A Confidential Sale Starts Before Anyone Hears About It
Most owners worry first about who will find out. That worry is reasonable. A rumor can move staff, customers and a key supplier before you have a single offer.
So a well run sale begins in private. The broker recasts your financials, sets a price range and writes a blind profile. That profile describes the industry, the general area, revenue and cash flow, but never your name or address.
Interested buyers sign an NDA before they see the confidential information memorandum. Only buyers who show they can pay get that far. Your employees usually hear about the sale near closing, framed as continuity under a new owner.
Keep running the company hard the whole time. A dip in sales during marketing makes buyers nervous, and a sudden spike right before listing makes them suspicious. Steady is what sells.
Four Kinds of Buyers Will Look at Your Company
San Francisco draws more types of buyer than most cities. Each one values a company differently, so it helps to know who is likely to call.
- SBA buyers. Individuals, often leaving a corporate job, who finance with an SBA 7(a) loan, which goes up to $5 million according to the SBA, plus cash and a seller note.
- Competitors. Local operators who want your customers, staff or location. They move fast but ask the hardest questions.
- Private equity and search funds. They want steady EBITDA and often ask you to stay through a longer transition, sometimes with rollover equity.
- Strategic buyers. Larger companies buying a capability or a market. They can pay more and take longer to decide.
A broker's job is to put several of these in front of you at once. Competition among buyers is what moves price, not the asking number.
Lease Consent Is Where San Francisco Deals Stall
Rents here are high and most small companies lease. That makes landlord consent to assign the lease the most common choke point in a San Francisco sale.
A buyer and a lender will want enough remaining term to justify the price. Read your lease now for the assignment clause, any personal guarantee and renewal options.
Our guide to assigning your commercial lease walks through what landlords ask for.
The landlord never signs the purchase agreement, yet can stop it cold.
Escrow, Bulk Sale Notices and the CDTFA Clearance
California adds steps that owners from other states find surprising. In many asset sales, the buyer must record and publish a bulk sale notice and send it to the county tax collector at least 12 business days before closing.
Escrow companies usually handle those notices, and the sale money often runs through escrow so creditors can make claims. See California bulk sale rules for the details.
Then there is sales tax. A buyer must hold back enough of the price to cover any unpaid sales and use tax unless you produce a tax clearance certificate from the CDTFA. Escrow normally requests it, and it can take weeks.
The EDD has a similar rule for unpaid payroll taxes. Start both requests early. Our note on CDTFA tax clearance explains the timing.
Why Should You Call a CPA Before You Sign an LOI?
According to the Franchise Tax Board, California taxes the gain on a sale at regular income tax rates. There is no lower state rate for capital gains.
That makes the state tax bite large, and it is often bigger than the broker's fee. How the price is split among equipment, goodwill and a noncompete changes what you keep. So does choosing between an asset sale and a stock sale.
Have a CPA model the after tax result before you agree to a structure. Once an LOI is signed, the buyer's attorney will draft around the terms you already accepted.
The Price Is Set by Cash Flow, Then Argued in Diligence
Smaller companies usually sell as asset sales priced on SDE. Larger ones are priced on EBITDA. Either way, a buyer pays for profit you can prove, not for revenue or for growth you expect next year.
Diligence is where weak numbers get repriced. Clean books, signed customer contracts and a documented lease protect the price you agreed to. Our business valuation page covers how the multiple gets set.
Plan on Most of a Year From First Call to Funding
A typical sale takes several months to prepare and market, then a few more months of diligence and closing work. Six months from engaging a broker to funding is quick. Most take longer.
California's notices, the tax clearance and landlord consent run alongside diligence, and any one of them can push a closing date. The deals that slip least are the ones where the seller gathered documents before the first buyer call.
Want a number to work from? Request a confidential estimate of your company's value, or call (415) 555-0163 to talk it through first.