Vet wants to know best way to sell business to another vet

Posted by James C. Johnson on May 29th, 2007 6:46am EST

Q: I'm a Vietnam-era veteran who is preparing to sell my small manufacturing business and retire. About 20 percent of my sales go to firms that supply the U.S. Department of Veterans Affairs and are required to use a certain percentage of veteran-owned subcontractors. So it makes sense for me to sell my company to another veteran. How do I go about discreetly finding another vet who's looking for an opportunity like this?

Ready for retirement

A: Small business owners of any kind are eligible for free counseling from SCORE - a nonprofit small business consultancy - and from federally funded Small Business Development Centers. But as a vet, you have an additional source of free help - Veterans Business Outreach Centers.

There are five of these centers around the country, including one in Sacramento that serves all of California. (See www.vboc-ca.org.)

The center can provide advice by phone or e-mail about selling your business. It can also list it for sale on its Web site and provide you with a mailing list of vet-owned businesses in similar industries. And its consultants may personally know some vets who are in the market for a company like yours.

But beyond that unique resource for vets, your situation isn't so different from any business owner who needs to find a buyer with specialized knowledge or experience - for instance, dermatologists who want to sell their practices to other dermatologists.

You can basically go about seeking potential buyers in two ways:

-- Through business brokers or business-sale Web sites that reach out to the broadest spectrum of potential buyers.

-- Through more focused outreach to a smaller community of buyers with a specified background - in your case, veterans.

To take the more focused approach, try advertising in veterans' magazines and networking through veterans' organizations. Check out the newly formed National Veteran-Owned Business Association ( www.navoba.com). Military.com has a section of its Web site devoted to vet business owners at business.military.com/veteran/.

One of the most likely buyers for any business is a competitor. So consider searching for potential buyers through the federal government's Central Contractor Registration Web site at www.ccr.gov. It lets you look for contractors by - among other criteria - industry, geographical location and whether they are veteran-owned.

Then there's the broader approach of using a business broker or a business-sale Web site such as www.bizbuysell.com or www.bizben.com.

"This person could use the keyword 'vet' in the title of his ad, such as 'Veteran-focused manufacturing business,' " said Mike Handelsman, general manager for Bizbuysell. "Or in the text of the ad, he could say something like 'Ideally looking for a vet because of procurement advantages.' "

There are some simple ways to advertise without alerting employees and customers that you're considering selling - to market the business "discreetly," as you put it.

"You can disguise your business appropriately if you're concerned about confidentiality," Handelsman said. "You can list specific information such as revenue and cash flow, but say only 'Bay Area veteran-owned manufacturing business.' With a term like 'Bay Area manufacturing business,' you won't give away the identity of your business."

Finally, don't rule out selling to an interested non-veteran. There may be situations where a buyer brings other assets to the business that outweigh the veteran-procurement advantage.

"We run across this with minority- and women-owned businesses that have some slight bidding edge," said Ian MacLachlan, president of BusinessTeam, a California business brokerage. "It often turns out not to matter that much. On the other hand, if veteran ownership brings an edge of something like 25 percent, it can be hard to make that up."

Q: Where can I find a list of reliable brokers for business loans? I've seen several Web sites of companies that promise to submit my loan application to dozens of lenders and find me a good match.

Bemused about brokers

A: Mortgage brokers are a common and established way to shop around for a home loan. In California, they're regulated by the Department of Real Estate and usually required to have a real estate license.

But there isn't a similarly common and regulated kind of broker for small-business loans.

There are a handful of business loan brokers around the country. But most small businesses obtain loans by directly approaching banks - typically starting with their current bank. Even in today's era of automation and global markets, it can be helpful to have a personal relationship with your lender.

"As a community bank, we typically don't use loan brokers to meet new clients," said Mike Popovich, senior vice president for corporate banking at Mechanics Bank in Richmond. "We're looking not just for a loan, but for relationships - for deposits and other ways we can help a small business reach its goal."

You can get names of banks that offer Small Business Administration-guaranteed loans from your local SBA office. You can also get free help preparing a loan application from your local Small Business Development Center or SCORE chapter. (See www.score.org and www.sba.gov/sbdc to find the ones nearest you.)

But let's say you've gotten turned down by the banks you've approached and want to try a loan broker.

Because they're not licensed and regulated, there really is no "reliable list" of reputable ones. You'll have to do your own due diligence.

Check out their record with the local Better Business Bureau. Ask for references from satisfied clients as well as some of the lenders they work with.

Also, find out if they charge an up-front fee for their service.

"When I used to work at the SBA, I had a number of calls from people who were unhappy because they paid an up-front fee but never found financing," said Spencer Stratton, a consultant to SBA lenders with Stratton & Associates.

Rather than a nonrefundable fee, good brokers should charge a percentage of the loan you get. No loan means no fee.

"We pride ourselves on getting paid after we get the deal done," said James Gordon, owner of the American Business Funding Network, a loan broker in Dublin. "We get paid for results."


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