Do you have partners in your business? A buy-sell agreement is a tool that can save you aggravation when it’s time to sell your business.

Utilizing a Buy-Sell Agreement in your business…

When selling a business that involves multiple owners, the complexity of the transaction can significantly increase. Without the right structures in place, such sales can easily spiral into conflict, with parties disagreeing over valuations, terms, and even the basic rights to sell or buy. A critical tool to prevent these issues and ensure a smooth transition is a buy-sell agreement. This agreement is not just a legal formality; it's a blueprint that guides all parties through the transaction's complexities, ensuring everyone's interests are safeguarded.

The Pitfalls of Avoiding Early Agreements

Business owners commonly avoid certain agreements when partnering or taking on investors for a business they start up or purchase, and this oversight can be quite costly when it's time to sell the business. Without a clear agreement from the onset, owners find themselves tangled in disputes that can derail the sale of a business they've worked hard to build.

What is a Buy-Sell Agreement?

A buy-sell agreement, also known as a buyout agreement, is a legally binding document between co-owners of a business that controls when owners can sell their interest, who can buy an owner’s interest, and what price will be paid. These agreements are designed to address all potential situations that could affect ownership of the business, such as an owner’s desire to retire, death, or decision to exit the business for other reasons.

Key Components of a Buy-Sell Agreement

The effectiveness of a buy-sell agreement lies in its detail and foresight. Here are some crucial elements that should be included:

• Valuation of the Business: The agreement should clearly define how the business is valued in the case of any owner’s exit. This can prevent disputes from arising between remaining and departing owners over fair price determination.

• Terms of the Buyout: Conditions under which the buyout will occur and the payment terms should be explicitly stated. This includes setting up financing arrangements if necessary.

• Trigger Events: These are predefined circumstances under which the buy-sell agreement would take effect. Common triggers include retirement, death, divorce, and disability among others.

Implementing the Agreement

Drafting and implementing a buy-sell agreement requires careful consideration and often the aid of legal and financial advisors. The process involves:

1. Negotiation: All parties discuss and negotiate the terms that will be included in the agreement. This stage is crucial for understanding and aligning the interests of all parties involved.

2. Drafting: Legal professionals draft the agreement, ensuring all legalities are properly addressed and that the document is binding.

3. Signing: Once drafted and reviewed, all parties sign the agreement, legally binding them to its terms.

The Impact of a Well-Crafted Buy-Sell Agreement

A well-crafted buy-sell agreement not only prevents conflicts but also facilitates a smooth operational transition. For instance, in a scenario where one partner wishes to retire, the agreement clearly outlines the process for buying out their share, ensuring that business operations continue seamlessly without legal hurdles or financial disputes.

Moreover, such agreements provide peace of mind to all business owners, knowing that there is a predetermined path forward should any significant changes occur. It allows business owners to focus on what they do best—running the business—rather than worrying about potential future disputes.

What does a buy-Sell agreement Cost?

The cost of a buy-sell agreement can vary widely depending on several factors, including the complexity of the business structure, the number of parties involved, and the jurisdiction. Here are some typical considerations that affect the cost:

1. Complexity of the Agreement: More complex agreements that need to account for various scenarios, such as multiple owners, different classes of ownership, and various trigger events, will cost more due to the increased legal work required.

2. Legal Fees: Attorneys typically charge either a flat fee or by the hour. Hourly rates can range from $150 to $500 or more, depending on the lawyer's experience and location. A flat fee for a simpler agreement might range from $1,000 to $5,000, whereas more complex arrangements could cost more.

3. Valuation Methodologies: If the agreement requires a business valuation, this can add to the cost. Professional valuations might range from a few thousand dollars to tens of thousands, depending on the size and complexity of the business.

4. Review and Negotiation: Costs can increase if there is significant negotiation between parties on the terms of the agreement, requiring more time from legal counsel to revise and finalize the document.

5. State and Local Requirements: Different states may have specific requirements that could complicate the drafting of a buy-sell agreement, potentially leading to higher costs.

For most small to medium-sized businesses, you can generally expect the legal drafting of a buy-sell agreement to cost anywhere from $2,500 to $10,000, though it's wise to budget for the higher end of this range if your business structure is complex or involves multiple parties. It’s always a good idea to get a few quotes from different attorneys to compare prices and services.

Conclusion

A buy-sell agreement is an indispensable tool for any business with multiple owners. It ensures clarity, fairness, and continuity in situations where ownership could change. For anyone contemplating selling a business or restructuring ownership, setting up a buy-sell agreement should be a priority, not an afterthought.

Business owners should always seek the expertise of legal and financial advisors to craft an agreement that suits their specific needs and provides comprehensive coverage for all potential scenarios. With a solid buy-sell agreement in place, you can ensure that the business thrives, even as ownership changes hands.

If you would like to learn more about this please contact Jim Peddle, Business Broker & President at Playbook Advisory Chicago at 312-525-9622 or email president@playbookadvisory.com.

Unlock the Door to a Profitable Future with this One-of-a-Kind Digital Marketing Agency

Active Listing - 2021

Are you in the market for a thriving and well-established digital marketing agency? Look no further! A rare opportunity has arisen to acquire a top-performing agency located in the heart of the Midwest.

With over 15 years of experience and a highly skilled team of designers, developers, and project managers, this award-winning agency has carved out a reputation for delivering outstanding results to its clients in the consumer, healthcare, and industrial sectors.

The company recorded impressive revenue figures of over $2 million in 2019 and is projected to see growth of 2-4% in 2020, according to the seller. This presents a unique chance for a savvy buyer to take the reins and steer the company towards even greater success.

What sets this agency apart is the dedication and commitment of its team, who are driven to continue expanding the client base and driving growth. This is a rare find in the world of M&A, and one that should not be missed!

Don't miss out on this exciting opportunity. Contact Jim Peddle, the business broker, directly at president@playbookadvisory.com or 312-525-9622 to learn more. Please note that all buyers must be vetted and approved, so allow 24-48 hours for this process.

Confidence Still High for Business Sales

BizbuySell released a survey of business owners this week and not surprisingly, confidence remains high for mergers and acquisitions as we close out 2017. 

Bizbuysell, the Internet's largest business-for-sale marketplace, released its 2017 Buyer-Seller Confidence Index, a national indicator of small business sentiment of the current business-for-sale environment.

Owners Remain Confident They Can Get an Acceptable Price, But Just For Today

The slight drop in Seller confidence doesn't diminish the overall positivity that has persisted since BizBuySell started calculating this data in 2013. Similar to last year, 60 percent of current owner respondents said they are confident they would receive a price that met their expectations if they sold their business today. Additionally, more than 40 percent believe the environment improved in the last year, saying they could receive a higher sale price for their business than at the same time in 2016. Those owners credited improving sales and revenue (62 percent), an improving small business economy (43 percent) and an increased interest in their business industry (25 percent).

"The stock market has been going up, which increases consumer confidence and stimulates small business. Due to these various factors, small business acquisitions are in demand," said one current owner.

Seller confidence in today's market is validated by the number and type of businesses hitting the open market. According to BizBuySell's Q3 Insight Report, the number of businesses listed for-sale increased nearly 7 percent from the same time last year. In addition, listed businesses displayed increasing revenue (up 4.4 percent YOY) and cash flow (up 3 percent), allowing for an increase in the median asking price (up 5.9 percent).

As owners remain optimistic in today's market, there is evidence that some might be concerned of an upcoming peak. Just 41 percent of owners believe their business would be more valuable next year; a significant drop from the 48 percent who believed the same in 2016. Furthermore, an increasing percentage of owners believe their business value would not change at all if they waited a year; 47 percent versus 40 percent a year ago.

Perhaps more signaling of a perceived pricing plateau, 2017 results show a 50 percent increase of owners who saw no value increase versus the prior year, up to 29 percent from 19 percent a year ago. Another 30 percent of owners believe their business value decreased. Reasons cited for declining value include increasing costs (33 percent) a depressed small business economy (30 percent) and declining sales and revenue (23 percent).

The mixed responses from owners who are more or less optimistic explains the 1-point drop in the Seller's Index and can likely be attributed to varying environments across regions and industries.

"The climate for my business has declined with the aggressive nature of Amazon and other online outlets," said one retail business owner. That sentiment was echoed in BizBuySell's recent poll of owners, showing 65 percent perceive online marketplaces, such as Amazon, a threat to small business. "While interest rates and financing create a favorable environment, declining unit volume and rising labor costs are squeezing margins," another owner said.

Overall, sellers remain confident but appear cognizant of the issues that could affect their business value going forward.

Buyers' Confidence Falls as Concern for Future Prices Takes Hold

While sellers have been consistently confident in their ability to fetch a good price for their businesses, buyers feel those rising prices come out of their pocket. It is perhaps no surprise then that the Buyer Confidence Index has remained below 50 since 2014, indicating acknowledgement that healthier small businesses mean higher asking prices. Maybe more interesting is that while buyers and owners share concern of what's to come, owners fear a peak while buyers fear continued price increases.

The 2017 Buyer Index dropped 3 points, mainly caused by buyer belief that prices will continue to increase. Only 22 percent believe they would receive a better deal by purchasing a business next year, a drop from 29 percent at the same time last year. Instead, a growing number (21 percent) of buyers believe they will receive a worse deal if they wait until next year, an increase from the 15 percent that thought the same in 2016.

"If the political infusion into relaxing business regulations takes hold, the purchase prices for businesses will continue to increase," one buyer said, citing the political scene as reason for ongoing rising prices.

The belief that next year will result in higher asking prices correlates with buyers' overall belief that small business sellers are already setting their asking prices too high. More than 55 percent of buyers said they believe currently for-sale businesses are overvalued, and a mere 4 percent felt they were undervalued.

"With the stock market at an all-time high, and with high job force participation, lots of sellers think they can get top dollar," another buyer said.

While rising prices in 2018 remain speculation for now, increases appear to have become a reality for buyers seeking to transact in 2017. 31 percent of buyers felt they would have been better off buying a business last year versus just 15 percent who felt they can find better value now. Once again, the top reason for these perceived worse conditions were owners setting unrealistic selling prices. High asking prices were cited by more than half of buyers who believe they could have a received better value last year.

"The economy is doing better so prices are being increased, but for less cash flow," one buyer explained.

Interestingly, the second most listed reason was a higher demand for small business ownership (42 percent), meaning buyers are seeing more competition for the businesses they are interested in. While many consider rising demand a negative, some buyers are hoping it will result in more sellers looking to take advantage and in turn, more opportunity to find the right fit. "I see a lot of retiring baby boomers without succession plans, which will lead to better purchase options despite a higher cost to borrow," a buyer said.

"During the last recession, we saw buyers getting great deals on small businesses because of the depressed economy and health of listed business, but it came with higher risk." House says. "As times have become more certain, those deals have evaporated and buyers have to adapt to the more equal-footed market. The record pacing number of transactions we're seeing now suggests they are."

1 in 4 Sellers to Retire as Baby Boomers flood market; Buyers relying on SBA loans, bank & seller financing to close deals

BizBuySell's Insight Report data has shown a steady increase in both listing and sold small business over the past two years. Much of the increased activity has been due to Baby Boomers reaching retirement age and that does not appear to be slowing down. The confidence study supports this as 25 percent of current owners say they will retire upon completion of their business sale.

Those who don't plan on retiring seem to be part of the serial entrepreneur community. Thirty-one (31) percent of owners said they hope to start another business after they sell while another 25 percent intend to buy another business to run. Only 9 percent want to find a non-ownership job for another company.

When sellers do move on from ownership, the majority won't be handing the keys to the family. The common perception of a small business is that it may be passed down from generation to generation but the reality is that most owners expect to sell to someone they don't know. Over 38 percent of owners say they plan to sell to a third-party owner and another 26 percent hope to be sold to or acquired by another company. Just 17 percent plan to pass the business to a family member and 11 percent to a current employee.

Finally, when owners sell their business, they should plan to receive the money over time and not as a big down payment. That's because buyers expect the seller to take on some of the risk, with 41 percent hoping to pay for part of the business through seller financing. Not surprisingly, the other biggest source of capital will be bank financing (50 percent) and SBA loans (48 percent).

"The business-for-sale market is strong when both sellers and buyers can find common ground in not only the sale price, but the other aspects that go along with a transaction," House said. "The fact that we've seen such strong activity over the past few years shows that both sides are finding value in today's market, even as it grows more crowded."

About the BizBuySell's Business Buyers-Seller Confidence Index

BizBuySell.com is the Internet's largest marketplace for buying or selling a small business, with over 1.6 million monthly visits. The company releases its Business Buyer-Seller Confidence Index on an annual basis, reporting changes in buyer and seller opinions of the current business-for-sale environment. The index and scores are calculated through a number of weighted survey questions issued to over 2,000 people currently interested in either buying or selling a small business. For more information on the survey findings and index scores, please contact BizBuySell directly.

Source: Bizbuysell.com

Jim Peddle Joins the International Business Brokers Association (IBBA.Org)

IBBA is the Largest Business Brokerage Association in the United States

Playbook Advisory announced today that Jim Peddle, President & Founder, has joined the largest business brokerage association in the United States. The IBBA is an association of professionals providing merger & acquisition services to business owners. Mr. Peddle is one of five business brokers affiliated with the IBBA from Chicago and one of 27 in Illinois.

"We have joined this organization due to its long-standing commitment to the industry, the quality of their educational programs and because of the number of quality business brokers that are current members. We believe business owners are well served by having an IBBA broker as their advisor."

Mr. Peddle founded Playbook Advisory in 2016 to offer merger & acquisition assistance to business owners operating companies up to $10,000,000. Playbook Advisory has been engaged to sell companies operating in a variety of industries including Staffing, Technology, Machining & Manufacturing & Retail distribution.

"Our firm is growing quickly and associating with the IBBA is something that we believe will add value for our Company. We are proud to be one of five brokers based in Chicago to be a member. In the whole state of IL. there are only 27 business brokers listed as IBBA members," added Mr. Peddle.

Business owners may go to www.ibba.org or to www.playbookadvisory.com to learn more about the services a business broker provides its clients. We strongly suggest owners interview a minimum of three firms & business brokers prior to signing and executing a listing agreement. Terms such as exclusivity, listing terms, commission rates and triggers on payment should be fully discussed with each firm.

About the IBBA:

The International Business Brokers Association (IBBA) is the largest international non-profit association operating exclusively for people and firms engaged in business brokerage and mergers and acquisitions. This association provides business brokers education, conferences, professional designations, and networking opportunities. Formed in 1983, the IBBA now has more than 1,000 business intermediaries across the world. The IBBA has been described as "the most complete package of membership benefits and services, best networking opportunities and most influential group of business brokers."

About Playbook Advisory & Jim Peddle:

Based in Chicago, IL., Playbook Advisory works with business owners seeking representation to assist with the valuation, listing, marketing, due diligence, and closing services. It's our process that has proven effective over many deals in a variety of industries. Contact us at 312-525-9622 or reach our website at www.playbookadvisory.com.

author: Jim Peddle, President

contact Playbook Advisory:
president@playbookadvisory.com

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Q & A with Playbook Advisory Founder Jim Peddle

An Interview with Jim Peddle, Founder & President of Playbook Advisory

How did you begin your career in business brokerage

I started in the industry in 2011, right after the great recession, which was a challenging time to enter the field. The landscape was tough, with dwindling leads and an inexperienced team, but it taught me resilience. After five years at a national franchise, where I became the top-producing broker by 2015, I founded Playbook Advisory to leverage my expertise in sales and marketing.

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What services does playbook advisory offer?

We provide comprehensive business brokerage advisory services, assisting both buyers and sellers. Our offerings include:

• Sell Side Representation for Business Owners exiting their businesses

• Targeted M&A searches for Buyers and Strategic Buyers Nationwide and Chicagoland

• Business valuations for Estate, Divorce, Partner Disagreements and Selling

• Pre-sale business evaluations

• Strategic marketing and SEO for business oowners

How do you Promote your business?

Our approach combines modern "pull" marketing with traditional methods. We focus on delivering high-quality, relevant content that positions us as industry experts. This strategy includes engaging potential clients through various platforms like BizBuySell, BizQuest, and our blog, as well as hosting events and seminars.

• Bizbuysell

• Bizquest

• Twitter Page

• Facebook Page

• Blog Page - Playbook Advisory

• Playbook Advisory Active Listings:

• Events & Seminars with Jim Peddle & other professionals

• Partnerships & Joint Ventures

what do you attribute your success?

Our success stems from our commitment to continuous learning and client-first service. We apply a consistent methodology to every transaction, which has been instrumental in our achievements. Furthermore, I value building relationships with clients that are likely to be positive and productive throughout the sales process.

Do you refer business to other professionals? Bankers, Accountants or Attorneys?

Absolutely! We frequently refer clients to trusted bankers, accountants, attorneys, and other specialists. This network not only supports our clients' needs but also expands our reach and capabilities in the business brokerage field.

What do you look for in your Team Members?

We seek individuals who are self-motivated, resilient, and client-focused. The ability to embrace challenges and continuously seek growth opportunities is crucial.

What made you choose your current location for the Corporate Office?

Our office is strategically located on Chicago’s North Side, near key transport links and Wrigley Field. This location supports our operational needs and provides excellent growth opportunities, despite my personal allegiance to the Sox!

What are Your responsibilities as the business owner?

In the beginning, I managed nearly all aspects of the business, from incorporation to SEO optimization. Today, my role encompasses overseeing our strategic direction, ensuring client satisfaction, and driving business growth.

Have you ever turned down a client?

Yes, compatibility and mutual respect are crucial in our engagements. We prioritize working with clients who respect our expertise and share our goal of successful business transitions.

How can someone contact you regarding buying or selling a business?

We can be reached directly at 312-525-9622 or via email at president@playbookadvisory.com. We encourage all interested buyers and sellers to call us to learn more about what we do.

Author: Jim Peddle,
Tags: Business Broker, Playbook Advisory, Sell a Business, Jim Peddle

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Structuring an SBA Loan to Buy a Business

Playbook Advisory

A Full Service Business Brokerage Firm

www.playbookadvisory.com

312-525-9622