Transcript – Episode 2

Fred Dunayer:             Welcome to the SCORE Small Business Success Podcast – Been There, Done That! To get free mentoring services as well as to see the wide variety of resources available for small businesses visit our website at or call 1-800-634-0245. Now, here’s your host Dennis Zink.

Dennis Zink:                Fred Dunayer joins me in our studio as co-host, SCORE mentor, and audio engineer.

Fred Dunayer:             Good morning.

Dennis Zink:                Good morning, Fred. Today is our second episode, Selling a Business, and our guest is Norman Silverstein. Good morning, Norm.

Norman Silverstein:   Good morning.

Dennis Zink:                Norman Silverstein’s primary expertise is assisting buyers and sellers of small to mid-sized businesses. Norm has owned his own business brokerage company for over 10 years and merged with another company in 2006. Having completed hundreds of business sales, Norm is experienced in mergers and acquisitions, business valuations, performing due diligence, determining real cash flow of business, and everything that it takes to bring buyers and sellers to the closing table. Norm has been a SCORE certified mentor since 2012 and we welcome Norm to Been There, Done That!

Norm, many business owners choose to sell their business. Why might they do that?

Norm Silverstein:       The major reason is retirement. Many owners reach the point where they want to retire. They’ve had the business successfully for over many years and they just want to retire and play golf all day long. Sometimes there are partnership disputes so that could be another reason why an owner or owners would want to sell their business. Sometimes there is a diminished interest in the business or just boredom. After running a business for so many years the owner decides that he just wants to sell and do something else or retire. Sometimes there’s an illness or the owner dies and the family wants to sell the business so that’s another reason. Sometimes the company has reached a point where it’s beyond the capacity of the owner to continue funding to get to the next step. There’s various reasons why an owner or owners want to sell their business and most of these reasons are legitimate.

Dennis Zink:                I would think that if an owner got to the point where they really couldn’t manage it anymore, if they were astute enough they could hire a professional manager to come in and fill the gaps that they didn’t have to take it to the next level. Do you see that happen sometimes?

Norm Silverstein:       They could but again, take it to the next level requires additional capital and a manager or somebody who’s been working in the business is qualified to be a manager may not have that ability to take it to the next step. Again, a manager, you have to pay that manager and you got to make less money yourself so there’s advantages and mostly disadvantages of doing it that way.

Dennis Zink:                Okay, so I’m a business owner and I’m at the point where I actually have made a decision to sell my business. How would I prepare my business for sale?

Norm Silverstein:       Number one you must have good financial records. You must have tax returns. You must have profit and loss statements for each month of the business that you’ve had at least for the past three years. You should have the term of the purchase price in the back of your mind as to what you want for the business. Most importantly if you’ve been taking cash you should be reporting or have reported all of the cash so that you won’t be questioned by a buyer to prove your cash inflows. That’s very important. Again, I emphasize keeping good books and records that a prospective buyer could review.

Dennis Zink:                How would I establish a selling price?

Norm Silverstein:       Again, establishing a selling price, a lot of owners think that their business is worth a certain percentage of their gross sales which is not basically true. If an owner truly wants to sell their business he should consult with his accountant who has some ideas or some knowledge of how to price a business even though you can get a hundred accountants in a room and you’ll have a hundred different opinions but the point is at least you’ll have an idea. The best thing that I would recommend is to consult with an intermediary who is familiar with pricing a business and can help the owner establish a reasonable purchase price that would be acceptable to a buyer. That would be my ultimate suggestion.

Dennis Zink:                What preparation should I do as a business owner in the way of a prospectus for interested parties? What should I give to someone who’s interested in taking a look?

Norm Silverstein:       I would prepare a business presentation plan. Basically, that’s like a business plan that a buyer who’s looking for funding would prepare. It would have a summary of the business, how it started, where it’s been, where it’s going. It would have in that summary a profit and loss statement showing. Not a full profit and loss statement but showing what the earnings have been, what the profits have been for the past several years, where the business is heading in the future. Something to hand to a prospective buyer or to a business broker or business intermediary who can prepare also a summary to give to prospective buyers. To have something tangible that could be given other than just an oral representation of the business.

Dennis Zink:                Now as a business owner, let’s assume that I frequently went to restaurants. Had an automobile that was either leased or purchased through the business. Maybe my son at college was filing things for me on the weekends or what have you. How does that fit into my selling price? Will I be able to recast those numbers, add them to the profitability and how does that work?

Norm Silverstein:       I think you could if you’re showing these expenses on your income taxes or your profit and loss statement. These are legitimate expenses and a good business intermediary will take those numbers and add it to the profits of the company to determine what the total benefits are and use that number to determine and help the business seller determine the purchase price.

Dennis Zink:                What would some other add back items be in addition to maybe car and travel and entertainment type expenses and restaurants?

Norm Silverstein:       Interest expenses are always added back. Depreciation expenses are always added back. You mentioned cars, that could be vacations where you tie it into a seminar and you’re taking your wife with you. You can add that back. You can show that to a prospective buyer who I think would be acceptable to accepting that as part of your total owner benefits.

Dennis Zink:                Boy, going on a cruise sounds great with my wife. I may not sell it all.

Norm Silverstein:       That’s true. Again, there are advantages of owning your own business but everybody who even buys an existing business or starts their own business should always have an exit strategy. The exit strategy as I mentioned is keeping good financial records. That will always help you in the long run.

Dennis Zink:                How do you find potential buyers?

Norm Silverstein:       Not that difficult.  You can advertise in newspapers with people. A lot of people used to do a lot of that but again, once you put an ad out in the paper you have to divulge who you are and where you are. I had a situation a few years ago where somebody was selling a gas station here in town and put an ad in the New York Times and was getting phone calls from people who said they were calling from various other states. It turns out that their competitors across the street were the ones calling so doing that is a risk because you want to keep the confidentiality.

Dennis Zink:                Is there a risk of selling to a competitor because a lot of times they’re the best candidate to buy your business?

Norm Silverstein:       Could be but again, you want to know who you’re talking to before you even divulge any information.

Dennis Zink:                What about employees? If you’ve posted an ad that you’re selling your business aren’t you afraid that your employees will flee?

Norm Silverstein:       Absolutely, and that confidentiality is extremely important. That’s why I always encourage a prospective seller to use a business intermediary who will under oath basically sign a confidentiality statement. He will not divulge any information that the business is being sold. Some people will call a real estate agent thinking that a real estate agent could sell their business and it turns out real estate agents the first thing they do is put a sign out. Business for sale. House for sale. You can’t sell a business that way. Confidentiality is key.

You do not want your employees to know that your business is being sold until you have the deal in your hands. Another case where I saw somebody who was a Century 21. These are yellow jackets with a Century 21 sign and he was sitting in a restaurant talking to an owner and the chef walked out and quit. He knew his job was in jeopardy so confidentiality is extremely important. You want to keep the employees because that’s part of the asset you’re selling.

Dennis Zink:                You’re really dating yourself with the Century 21 but moving along.

Fred Dunayer:             I would assume that you don’t want the customers necessarily to know either or the vendors.

Norm Silverstein:       You don’t want the suppliers to know. They get nervous. You don’t want your vendors. Your customers certainly not. If customers know that you’re selling the business like a restaurant they figure well, they’re going to get rid of all the old food and quit. It confidentially is the most important thing you have to keep in the back of your mind when you’re selling a business.

Dennis Zink:                Often times business brokers I think have real estate licenses. I think they didn’t know where to put that licensee and they stuck in under real estate. Is that true?

Norm Silverstein:       That’s true at least in this state. Florida’s a license state and half the states do require a real estate license for business brokers. Reason being that sometimes that business that’s being sold also has property. In order to sell the property and the business you have to have a real estate license. My company I was a licensed real estate broker even though I sold businesses but many times there was property attached to the business so in order to comply with the law you have to have a real estate license.

Some states are not licensed and anything goes but again, Florida fortunately does require that. They don’t want to have separate licensing even though they were trying to get the state representatives in the state Senate to do that. They didn’t want to do that so they put it under real estate.

Dennis Zink:                Norm, what’s the best way to negotiate with a potential buyer?

Norm Silverstein:       I think telling the truth. The buyer is going to ask him why he wants to sell the business and I think you have to tell him the truth. Most business owners will do that. The best way to negotiate is to come up with a reasonable purchase price that you can support that would not chase a prospective buyer away. You want to get that buyer close to you and presenting the business, showing the business properly. Making sure the parking lots clean. The first impression is very important when you’re negotiating with a prospective buyer. Again, working with a business intermediary will go through a whole list of things that you should be prepared to discuss with a prospective buyer once you have somebody who’s serious in purchasing your business.

Dennis Zink:                What are some of the things that our listeners should know about if they were looking at selling their business if they get multiple offers? How do you deal with that? How do you do a balancing act there and get the best price and the best deal because it’s possible that someone might offer you more money but it may not be the best deal?

Norm Silverstein:       Getting multiple offers that’s a great problem to solve because it doesn’t always happen that way but if you have multiple offers then it’s your job to vet the buyer. You want to feel comfortable with the buyer especially if you’re going to offer financing. You want to make sure that this buyer is substantial. At least qualified to buy your business from a financial standpoint so you want to make sure that even though he’s going to ask you for information about your company. You have the right to get a credit report on this person. Get a personal financial statement to make sure that this buyer’s qualified to buy your business and then it’s your choice to take the best offer but just make sure that you’re getting with a proper buyer. Somebody who’s financially qualified to buy your business.

Dennis Zink:                Is it a good point to bring in your accountant or attorney at that point when you’re at that stage or before? When do you bring your professionals in?

Norm Silverstein:       I would bring my professionals in once I have a written offer on the table that I’ve reviewed as a seller and then talk to my attorneys to see. Usually the buyer will prepare the purchase contract or offer to purchase and then I would have my attorney look at it to make sure that I’m protected in that document.

Dennis Zink:                How about non-compete clauses? How is that typically handled?

Norm Silverstein:       Non-compete clause, non-compete contract is always part of a purchase contract. Always. The buyer will demand that the seller sign a non-compete statement because he doesn’t want the seller, after he sells the business, to open a business across the street so usually depending on the business. If it’s a gas station you can’t have a large geographical non-compete but usually a non-compete will run for anywhere from three to five years. Anything more than that the courts will not enforce and it depends on the business as far as the geographical restrictions on that but a non-compete is always part of the purchase agreement.

Dennis Zink:                I guess that means you can’t sell your business and then try to hire your employees back for some other venture as well?

Norm Silverstein:       I wouldn’t do that. No and again, if the business owner which many times does some financing, they wouldn’t do that.

Dennis Zink:                Yeah, dirty pool. Upon an acceptance, let’s say you’re happy with the suitor. You’re happy with the offer. How do you structure the transaction?

Norm Silverstein:       The best way to structure it again, is to vet the buyer to make sure that he’s financially qualified. The buyer will make the offer so it’s your job to see that the offer meets your standards. Meets your requirements as far as the purchase price. As far as down payments is concerned. As far as whatever financing you’re going to do. You want to make sure that and again, your attorney, the seller’s attorney, will provide a promissory note. If the seller’s going to do financing and all the assets of the business at that point in time will be protected in Tallahassee (The State Capitol of Florida) because until the promissory note is paid in full the assets still remain.

Dennis Zink:                They’d have a lien on them?

Norm Silverstein:       They’ll have a lien filed in Tallahassee.

Dennis Zink:                You can either sell stock or sell assets. What if you have an LLC, how does that work since there’s no stock?

Norm Silverstein:       Same thing as an asset corporation.

Dennis Zink:                Sell member units, is that what it is?

Norm Silverstein:       Same thing.

Dennis Zink:                If you’re not successful, let’s say you attempt to sell your business. You’re not successful. Then down the road you decide to sell at a later date. How do you prepare for that?

Norm Silverstein:       This happens many times if the seller does not get an offer that’s acceptable or the seller decides or makes the decision well, maybe I shouldn’t sell. He changes his mind. The first thing you want to do is to make sure that you increase your sales as best you can on a year to year basis. Increase your sales. Remove yourself from the business. Don’t make yourself that important where it will scare a buyer down the road. How do you do that? You develop a strong management team. Replace any family members that are in your business because that’s what a buyer would have to do ultimately so that’s something you should do.

I would sell off all of the unnecessary assets of the business and try to diversify your customer base. If you have one client like Walmart, which is a great thing to have, but that’s your only client and should you lose that you have no business so diversifying your customer base is extremely important. Again, also develop a strong sales force if that’s applicable for your business. There are things you can do down the road where you can still successfully sell your business a year later or five years later, whatever. That’s part of your exit strategy that every business owner should have at some point in time like day one.

Dennis Zink:                Let’s assume that your employees get wind that you’re looking at selling your business and they get together and they say hey, we’d like to buy it. Would you sell it to us? How would you handle that?

Norm Silverstein:       That’s great if they could do that. I think that’s wonderful.

Dennis Zink:                The chances are they wouldn’t have a lot of money.

Norm Silverstein:       That’s always the problem and if they do that’s fine but usually that’s not the case. I’ve seen so many cases where somebody is interested in buying the business or works for the business. I’m working for some clients right now who are in that situation but they don’t have the money to buy the business. That’s tough.

Fred Dunayer:             Given that you’ve talked about employees making offers. What red flags or even yellow flags should you look at in terms of the potential buyers for your business?

Norm Silverstein:       There are tire kickers out there if that’s what you’re referring to. People who just make a living on looking at businesses and never making an offer so you have to be careful about that. You want to make sure that and again, going through a business intermediary, a good business intermediary will screen out those tire kickers so that they will only bring you people who are sincerely interested and qualified to buy your business. Doing it on your own could be very difficult because you really don’t know very much about that person.

Fred Dunayer:             The $35 credit check is probably not sufficient.

Norm Silverstein:       It’s probably not sufficient but it’s part of the vetting process.

Fred Dunayer:             Sure.

Dennis Zink:                Better than nothing. In terms of different industries and multiples and in terms of the valuation of the business. Do you put a lot of credence in that? It would seem to me that certain businesses get paid different multiples. For example, I’ll just make something up. A restaurant might get two to three times whereas a publishing company might get three to four times. Again, I’m making those numbers up. Would you put a lot of credence in that in terms of the industry?

Norm Silverstein:       I would put some credence into it yes, absolutely. Again, there’s other variables and again it depends on whatever those companies are. If they were a manufacturing company and they have a lot of equipment for sale you might want to get somebody to appraise the value of that equipment. If you’re a resale business you’re not going to have any equipment so it really depends on the business. You can use rules of thumbs for some of these industries but there are resources to find out what these rules of thumbs are and what these multipliers are for various businesses. It always goes back to how profitable the business is, whether the numbers have been going up, whether they’re flat, whether they’re going down. It’s more of an art than a science.

Dennis Zink:                Say, a public company is interested in buying your business and they want to offer you stock or a percentage in stock. What advice would you give to a seller in that instance?

Norm Silverstein:       I would certainly talk to my lawyer and accountant and have them vet the company that is interested in purchasing them. Again, they’re going to go through the same due diligence. You’re going to go through the same due diligence to make sure that it’s a good match but it’s not very different. There’s public companies that are good companies and bad companies. You got to go through that vetting process just like anything else.

Dennis Zink:                Well, thank you Norm. I appreciate it.

Fred Dunayer:             You’ve been listening to the SCORE Small Business Success Podcast – Been There, Done That! The opinions of the host and guests are theirs. They do not necessarily reflect those of SCORE. If you would like to hear more podcasts, get a free mentor, view a transcript of this podcast, or would like more information about the services we provide, you can call SCORE at 800-634-0245 or visit our website at Again, that’s 800-634-0245 or visit the website at

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