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January 8, 2018

Long-time broker publishes guide to business transactions

Courtesy / Magnusson Balfour
Courtesy / Magnusson Balfour
Scott Balfour, president and CEO of Magnusson Balfour Commercial & Business Brokers in Portland, has published a guide on the ins and outs of buying and selling businesses. “Buying and Selling a Business: An Entrepreneur's Guide — From Preparation to Closing” provides insights and professional advice to both buyers and sellers.

What Balfour's book covers:

• What to do before buying a business

• What blue sky pricing means

• What makes a business sellable

• The value of a valuation

• The importance of goodwill

• Business pricing strategy

• Preparing a business for sale

"Buying and Selling a Business: An Entrepreneur's Guide — From Preparation to Closing" can be ordered, as hard copy or eBook, through Amazon, the Magnussson Balfour website or online.

Scott Balfour, president and CEO of Magnusson Balfour Commercial & Business Brokers in Portland, has pulled from his 40 years of experience to publish "Buying and Selling a Business: An Entrepreneur's Guide — From Preparation to Closing."

The book provides insights and professional advice to both buyers and sellers.

For entrepreneurs, buying or selling a business is a big deal, not just financially, but emotionally, he said.

"The book's content is written for Main Street businesses, not for the merger and acquisition market," he told Mainebiz. "This is for people who own their own businesses — who have their own landscaping company or small manufacturing company or whatever. It's the biggest asset that they have, and they always expected that, in addition to their salary, they would get a payday at the end" when they sell the business. "We're here to help them."

Balfour was inspired to get into real estate as a young man because his father was a developer who had a small real estate company in Cape Elizabeth. Balfour took over the company, then grew it into three Century21 franchises with 46 brokers. In 2000, he sold his three offices to focus solely on commercial real estate and business brokerage.

'Get rid of the junk in the basement'

What makes buying and selling a business a big deal?

"Very few people own multiple businesses, so usually it's their baby," Balfour said. "Sometimes they spend more time with their business than they do with their spouse and family. It's also emotional letting go. It's like being a parent: They want to let it go, yet they also want it to succeed in the next person's tenure. Since it's usually their biggest asset, they feel they want that payday where they get a fair price for it, for all the years they've spent building it."

Plenty of details go into the transactional process, he said. High on the list, "It helps a lot if they can get their accounting in good order, and it can help a lot if they have policies and procedures" for running the business in place. "If the owner is the business and they don't have a system that the new person can take over, it's not going to sell for as high a price."

More-complicated transactions occur when a business has more than one location or division. If the owner wants to retain a division or location but has commingled the accounting across locations or divisions, it's difficult to separate the accounts.

The solution?

"We have to forensically go back and reconstruct all of the accounting, or the owner has to start doing each component separately and maybe do that for two years before they put it on the market," he said.

Brokers play an essential role from the start, he said. The first step is to evaluate the business to get a performance benchmark, and compare that with owner expectations of the sale.

"Can they get what they want in the relatively near future, or will they have to change things first?" he said. "The first thing is to do the benchmarking and ask, 'What's the value now? Do you want to move on immediately, or do you want to improve it? If you want to improve it, let's look at the accounting, the management, the dealerships, the contracts, the leases, and see how we can buff it up. It's sort of like when you sell a house: People have to get rid of the junk in the basement or the attic."

Balfour offered an example of a recent transaction.

The process began with collecting data like financials, equipment list, marketing materials, and production and operations information. A business valuation was prepared and the asking price and listing arrangement were determined. Marketing included creation of a 14-page brochure; posting the listing on three industry websites; consulting three industry experts, designing an email marketing piece and sending it to 23 business brokers, and selecting potential customers. Marketing results included 60-plus inquiries, 22 prospect confidentiality agreements, eight tours of the business and three offers negotiated.

The contract was ultimately achieved for 100% of list price after 178 days on the market.

But that wasn't the end. After the sale closed, Balfour helped with the loan package preparation, approached five banks to determine the best fit, and two government agencies.

It was another 113 days from contract to closing. All together, the transaction file grew to 4.25 inches. More than 849 prospect follow-up contacts were made, and 10 client meetings and four final buyer meetings were held. There were 409 seller communications and 153 buyer communications, and 268 communications with banks, lawyers and governmental officials.

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