Business Opportunities Division

Serving Southern California Since 1987

PacificRealtors.net

818-991-5200


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Areas Served


 

Businesses Wanted                               Businesses For Sale

Questionnaire for Buyers I Want to Sell a Business

List of SBA Lenders

Business Sales and Acquisitions - FAQ

Real Estate Due Diligence

I Want to Invest

Most business opportunity sales involve the sale of the assets of a business and the assumption of the lease for the space occupied by the business. Generally, the sales do not include the transfer of corporate stock or any interest in a business entity. The assets transferred may include inventory, a lease assignment, the assignment of a franchise agreement, fixtures, equipment, a non-competition agreement, an assignment of licenses, trademarks including the name of the business, accounts receivable, and goodwill. If real estate is involved, there is generally a separate concurrent transaction with two concurrent and contingent escrows.

A business opportunity agent may be the agent exclusively for the buyer, the agent exclusively for the seller, or may be a dual agent.

Most sophisticated buyers will form a corporation or other business entity that will become the actual owner of the assets being acquired. By purchasing only the assets, a buyer assumes no obligations of the business except those set forth in the purchase-sale agreement.

An escrow company specializing in business opportunity sales should always be used. The escrow company will insure that the requirements of the Bulk Sales Law are met and, if applicable, the appropriate Commercial Code Sections for Secured Transactions. Buyers and sellers should be aware of the importance, in those transactions where the sale is being secured with the personal property of the business, of having a UCC-1 filed with the Secretary of State. Just as a Deed of Trust provides the security and collateral for a promissory note in a loan secured by real property; a UCC-1, when filed, gives notice to the world that there is an interest (lien) in personal property of the business. In order to fully protect the lender’s interest, a UCC-1, which is only a notice and not an agreement, must be accompanied by a promissory note and a security agreement covering all assets of the business.

While sellers have a duty to make a full disclosure and buyers are responsible for their own due diligence investigation, buyers should always consult with their attorney for legal advice and their accountant for tax advice.

Buyers and sellers are encouraged to use the standard California Association of Realtors Business Purchase Agreement and Joint Escrow Instructions when buying or selling a business opportunity. The contract forms are comprehensive and fair to both buyers and sellers.

Buyers and sellers of business opportunities must each independently determine the value of the business before a sale can take place. While there is no one perfect formula for determining value, generally the following three approaches are utilized:

The net cash flow after all operating expenses, including a reasonable salary for the owner, is capitalized into value using a capitalization rate established by the market, or
   
The fair market value of the fixed assets and inventory is determined, or
   
The value is established by the market comparison approach.
   

We recommend that buyers and sellers consider all three approaches to value and compare the results. We also recommend that buyers and sellers consider obtaining a third party appraisal from an objective business appraiser before listing a property for sale or purchasing a business opportunity.

If you are purchasing a business opportunity, we recommend that your attorney review any commercial lease to be assumed. The terms of any lease to be assumed may be an asset or a liability. If you are selling a business opportunity, you should be aware that the lease being offered as part of the sale, may be an asset or a liability to the buyer and that the terms of the lease will have a bearing on the value of the business being sold.

Business goodwill may be substantial or nominal. It may even be a negative, if the business has a poor reputation. Generally, goodwill is an asset that has value and consists of the expectation of continued public patronage. Placing a separate value on goodwill is extremely difficult, requiring an experienced business appraiser.

 

In House Financing Assistance

Business Acquisitions and Sales

Whether you are the buyer of a business or seller, you may need financing assistance to close your transaction. Pacific Realtors is in a position to offer loans to buyers of many types of businesses where we have been the broker in the purchase transaction.

 

Small Business Administration - SBA Loans

 

Franchise Consultants and Brokers

Q. What is the difference between a franchise consultant and franchise broker?
   
A. The terms franchise consultant and franchise broker are terms of art or industry terms.

Franchise consultants assist prospective franchisees in determining what franchise they should purchase. Generally, franchise consultants represent many franchisors and have made arrangements with them to get compensated a percentage of the franchise fees the franchisors collect from their referrals. Their compensation does not increase the cost to the franchisee because it is paid by the franchisor for its marketing activities and for qualifying each referral. In short, the prospective franchisee obtains the assistance of the franchise consultant at no cost while the franchisor receives a qualified prospect.

Franchise brokers are licensed real estate brokers that represent buyers and sellers of existing, operating franchised businesses. These brokers are also known as business opportunity brokers. They also represent buyers and sellers of non-franchised existing businesses.
   
   
   

What Determines the Cap Rate When Buying or
Selling a Business?

A Capitalization Rate (Cap Rate) is the ratio between the Net Operating Income (NOI) of a business and its original cost, or alternatively, its fair market value. The NOI is the income before interest on any loan, depreciation expense, and income taxes.

The Market, through the forces of supply and demand determines market values and cap rates for various types of assets including businesses. Of course, the market is made up of many buyers (demand) and sellers (supply) at any one time who each participate in the overall market and who may pay or receive a higher or lower price or cap rate depending upon numerous factors. Some of these factors are objective while others are subjective. Buyers use market cap rates as a basis for comparison, but ultimately decide what is acceptable to them based on many factors including risk.

Following are numerous factors that are considered by buyers and sellers of businesses that effect the price they will pay or receive and the corresponding cap rate:

  • Is the industry expanding or contracting and what are the future prospects of the industry?

  • If the business location is important, is the location improving or declining?

  • If the business location is important, is the lease for the premises advantages or disadvantages?

  • If retail traffic is important, are any changes likely to occur that would materially effect the business location positively or negatively? For example, if you know that an anchor tenant in a shopping center (Nordstroms, Vons, etc.) was going to move out, would it make a difference in the price?

  • Will the business provide high paying jobs for family members?

  • How stable or volatile is the income of the business? Is the income likely to increase, decrease, or stay the same with a change of ownership?

  • Do the business expenses include sufficient funds to pay the owners reasonable compensation for their work? Remember, return on the invested capital should be considered separately from compensation for work performed.

  • Do the business expenses include a reasonable, realistic contingency factor?

  • Does the buyer own an existing business that will benefit by the acquisition of the business? Will the acquisition generate cross-selling opportunities, cost savings, or other benefits? Will the acquisition eliminate a strong local competitor?

  • Can the operating expenses be materially reduced by the buyer?

  • Does the buyer believe he or she can increase the volume of business cost effectively?

  • Is the business located conveniently for the buyer providing a life style advantage?

  • Is the seller willing and able to provide attractive financing to the buyer?


 

Acquiring a Business - FAQ

Q.
Is 100% cash required to purchase most businesses?

A.
No. The Small Business Administration will lend up to 80% to qualified purchasers and many sellers choose to offer financing because they understand that providing financing makes their business far more saleable at a higher price.



Q.
Should I consult with a CPA before buying an existing business?

A.
Yes. How a purchase is structured can have both short-term and long-term effects on your tax liability. In addition, a CPA can assist in the business acquisition due diligence process by reviewing the tax returns and financial statements of the business being considered for purchase. If you do not have CPA and need a referral, please call us. We work with many CPAs throughout Southern California.



Q.
I am not a United States citizen but want to purchase a business in California and personally run it. Can you assist me in obtaining the necessary visa?

A.
The broker for Pacific Realtors is an attorney with the law firm of Michael T. Chulak & Associates. In addition to business opportunity attorneys and real estate attorneys, the firm offers immigration legal services. This includes assistance with E-2 and EB-5 visas. Only an attorney can provide advice concerning immigration matters.



Q.
When buying an existing business, can I expect the seller to provide any training?

A.
This is an important term to be negotiated between the buyer and seller where we can be of great assistance. A degree of training is expected, but must be carefully described in detail in the purchase agreement. This provision can make or break a new business if the buyer does not already have extensive experience with the type of business being acquired.



Q.
If we list our business with you to sell it, how will you advertise it?

A.
There are several websites that are multiple listing services for business brokers. We will select those that we believe would be the most effective and would also utilize the multiple listing service for the local Board of Realtors which we have also found to be effective. Also, most importantly, we will send an offering summary to an extensive list of cooperating business brokers and agents, and to the people who have expressed a desire to acquire a business through this website and through other sources.

 

Bulk Sales

A bulk sale is a sale, not in the ordinary course of the seller’s business, of more than half of the seller’s inventory and equipment (as measured by value on the date of the bulk sale agreement).


Public Notice Required


When the owner of an enterprise whose principal business is the sale of merchandise desires to affect a bulk sale, the buyer must give public notice to the seller’s creditors by:

1. Recordation of a notice in the Office of the County Recorder (of the county or counties in which the property to be sold is located) at least 12 business days before the bulk sale is to be consummated.
   
2. Publication of the notice at least once in a newspaper of general circulation published in the judicial district in which the property is located and in the judicial district in which the chief executive office of the seller, or, if the chief executive office is not in California, the principal business office in California, is located, if in either case there is one, and if there is none, then in a newspaper of general circulation in the county embracing such judicial district. Notice must be published at least 12 business days before the bulk sale is to be consummated.
   
3. Sending a copy of the notice by registered or certified mail at least 12 business days before the bulk sale is to be consummated to the county tax collector in the county or counties in which the property to be transferred is located.
   

The notice to creditors shall state:

That a bulk sale will be made;
   
The names and business addresses of the seller and the buyer, and all other business names and addresses used by the seller within the last three years so far as known to the buyer;
   
The location and general description of the property to be sold;
   
The place, and the date on or after which the bulk sale is to be consummated; and
   
Whether or not the bulk sale is subject to UCC Section 6106.2 (consideration is $2,000,000 or less, substantially all cash or cash plus an obligation to pay the balance in the future) and, if so, the information required by subdivision (f) of Section 6106.2 (the name and address of the person with whom claims may be filed and the last date claims may be filed, which is the last business day before the date of the bulk sale).
   

Noncompliance

The principal purpose of the bulk transfer law is to afford the creditors of a business an opportunity to satisfy their claims before the owner can sell the assets and vanish with the proceeds.

When the statutory filing and publication requirements are not met, the buyer is liable to creditors who hold valid claims based on transactions or events occurring before the bulk transfer. Creditors must take action within one year of the date of transfer of possession to satisfy their claims, unless the transfer was concealed, in which case action may be brought within one year after its discovery by the creditor.

Compliance does not exclude compliance with other applicable statutes, such as the transfer of liquor licenses under the Alcoholic Beverage Control Act and the Uniform Fraudulent Transfer Act.

 

 

California Sales and Use Tax Provisions

The Sales and Use Tax Law is relevant to the transfer of a retail business which sells tangible personal property. Of particular importance are:

A “clearance receipt” confirming payment of state and local sales taxes so that the buyer is protected from “successor’s liability”;
   
Releases or subordination agreements covering sales tax liens against real or personal property; and
   
The tax liability on that portion of the sale price allocated to the personal property to be used in the business.
   

Successor’s Liability

In the sale of a business opportunity or stock of goods, the buyer must hold back enough of the selling price to cover any outstanding tax liability.

The successor’s liability extends to taxes incurred with reference to the operation of the business by the owner or any former owner.

The purchaser of the business or stock of goods will be released from further obligation to withhold funds from the purchase price if he or she obtains a certificate from the Board of Equalization stating that no taxes, interest, or penalties are due from the seller or any previous owner.

The liability is enforced by service of a notice of successor liability. The successor may petition the Board of Equalization for reconsideration of the liability.

 

 

Security Agreements

Personal Property Secured Transactions

Uniform Commercial Code – Article 9

Buyers and sellers of business opportunities are routinely involved in personal property transactions which must fully satisfy the Bulk Sales Law (Uniform Commercial Code, Division 6) and the secured transaction statutes (Uniform Commercial Code, Division 9). Assets of a business are commonly used as collateral to create a security interest in the seller or lender.

Just as a trust deed or mortgage encumbers real property as security for an obligation (debt), a “security agreement” creates a security interest in personal property.

To protect or “perfect” the interest created by a security agreement, as against other security interest and/or lien creditors or subsequent purchasers, a Financing Statement (UCC-1) is usually filed. In most cases, a security interest is perfected when it has attached and been properly filed with the appropriate filing officer (the Secretary of State in Sacramento or the appropriate county recorder).

A security interest attaches when:

There is agreement by the parties that it attach;
   
Value has been given; and
   
The debtor has acquired rights in the collateral.
   

Once perfected, the secured party’s interest is protected against the debtor’s other creditors.

The Financing Statement should not be confused with the actual security agreement. The security agreement creates the security interest.

Although a written agreement is not necessary where the collateral is in the possession of the secured party as a pledge, a security interest is usually not enforceable unless there is a written security agreement, signed by the debtor, describing the collateral.

 

 

Alcoholic Beverage Control Act

The sale of a business involving an alcoholic beverage license is subject to laws which are constantly being changed.


Regulation


Pursuant to the Alcoholic Beverage Control Act (the ACT), the Department of Alcoholic Beverage Control (ABC) issues licenses authorizing the sale of alcoholic beverages. The ABC has the authority, for good cause, to deny, suspend, or revoke an alcoholic beverage license.

The ABC issues alcoholic beverage licenses to qualified adult persons, partnerships, and corporations for use at approved locations. The ABC investigates each applicant and may refuse to issue a license to any person who has violated the Act, has a disqualifying criminal record, or attempts to conceal an arrest record. The location may be disapproved if it is in the immediate vicinity of a school, church, or public playground or if there is an over-concentration of alcoholic beverage licenses in the area, or if licensure may create or aggravate a police problem. Most ABC application investigations take approximately 45 – 60 days.

A license issued for a specific location must be placed in use within 30 days of the date of issuance. If the premises are still under construction, the ABC will hold the license in safekeeping for not more than 6 months unless cause for further delay can be established.


Transfer of License - Posting of Notice


Like an applicant for license issuance, an applicant for transfer of a license must post the premises with a notice of application to sell alcoholic beverages. Local officials and private parties may protest the proposed transfer and the license cannot be transferred while a valid protest is pending or on approval. Further, the ABC may decline to transfer a license if disciplinary action is pending against the transferor.

No one should make any investment upon the assumption that an alcoholic beverage license will be transferred. An applicant for license transfer may be able to obtain a temporary operating permit. However, it may not be prudent for the seller to give possession of the business for operation under a temporary permit.


Notice to County Recorder and Escrow Requirement


Before filing a license transfer application with the ABC, the applicant and current licensee must file a notice of intended transfer with the county recorder and establish an escrow. Escrow may not release any consideration before the ABC approves transfer of the license. Then, transfer of the business will occur simultaneously with transfer of the license.

 


Real Estate Broker License #01520337
All pages 1999 - 2017 PacificRealtors.net

 

 

 

 

 

Areas Served:


Los Angeles County:

Acton, Agoura, Agoura Hills, Agua Dulce, Alhambra, Altadena, Arcadia, Arleta, Artesia, Avalon, Azusa, Baldwin Hills, Baldwin Park, Bassett, Bell, Bell Canyon, Bell Gardens, Bellflower, Beverly Hills, Bouquet Canyon, Box Canyon, Burbank, Calabasas, Calabasas Hills, Canoga Park, Canyon Country, Carson, Castaic, Century City, Cerritos, Chatsworth, Claremont, Commerce, Compton, Covina, Cudahy, Crystalaire, Culver City, Del Sur, Diamond Bar, Downey, Duarte, East Los Angeles, East Rancho Dominguez, El Monte, El Segundo, Encino, Firestone Park, Flintridge, Gardena, Glassell, Glassell Park, Glendale, Glendora, Granada Hills, Hacienda Heights, Hawaiian Gardens, Hansen Dam, Hawthorne, Hermosa Beach, Hidden Hills, Highland Park, Hollywood, Huntington Park, Industry, Inglewood, Irwindale, La Canada Flintridge, La Crescenta- Montrose, La Habra Heights, La Mirada, La Puente, La Verne, La Canada, Lake Hughes, Lake Los Angeles, Lake View Terrace, Lakewood, Lancaster, Lawndale, Leimert Park, Lennox, Leona Valley, Lincoln Heights, Littlerock, Lomita, Long Beach, Los Angeles, Lynwood, Malibu, Manhattan Beach, Marina Del Rey, Maywood, Mission Hills, Monrovia, Monte Nido, Montebello, Monterey Park, Mount Baldy, Mount Wilson, Newhall, North El Monte, North Hills, North Hollywood, Northridge, Norwalk, Pacoima, Palisades, Palmdale, Paramount, Pearblossom, Pico Rivera, Pomona, Quartz Hill, Rancho Dominguez, Rancho Palos Verdes, Rancho Park, Redondo Beach, Reseda, Ritter Ranch, Rolling Hills, Rolling Hills Estates, Rosemead, San Dimas, San Fernando, San Gabriel, San Marino, San Pedro, Santa Clarita, Santa Fe Springs, Santa Monica, Saratoga Hills, Saugus, Sherman Oaks, Sierra Madre, Signal Hill, South El Monte, South Gate, South Pasadena, Stevenson Ranch, Studio City, Sun Valley, Sun Village, Tarzana, Temple City, Toluca Lake, Topanga, Torrance, Tujunga, Universal City, Val Verde, Valencia, Valley Village, Van Nuys, Venice, Vernon, Walnut, Walnut Park, West Covina, West Hills, West Hollywood, West Los Angeles, West Toluca Lake, Westchester, Whittier, Wilmington, Windsor Hills, Winnetka, Woodland Hills.

Ventura County:

Camarillo, Channel Islands, Faria Beach, Fillmore, Moorpark, Newbury Park, Oak Park, Oak View, Ojai, Oxnard, Port Hueneme, Santa Paula, Saticoy, Somis, Simi Valley, Thousand Oaks, Ventura (San Buenaventura), Westlake Village.





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