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Sell a Business

Y Sell a Business

ou gave it your all. Your business has grown, your market share has increased. You planned and then worked the plan. You met the challenges and enjoyed the rewards.

You now know that, at some point, you will take the final step and sell this important part of your life.

Selling a business you’ve worked hard to build is an emotional journey fraught with questions and risks.

Abraxas Advisors can help.

Based on years of successfully managing transactions for clients, and for ourselves, Abraxas Advisors knows how to navigate the steps on the path to a successful sale. Using methodologies developed over years of transaction management, Abraxas gets you to the most important place – The Closing Table.

The Abraxas process always begins with education - ours.

Key to successfully marketing a business is an in-depth understanding of that business. In this effort, Abraxas Advisors have a distinct advantage: as non-practicing CPAs, managment consultants, corporate executives, and sales executives, Abraxas Advisors have spent major portions of their careers in situations where it was of paramount importance to be able to quickly and incisively understand complex operations and intricate market constructs. Capitalizing on these experiences, we have developed an organized, detailed methodology in order to develop a deep understanding of the Abraxas client. 

Steps to the Closing Table

Getting our clients to the Closing Table has three major phases:

Understand: Develop an understanding of the business, the objectives of the seller, and the acquisitive parameters of targeted buyer groups

Develop: Prepare the marketing materials and marketing plan for the business

Execute: Implement marketing initiatives, qualify prospective purchasers, assist in negotiation of the offers, and shepherd the deal from agreed offer to closing. 

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Frequently Asked Questions About Selling a Business
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The preferable way to get paid at the Closing Table is in cash. A Buyer assembles that cash from various sources: the Buyer's own resources, investors, a commercial loan from a bank, or other types of loans such as mezzanine financing. 

Often times, there are seller notes, where the seller loans the buyer money to buy the business.

These seller notes can be thought of as bridging the gap between what the buyer and seller think the business is worth and what the lender thinks the business is worth and is willing to loan against. 

Seller notes are typically secured, just like a home mortgage, but they are always subordinate to the bank loans. 

There are occasionally contingent payments made to the seller depending on events after the close. For instance, perhaps an earn-out is paid if the revenues in the first year after the close are equal to or greater than the revenues in the year before the close. 

How you get paid is every bit as important as how much you get paid, and your Abraxas Advisor will work with you to get a deal in place that satisfies you on both dimensions.  

The value of the business must be viewed from the perspective of a buyer. A buyer is looking for a solid operational structure that can exist without depending on the expertise of the current owner.

What are the characteristics of your business that a buyer would pay a premium for, such as a highly competent management team or a well-developed brand name?

Conversely, what are the areas of your business that a perspective buyer would view as a detriment, such as customer concentration risk or the business's reliance on you as the owner?

An Exit Plan can help you, the owner, understand the business from the buyer's perspective and will identify the gaps in your business that will need to be filled. 

Another Business value is not an easily calculated number, as it depends on many variables.

At  Abraxas, we think that enterprise value equals cash flow divided by risk.

Cash flow is the amount of money generated by the operation of the business before the owner takes a salary or benefit out of the business. This is called different things, often owner's discretionary earnings or adjusted EBITDA. 

Different cash flows have different values: for instance, the cash flow generated by a manufacturing business is worth more than the cash flow generated by a professional-services business. 

And, two businesses in the same industry, with the same cash flow can have different values. This is where the concept of risk comes in.  Here we define risk  as a function of the sustainability of the cash flow: what are the chances of the cash flow after the sale will be equal to or greater than the cash flow before the sale. Factors that could impact this include:

  • Strength of the management team
  • The importance of the seller in generating the revenues of the business
  • Customer concentration 
While the value of a business is, in some ways, like beauty in the eye of the beholder, there are ways enterprises value can be estimated. We would enjoy the opportunity to talk with you to explore the elements of value you have built into your business. 

At Abraxas, we strongly believe there is, in fact, process for selling a business.

The basic approach is this:

  • We get to know your business at a detailed level and use that knowledge to write a book that describes your business in ways that are compelling to a prospective buyer.
  • We source buyers for the business.
  • We assist the prospective buyer in assessing the business, and we negotiate with the buyer to get to an agreed letter of intent or term sheet.
  • From the offer to the Closing Table is a tortuous journey. The buyer's bankers come in and do their own assessment of the company. The buyer's due diligence team comes in and does detailed reviews of the seller's books of record, assets, corporate standing, and operations. And the transaction attorney's negotiate all of the documents needed to close the transaction.
  • During this period from offer to Closing Table, the deal is incredibly fragile. Through our management of the moving parts and, just as importantly, our management of the relationship between our client and the buyer, we have been inordinately successful in getting our deals to the Closing Table. 

It takes a village to raise a child...

...and it take a team to sell a business.

Think of Abraxas as the quarterback that is going to get you to the Closing Table. To be successful, we need three other position players on our team to prepare for the final negotiations.

  • A Transaction Attorney whose everyday job is negotiating corporate transactions for businesses the size of yours. This attorney needs to have access to many different types of legal expertise, from employment law to real-estate law to intellectual property.
  • A Tax Accountant who has deep experience on the tax law as applied to business transactions. While most tax accountants are very adept at compliance - filing the various returns each quarter and each year, we need a tax accountant that is an expert on looking at tax treatment of the sale of a business. 
  • A Financial Planner. It is Abraxas's job to get as much as possible for your business. It's the financial planner's job to help you keep as much as possible from what you get paid for the business. 

There are three principle types of buyers:

  • An Individual Buyer who is buying a business that will generate income for himself.
  • A Financial Buyer, such as a private-equity firm, that is buying the cash flow of the business to benefit the investors represented by the firm.
  • A Strategic Buyer - a company who is buying another company to complement or enhance another business. 
Each type of buyer requires a different approach to the sale. 
  • Individual Buyers typically expect to be an active manager of the business, and so we work with them to visualize themselves as day-to-day business owners. 
  • Financial Buyers are highly-focused on the cash flow of the business and often undertake grueling analyses of the business in order to justify the purchase to their investors.
  • Strategic Buyers are buying a business both for the business itself and for what that business will do for their existing business. Strategic buyers are plugging holes in their product lines or service offerings, buying a new geographies, acquiring customers, or at times, eliminating competition. With Strategic Buyers understanding how their existing businesses would benefit from the acquisition enables us to understand how much of a premium must be paid to acquire. 

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