Finding a Qualified Business Buyer

When it comes to regulation and protecting the rights and health of their citizens, the State of California is one of the strictest in the nation. The state is also strict on environmental and labor laws. All of this regulation is great for the protection of residents. However, it does make finding a qualified buyer for certain lower middle market businesses in California challenging.

The reason is that for a person to be a qualified buyer, they not only need to have enough money or financing, but in some cases, they need special licensing and permits as well. This means, for example, that while anyone can buy an HVAC business, to do business at all, the buyer must not only have a general contractor’s license, but they also need to meet specific qualifications or they need to have hired someone who has them.

While other states have some of these same laws, California’s are some of the toughest, and it takes both time and money to get licensed. That means if the buyer does not already have the certifications or permits they need to operate your business, the sale could take longer, and if for some reason they cannot satisfy those requirements, the deal may simply fall through.

Let’s take a quick look at a few examples.

General Contracting

Anyone doing any project with over $500 in work needs to have a general contractor’s license. In order to become a general contractor, a person must sit for two exams; one is business and law, and the other is their trade.

This came into play when selling a tree and landscaping business. The buyer had a general contractor’s license, so only needed to sit for one exam, that for the landscape business, and was able to skip some of the other initial steps.

One of those steps is that before you can even sit for your exams, the California State Board must approve your application. That means the applicant needs at least four years of experience in the field they are applying for, as a journeyman, foreman, supervisor, contractor, or other relevant experience. Contractors must also carry a $10,000 bond and have at least $2,500 in working capital.

All that sounds pretty standard, and it is, but as you get into individual fields, things can get tougher.

Service Industries and Hazardous Materials

While in general building, employees and supervisors seldom deal with hazardous materials, as soon as you are painting, doing pest control, HVAC, landscaping and weed control, and a variety of other jobs, your daily activities include handling these materials. When it comes to these things in California, the rules are strict and strongly enforced.

So for example, let’s say you have a pest control business. You handle pesticides and other materials daily. You also transport those materials to people’s homes, apply them, and you also store them somewhere when you’re not driving around.

This means that the place you store them must meet certain standards. Your vehicles must meet those standards as well. You need to have a qualified, licensed applicator on staff, and everyone who applies pesticides must also be certified.

In addition, your business will need special licensing, permits to operate in certain areas, and you’ll need special permits from every county you operate in. This can get very expensive, and if your buyer is not already licensed, this can take time as well, valuable time when you could have your business sold.

Lease Problems

Finally, one of the most common things to go wrong in the sale of a business is your lease. In fact, if you are planning to sell your business, negotiating your lease ahead of time is a good idea. The reason is simple.

You’re already permitted to operate where you are, and even if those permits are not transferrable to a new owner, it will be much easier to get them approved in your current location than a new one. The problem? If your landlord suddenly decides they don’t want to rent to the new owner, the deal can go sideways fast when that buyer determines the time and money it will cost to move the business.

Remember what you want as a seller: you want a fair price for your business, and you want to sell as quickly as you can. What does the buyer want? They want as little risk as possible, and as much of a sure thing as they can get. Often price is not the first problem in business deals: other terms are what get in the way, or obstacles like licensing and certification.

Seller Motivation

What can you, as the seller do? Is there a way for you to help? Well, there are a couple of really important steps you can take in the process of listing and selling your business that will help immensely.

• Contact a professional: If you operate a business of any kind that needs special licensing, permitting, or certifications, contact a M&A broker even before you are ready to sell. They can help you determine what criteria a qualified buyer needs before they consider buying your business.
• Ask for Proof: Know the right questions to ask, and the answers you should expect. Be careful not to take someone’s word that they have what they need to buy your business. Ask for appropriate documents.
• Negotiate Your Lease Ahead of Time: Make sure your lease will easily transfer to a new owner and be honest if it will not.
• Be Prepared for Due Diligence: While a professional M&A Advisor based in California can tell you what you will need, they can’t do some of the work for you. Make sure your financial records, your taxes, and all of your documentation are in order and ready for a buyer to look at. This will greatly speed up the process of selling your business.

Any business transaction takes a motivated seller and a motivated buyer. If you take care of your part, you can find the right person at the right time who is truly a qualified buyer who is motivated to buy your business. Learn more how Rogerson Business Services attract buyers to your business listings for sale.

If you are a retiring business owner looking to exit your lower middle market business in California, here are five tips to get you started:

1. Don't wait until the last minute to start planning your exit. The process of selling a lower middle market business can take a long time, so it's important to start early.

2. Have a clear idea of what you want to get out of the sale. Know your goals and what you're willing to negotiate.

3. Choose the right type of buyer. Not all buyers are created equal, so do your research and find the right one for your business.

4. Be prepared for a lot of due diligence. M&A buy-side due diligence is when buyers will want to know everything about your business, so be ready to provide documentation and answer questions.

5. Be flexible with the terms and conditions of the deal. It's important to be open to negotiation to get the best possible deal for your business.

Rogerson Business Services, also known as, California's lower middle market business broker is a sell-side M&A advisory firm that has closed hundreds of lower middle-market deals in California. We are dedicated to helping our clients maximize value and achieve their desired outcomes. 

We have a deep understanding of the Californian market and an extensive network of buyers, which allows us to get the best possible price for our clients. We also provide comprehensive support throughout the entire process, from initial valuation to post-closing integration. 

Our hands-on approach and commitment to our client's success set us apart from other firms in the industry. If you consider selling your lower middle market business, we would be honored to help you navigate the process and realize your goals.

If you have decided to value and then sell your lower middle market business or still on the fence, get started here, or call toll-free  1-844-414-9600and leave a voice message with your question and get it answered within 24 hours. The deal team is spearheaded by Andrew Rogerson, Certified M&A Advisor, he will personally review and understand your pain point/s and prioritize your inquiry with Rogerson Business Services, RBS Advisors.