeps them in touch with buyer interest and helps them gauge their expectations against marketplace realities.  Business owners with a “hands-on” leadership style might find it difficult to reproduce that level of involvement in a brokered sale.

Online resources enhance this benefit by giving sellers 24/7 access to useful information and other critical features. BizBuySell.com is one example. In addition to offering a comprehensive listing service, BizBuySell gives sellers a range of services designed to keep them connected with the changing conditions of the marketplace. Valuation resources, advanced search and multiple listing options equip FSBO sellers with the tools they need to stay informed and connected to their sale in real time.
 
The Risks of FSBO Selling

Sellers who choose to pursue an FSBO approach should be aware of the risks involved.  First and foremost, it’s important to understand that going alone is not the same thing as going in blind. Make no mistake about it – a business sale is a specialized transaction and it requires a certain amount of expertise to be done effectively.  Even though there are plenty of resources out there to help FSBO sellers navigate the process, owners need to actively seek out those resources and religiously integrate them into their sale strategy. In addition to using online resources, FSBO sellers might find it beneficial to turn to lawyers and accountants for reassurance and confidence throughout a transaction. 

Another significant risk of FSBO selling is the possibility that sellers will become too emotionally involved in the deal. Brokers create an often much-needed buffer between the buyer and the seller. When negotiations get tense, the seller relies on the broker to offer an objective perspective. Because there is no broker in a FSBO sale, the line between owner and seller inevitably gets blurred. Unless the seller has a trusted friend who can offer an objective perspective, the deal could rapidly deteriorate into an emotionally-charged fiasco.

The Future FSBO

Although the long-term outlook for the FSBO practice has yet to be determined, it is hard to deny its potential. Both buyers and sellers are unquestionably disposed to use the method’s most valuable resource – the Internet. Much of FSBO’s success will hinge on the willingness of small business sellers to embrace new online opportunities and to employ technological resources to their advantage.

Since not all sellers are comfortable selling their businesses themselves, brokers will continue to play an important role in the marketplace. But for sellers who insist on carrying their entrepreneurial instincts into the selling arena, the FSBO method will likely offer an effective alternative well into the foreseeable future.

Check back tomorrow for Part 3 of 7: Four keys to selling your business online

About the Author
Mike Handelsman is General Manager for BizBuySell, the Internet’s largest business for sale marketplace. Since 1995, BizBuySell has offered tools that make it easy for business owners and brokers to sell a business, and potential buyers to find the business of their dreams. BizBuySell lists over 50,000 businesses - spanning 80 countries - for sale at any time, with over 4,500 added or updated each month. BizBuySell also has one of the largest databases of sale comparables for recently sold businesses and one of the industry’s leading franchise directories. Please visit www.bizbuysell.com.

One way Prosper has been successful incenting distressed borrowers to pay is by offering alternative payment arrangements.  If borrowers  contact us before they have become 30 days past due, we can arrange an alternate payment schedule. If they meet the promised payments, we can continue to report the account as “Current” with the Credit Bureaus.  We’re not waiving interest, we’re not waiving late fees, we can’t change how the loan appears on the Prosper Site – all we’re doing is not dinging the person’s credit report. It is a carrot.

Starting in December, we have used this carrot for borrowers who contact us prior to being placed with collections (less than 31 DPD). We require an explanation of the “hardship” which is causing the problem with the payment schedule (usually loss of a job). We do not over scrutinize the hardships documented. What we are looking to do is to reach a monthly amount that the borrower will continue to pay for some period of time (usually 3 or 4 months). Even at a reduced amount, if we can keep them paying, it is dollars flowing to lenders. In addition this can build goodwill with borrowers and improve the future payment performance on loans.

Since December, we have logged 327 of these plans. As of today, 251 of them are still active – that is an excellent retention rate. Right now this is one of our most effective tools to continuing payments for lenders.

We are working on a major system project that will provide the tools that would allow us to extend this procedure to an “outreach” for all borrowers who exceed 15 DPD.  

Is it just giving away money? No.  We are not changing the interest rate – so the situation is one of “funds delayed” not “funds abandoned”. As long as people keep paying, it is a good thing. One advantage of these payment plans is that they do not incur Collection Agency Fees. To date, this program has accounted for more than $225K in payments —some portion of which would not have received lenders.

Thinking about selling your business? If so, it’s important to know whether now is the right time to sell. For many business owners, waiting until the economy improves and preparing to sell instead, is a better option.

Selling a business is an important and often emotional process, with the possibility for high stress, high-stakes financial consequences and an overwhelming number of factors to consider. Every business seller, though, has one goal in mind: getting the best price. Although deals get done all the time, in today’s economy of declining market conditions and credit crunch, it may be best for some owners to temporarily halt the search for a prospective buyer.

Especially if you’re in an industry that has been hit hard by the down economy, it may be wise to instead redirect your focus on preparing your business for sale. You’ll likely get a better return on your business growth and equity at a later time. For example, some entrepreneurs look to capitalize on tough times by trying to buy businesses for less than they are worth.
 
I recently attended the International Business Brokers Association (IBBA) Fall 2008 Conference in Louisville, Kentucky, and while there, business brokers were saying the same thing. Sellers who don’t have to sell now (during the low point in the market) should instead spend their time preparing to sell. This way, they will maximize their ability to get a good price for their business when the market improves, hopefully in the next 6-18 months.

Your business will find a buyer only when the buyer feels like it’s a good time to buy. With the current economy, buyers are encouraged because many eager sellers are willing to negotiate the asking price down. But it’s essential to make sure that the willing buyer is the right fit for your company. In this economy, business owners must decide whether or not they are willing to take a much lower price for their business. Additionally, today’s challenging credit market means that only buyers who can pay cash, or who are highly qualified for financing, have the resources to buy. Waiting until the credit markets clear could mean a larger pool of potential buyers for your business, which often means a higher sale price.

This is not to say that all business owners cannot command good prices today, however. Although there is a smaller supply of businesses for sale, strong businesses can still get top-dollar offers. They stand out from the crowd of dire sellers more than they do in a better, robust market.

So how do you know if you’re a business owner who shouldn’t sell now? In general, it’s best to sell when business is good. Even better, sell after years of steady revenue and profit growth. Especially in today’s economy, buyers will not be eager to resurrect a company that used to be thriving.

When You Shouldn’t Sell

Business is Bad- If your sales are declining, or erratic in nature, buyers will either 1) be turned away, or 2) have greater leverage over you to negotiate a lower asking price because the purchase is more risky. 

Transferability is Not Feasible- When selling, you must consider the transferability of business
contracts, processes, customers and workforce. If you can’t ensure the potential buyer
that the lease, employees and loyal clients will all not disappear along with you, it’s not the right
time to sell. 

How to Prepare to Sell

Preparing to sell means building upon your strengths and fixing weaknesses so that you can secure the best possible purchase price for your business. Above all, make the transaction process easy for the buyer. This means being honest about your motives, expectations and business difficulties. Identify common buyer desires and concerns, while maintaining an open-minded attitude. This will ultimately put potential buyers more at ease with the critical purchasing decision. If they know you’re willing to negotiate with them, they’ll also be willing to negotiate around some of the less appealing aspects of your business. Good sales strategy is 90% listening to what others want and need. 

It turns out that many of the essential business practices you’ve used to grow your business are also essential to selling your company, so it is crucial not to ignore the items below when preparing to sell:

Organize Your Books

This often involves many aspects, including outlining the financial history and outlook for your business; improving the bottom line; overcoming any financial problems and preparing financial records for review by prospective buyers. Make sure to outline all of your assets (both tangible and intangible), lease conditions, and debts both owed by and to you.  If you haven’t been diligent about keeping the books in a condition that will be easy for a buyer to understand, start doing that now. 
 
Train Capable Employees

Business buyers want to know that they will have support from an existing workforce that is very familiar with the business, its primary needs and existing customers. The employees you leave behind will ultimately help you sell the business. If possible, find an appropriate time to make sure all customers and employees know of the impending sale; but be careful about relaying the information too soon. The last thing you want is a lack of motivation or loyalty because they know you will be leaving. Maintain the relationships to ensure their transition will be as smooth as the new owner’s.  

Remove Your Partialities

Don’t put a new owner in the position of having to deal with a customer who expects special treatment or another with whom you have a verbal contract. It’s also important to examine contracts with suppliers to ensure the terms will not expire or need to be revisited when the new owner takes over. Eliminate any outstanding contracts that are needless or might worry a new buyer. 

Build Your Existing Customer Base & Credibility

Potential buyers won’t be interested in a business that lacks a loyal client base or forces them to recover from damaging press. Happy customers are your best advertising. Conversely, one extremely unhappy customer will likely make ten other individuals turn against you. Combat criticism by being honest and communicative with clients. One of the cheapest ways to get some loyal followers is by word of mouth. Besides one-on-one interaction, extend yourself online; correspond with customers via online social networks like Twitter to answer questions and talk about new business initiatives or products. It will show that your business is ahead of the curve in recognizing the importance of the digital channel.     

Enhance Your Facilities

Like the old saying, first impression means everything. When preparing to sell, take the time to boost the curb appeal of your business. Make sure the inside reflects the same amount of care, as surroundings can influence a buyer’s decision. If they can’t see themselves operating in the company’s current facilities, they probably won’t make an offer. Take the time to paint where needed, fix that old awning or sign, and clean up. 

Build Your Brand…Offline and Online

Businesses with well-known names, strong marketing and a well-executed online presence will ensure a buyer that your business is staying current with the market trends. With today’s economy, online initiatives are becoming increasingly important, as 90% of initial buyer interest in some business categories stems from the Internet. How well your web site functions, the quality of content and the appearance will all give a buyer as much a first impression of your business as the brick-and-mortar exterior. Make sure your web platform has simple navigation so the new owner can update it accordingly. If you’re purely a brick-and-mortar business, there are still things you can do to build your brand. Speak at the local chamber of commerce, and continue to explore new avenues of advertising.

Create a Procedure Manual

This should outline your business processes that help the business function on a day-to-day basis, including capabilities, contracts, relationships, systems and product, pricing and distribution strategies. Don’t forget to mention all competitors, their strengths and weaknesses (as well as your own), and any potential for growth. This will show the would-be buyer that you are well organized and have their best interests in mind, knowing full well that they want to hear all the details of the business. Imagine how appealing it would be to a potential buyer if your business comes with a well-prepared and thorough instruction manual. 

Establish a Quality Sales Force for Selling Your Business

It is wise to look into obtaining an experienced business broker, lawyer, and/or accountant to help you sell your company.  While the latter is not always necessary, as a for-sale-by-owner listing is always an option, it’s key to make sure your business is accurately valued and represented. BizBuySell.com has the largest directory in the U.S. for finding a business broker and knowing what to ask:

http://www.bizbuysell.com/business-brokers/

Lawyers and accountants can help value the business (or you can alternately generate a valuation report online or use a third-party valuation service). They can also prepare a confidentiality agreement so potential buyers cannot reveal what they uncover through the due diligence process.

Nobody knows for sure when the economy will turn around, but there’s no doubt that unprepared business sellers will face harrowing challenges when trying to sell in the current market. The key is to step back and look at your business to gain a realistic view of whether or not it is strong enough to hold its own in a difficult market. If not, you’ll avoid much stress by waiting it out and getting the business prepared for a smoother and more profitable sale in the future.

Check back tomorrow for Part 2 of 7: The Facts about Selling Your Business Independently

About the Author
Mike Handelsman is General Manager for BizBuySell, the Internet’s largest business for sale marketplace. Since 1995, BizBuySell has offered tools that make it easy for business owners and brokers to sell a business, and potential buyers to find the business of their dreams. BizBuySell lists over 50,000 businesses - spanning 80 countries - for sale at any time, with over 4,500 added or updated each month. BizBuySell also has one of the largest databases of sale comparables for recently sold businesses and one of the industry’s leading franchise directories. Please visit www.bizbuysell.com.

Over 4 years ago I joined Prosper because of the professional interest and challenge peer-to-peer lending presented, and the opportunity to be part of what state and federal regulators have since described as one of the most promising financial innovations in the last five years. My charge was to design and build Prosper’s peer-to-peer lending platform from the compliance standpoint, and obtain the regulatory approvals necessary to make it work.

With achieving SEC effectiveness of Prosper’s securities registration in mid-July, the job I came to Prosper to do is largely completed. I will now move on to new challenges — building innovative new business constructs from the legal and regulatory standpoint is the work I most enjoy.

I have been working closely with Sachin Adarkar, Prosper’s new General Counsel, to make for a seamless transition, and I will serve on Prosper’s Advisory Board and be available to assist in Prosper’s success in any way I can. Of course, I remain an ardent Prosper supporter and believer, and I have tremendous respect for all of the others in the P2P space that have had the courage and resolve to brave the regulatory obstacle course to forge this new nascent industry with so much potential for individual and collective financial empowerment.

I want to thank the members of the Prosper community I’ve had the pleasure to meet, the responsible, dedicated and thoughtful state and federal regulators I’ve greatly enjoyed interacting with, the outside lawyers, accountants and other professionals that have been so instrumental to Prosper’s success, and most of all the wonderfully talented present and former co-workers at Prosper. I will miss you all but I’m sure we will cross paths again.

Finally, I’d like to personally thank Chris Larsen, with whom I’ve had the pleasure of working for the last 10 years. Thank you Chris for trusting me to grow this groundbreaking, important new industry and for the opportunity to work toward making your vision a reality.

-Ed

In recent years, the trend toward FSBO (for sale by owner) businesses has created a reciprocal movement among buyers. Rather than depending on the services of purchasing professionals or business brokers, many business buyers are deciding to navigate the buying process on their own.

Although there isn’t any reason why a conscientious buyer can’t handle the transaction on his or her own, inattention to the small stuff can have some pretty dire consequences. In a business purchase, the devil really is in the details and oversights often turn into last minute deal-breakers.

Luckily, business buyers have many resources at their disposal. For example, online business-for-sale marketplace BizBuySell.com lists thousands of businesses for sale on its Web site and includes an entire section of resources for potential buyers. The site offers a “Buyer’s Workbook,” comprised of articles and checklists for every step of the buying process, from due diligence to a list of tasks at closing. Additionally, BizBuySell’s Valuation report can help aspiring business owners and business sellers understand the value of a business in their region.

A transaction’s purchase agreement, which essentially condenses the negotiated points into a single legal document, is the element of the process most likely to prevent a sale. If the buyer isn’t careful, he or she can end up tied to conditions and responsibilities that make a successful business purchase very difficult.

1. Purchase Description

Obviously, the purchase agreement has to accurately describe the business that is changing hands in the transaction. The business name, address and interests should be adequately detailed, and also include a brief summary of asset categories.

If the business is a multi-site operation, it is in the buyer’s interest to make sure all locations are included in the description. On the other hand, if the business leases space, the description must address the transfer of the lease to the new owner.

Rather than trying to list every single asset in the main body of the document, it is common to reference a more comprehensive itemization of assets in an addendum or schedule attachment. If the schedule doesn’t completely agree with the negotiated terms, it will need to be amended before signing.

2. Price

The subject of price might seem like it should be the easiest issue to address in the purchase agreement, but this is not always the case. The price that came out of the negotiation process must now be more fully described because the values assigned here will reappear at final closing.

Typically, this means breaking the assets of the business down into categories such as “Inventory,” “Real Estate,” and “Equipment.” It is the buyer’s responsibility to make sure each asset category is given a value that is accurate and reasonable.

The reason it is so important to break the price down into categories can be described in one word: Adjustments. Between the time of the agreement and the final closing, the value of certain asset categories will inevitably change. For example, the continued operation of the business will result in changes in inventory. Since the new value has to be taken into consideration at closing, the purchase agreement needs to describe not only the current value of the assets, but also the kinds of adjustments that will be made before it’s a done deal.

3. Payment Methods

After the business description and purchase price have been described, the purchase agreement typically deals with how the buyer intends to pay for the business. Most buyers cobble together a variety of payment methods to complete the sale, each of which needs to be clearly discussed and identified.

Buyers should look for a clear schedule of payments with escrow agreements attached to any payments that are due prior to final closing. If the seller is financing part of the purchase price, the repayment schedule should also be described along with collateral requirements and interest details. This can become a sticking point if the seller expects to secure a first collateral position for assets that will be held as security by other lenders.

4. Seller Warranties and Responsibilities

When a business is sold, the seller makes certain promises to the buyer in the form of warranties. These warranties are an extension of due diligence for hidden threats or liabilities that would devalue the business or its assets. Since the majority of buyers aren’t aware of the issues that are covered in a standard warranty, it never hurts to have an attorney give the warranty section a little closer scrutiny.

Sellers also have several responsibilities that need to be taken care of before final closing, most of which relate to business operations prior to closing. Buyers want written assurances that the business they are agreeing to buy today is the business they end up with when everything is said and done. However, clauses giving the buyer continued access to company records prior to closing can easily be overlooked, creating a scenario where the buyer is not able to track the company’s status until the final documents have been signed.

5. Non-compete Clause and Dispute Arbitration

Two other details worth noting are a non-compete clause and provisions for dispute arbitration. In some cases, the value of the business can be rendered worthless, or substantially decreased, if the seller decides to re-launch a similar business and take his customers with him. Non-compete clauses prohibit sellers from engaging in similar business activities for a specified period of time - usually five years, or within a specific geographic region.

Arbitration provisions are another important detail since either the buyer or the seller could violate aspects of the purchase agreement prior to closing. If that occurs, an arbitrator can potentially salvage the deal by resolving the disagreement and holding both parties accountable for their responsibilities.

Even the most adamant do-it-yourselfer shouldn’t neglect a full legal review of the purchase agreement document. Attorneys deal with fine print everyday and are trained to protect their clients’ best interests. They can also help the buyer place the purchase agreement in escrow after it has been signed, which is a critical step because it effectively takes the business off the market while the buyer waits for the deal to be finalized. Additionally, the services of a business appraiser and/or accountant can also be extremely helpful during the purchase process for helping the buyer ensure they are properly understanding the value of the business they are about to purchase.

About the Author
Mike Handelsman is General Manager for BizBuySell, the Internet’s largest business for sale marketplace. Since 1995, BizBuySell has offered tools that make it easy for business owners and brokers to sell a business, and potential buyers to find the business of their dreams. BizBuySell lists over 50,000 businesses - spanning 80 countries - for sale at any time, with over 4,500 added or updated each month. BizBuySell also has one of the largest databases of sale comparables for recently sold businesses and one of the industry’s leading franchise directories. Please visit www.bizbuysell.com.