What is a CBI? – Certified Business Intermediary

What is a Certified Business Intermediary, and What Can They Do For You?

Are you a business owner looking to buy or sell your business? If so, you may want to consider working with a certified business intermediary. A certified business intermediary (CBI) is an individual who specializes in helping owners buy and sell businesses. CBIs are highly trained professionals who understand the complexities of the buying and selling process. They provide expertise that can help make the transition smoother, faster, and more profitable for both buyers and sellers. In this blog post, we will discuss what a Certified Business Intermediary is and how they can help you reach your goals when it comes to buying or selling a business.

What is a Certified Business Intermediary (CBI)?

A Certified Business Intermediary (CBI) specializes in helping owners with their businesses’ sale and exit strategies. They have extensive experience and knowledge about the process involved in selling or transitioning a business. CBIs can help you understand the steps necessary for a successful transition, including valuing your business accurately, marketing it effectively, and negotiating the terms of the sale. By working with a CBI, you can ensure maximum value from your sale. Some of the services provided by CBIs include:

– Conducting an accurate valuation of your business;

– Developing a comprehensive marketing plan to reach potential buyers;

– Negotiating on your behalf to secure favorable terms;

– Identifying qualified buyers and facilitating initial contact.

In addition to these services, CBIs can guide you on financial matters related to the sale of your business. They can help you understand the tax implications of a deal and how to structure it for maximum benefit. They can also provide insight into financing options that may be available for qualified buyers.

Benefits of Hiring a CBI

Hiring a Certified Business Intermediary (CBI) can benefit business owners. CBIs are certified professionals in business sales and acquisitions, with specialized knowledge that allows them to guide business owners through selling or buying a business efficiently. A CBI has experience negotiating sales, pricing businesses, structuring deals, and managing transactions from start to finish. This expertise can help minimize risks involved with such complex and time-consuming tasks while allowing for a smoother transaction in less time. Also, having access to the CBI’s network of contacts can give business owners access to an even greater pool of potential buyers or sellers for the right deal. Lastly, even when it comes to post-transaction support services such as consulting, advisory services, and dispute resolution processes, CBIs have the necessary skill set and experience to ensure that all contracts are adequately upheld and any issues that may arise are handled swiftly and satisfactorily. All these factors combined make hiring a CBI invaluable for those looking to buy or sell a business.

In addition, a certified business intermediary is also adept at handling due diligence processes. This critical step in the transaction process involves assessing the buyer’s and seller’s legal and financial standing, examining the assets involved in the sale, and ensuring that all contractual terms are correctly understood and agreed upon. CBIs have access to data sources and resources to aid them in their due diligence efforts, ensuring that everything is noticed during this critical phase. The results can significantly improve the success rate of any business transaction since

mistakes or oversights could easily lead to costly delays or disputes later on.

Qualifications and Certifications for Becoming a CBI

To become a Certified Business Intermediary, individuals must demonstrate their knowledge and capabilities in business mediation. This can be accomplished through a combination of qualifications and certifications. Those wishing to pursue certification must have experience in business intermediary activities and earn the prestigious title by completing the certification program. According to the IBBA website, the path to a CBI requires the following:

Step 1.

Join the IBBA (or make sure your membership is up-to-date).

Step 2.

Enroll in IBBA University online courses. Course #101, #104, and #100 are all offered online and are part of the required CBI educational courses. You can also complete additional online courses towards the elective CBI course requirements. You can complete the online courses anytime, twenty-four hours a day, seven days a week!

Step 3.

Attend an IBBA Educational Summit to complete courses #210, #220, and #221. These courses can be offered live onsite or virtually, so make sure you know when the next Educational Summit is being offered by checking the Summit Calendar. These courses are not available at Conferences. Also, remember that Course #210 has a prerequisite! You must pass the 210 pretest. It is also strongly suggested that you take Course 102. Course 102 is not a requirement. Both are available online at IBBA University.

Step 4.

Attend an IBBA Conference. Attendance at an IBBA Conference is a CBI requirement. Courses offered at Conferences can be used to fulfill any of the 16 elective credit hours that you have left to complete per CBI requirements.

Step 5.

Once all elective and required coursework is complete, submit your CBI Exam Application, and pay the required fee. Your exam application must be submitted and approved before you can sit for the CBI exam!

Step 6.

Take the CBI Exam. Once your application is approved, IBBA Staff will schedule your CBI exam at a testing center near you.

Step 7.

Submit three deals as the lead seller broker on 3 going concern business transactions using the Initial Certification Submittal Form.

Step 8.

Once all requirements are met, including passing the CBI exam, submit your CBI application.

Other Things for You to Know

• You have three years to complete all CBI requirements. Most CBI applicants can complete these requirements within one year, assuming they have met the transaction requirements; if you really focus and can travel, you can get the coursework completed within several months.
• All IBBA courses (other than the required courses) count as an elective course.
• CBI exam review materials are available, and a recorded review webinar with subject matter experts is offered to anyone approved to sit for the exam.
• The CBI exam ascertains competency in concepts deemed to be general business brokerage knowledge, and not exclusively the content contained within the CBI required courses.

CBIs must also be committed to continuing their education in order to remain up-to-date on the latest developments in business intermediary activities. This includes attending seminars, lectures, and workshops sponsored by the IBBA or related organizations. Additionally, CBIs should join a professional organization such as the International Business Brokers Association (IBBA) or the Association of Mergers & Acquisitions Professionals (AM&AP), which provide excellent opportunities to network with other members and gain insight into current trends in business mediation. Finally, CBIS must maintain its certification status by participating in periodic reexamination processes administered by the IBBA. By taking these steps, CBIs can ensure that they remain knowledgeable and competent in the field of business intermediary activities.

By becoming certified as a Certified Business Intermediary (CBI), individuals can provide professional assistance to others while advancing their own career goals and aspirations. This certification is highly respected by employers, clients, and other professionals within the industry.

Furthermore, it provides an excellent opportunity for those with an entrepreneurial spirit to make a successful living in business mediation. With the right qualifications and dedication, anyone can become a Certified Business Intermediary and work towards helping others navigate through the complex journey of buying or selling a business.

How Working Capital Can Kill or Save A Deal

If you’re a successful business owner, you have a good understanding of working capital and a firm grasp of your company’s working capital. As such, you’ve strategically utilized your working capital to grow and expand your company over many years, and you’re now ready to initiate your exit strategy. During this phase, research and crunch many numbers from your financials to create a valuation. After multiple calculations, you’ve determined that the valuation for your company in the current market is $10 to $11 million. After giving some thought, you decide to list your company for $9 Million in hopes of a quicker exit, as you’ve just received news of being a grandparent. You think this deal will likely be quick and easy as you’re selling a very profitable company below market price. So how can working capital kill a deal such as this? First, we need to elaborate on working capital to ensure we’re on the same page.

Defining Working Capital

What exactly is working capital? Working capital can be described as the funds you need to operate your business on a day-to-day basis. Many people also define it in its simplest form as the company’s current assets minus its current liabilities. It’s important not to confuse the company’s total assets or liabilities and focus only on its current assets and liabilities. If you’re wondering what’s considered current assets and liabilities, you can think of the word current as one year or less. To be regarded as a current asset, it must be an asset that can be converted into cash within one year or less, such as accounts receivable, inventory, marketable securities, etc. Current liabilities will usually consist of short-term debt such as accounts payable, payroll taxes, credit cards, etc. All these assets and liabilities are derived from a company’s balance sheet. A balance sheet is a financial statement that lists the company’s assets, liabilities, and equities for the given date.

By looking at a company’s balance sheet, you can calculate its working capital by taking its current assets and subtracting its current liabilities. When there is an excess of current assets after deducting the current liabilities, the company’s working capital is positive, whereas if the current liabilities outweigh the current assets, the company’s working capital is negative.

Why Working Capital is Important

We mentioned needing working capital to operate a business on a day-to-day basis. Without working capital, businesses wouldn’t be able to pay their utility bills, employees, purchase inventory, etc. Working capital can also be used to measure a company’s operational efficiency and short-term financial health. A company could invest in expansion and growth if it has substantial positive working capital. It’s also important to note that just because a company’s working capital is negative, it doesn’t mean it is in financial trouble, as some industries’ working capital is negative in nature. The company’s working capital will typically depend on its industry. Some sectors, such as manufacturing, with longer production cycles, may require higher working capital as they don’t have the quick inventory turnover to generate cash on demand. Alternatively, retail companies that interact with thousands of customers daily can often raise short-term funds much faster and require lower working capital requirements.

Now that we’ve reviewed working capital let’s put it into perspective with an example of how it can kill a deal when it’s not applied correctly.

Example

Let’s refer to the beginning when you calculated your company’s valuation at $10 to $11 Million. Shortly after you list your company for $9 Million, you receive an offer for your company for the asking price of $9 Million, and both you and the Buyer sign an Asset Purchase Agreement. Everything seems to be moving smoothly; the Buyer’s been approved for the loan, the due diligence has been complete, and you’re just waiting on the closing date to sign the dotted line. Few days to closing, the buyer inquired about working capital requirements as so he could continue operations without any interruptions but was shocked to hear an amount of $2 Million.   This moment was when the deal started to sour, as there wasn’t any language in the Asset Purchase Agreement about the inclusion of funds for working capital for the purchase price of $9 Million. As your company requires about $2 Million in working capital, you and the Buyer will now have to renegotiate the Asset Purchase Agreement and the possibility of the deal falling through. This situation is not favorable for you as the Seller since the Buyer has already gained much confidential information about your company, leaving you more vulnerable.

Miscalculations of Working Capital

While working capital plays a role as a financial measuring tool for businesses, it can play a prominent role in M&A transactions compared to Main Street. For small businesses or companies categorized in LMM (Lower-Middle-Market) and higher, calculating working capital can be much more different as the formula will be dictated by the asset or stock purchase agreements. In some M&A transactions, working capital may involve cash or debt in the working capital calculation, while other transactions may exclude certain assets or liabilities. These calculations impact the Seller on a spectrum that varies and will be determined within the Purchase Price or working capital section of the stock or asset purchase agreement. Once the working capital has been determined, a target date will be set, and the company’s operations before closing can drastically impact the funds a seller receives at closing. Let’s look at another example of how a deal can go sideways when working capital isn’t applied correctly.

Example 2

Let’s use the same example from Scenario 1, but we’ll include the language for working capital funds in the Asset Purchase Agreement. In this scenario, let’s say you are selling a building materials company for $9 Million, which includes $2 Million in working capital. You and the Buyer signed the Asset Purchase Agreement in October and agreed on a closing date set for January. However, your company’s been struggling to keep inventory in stock, and the cost of goods continues to rise due to recent global supply chain disruptions and decides to purchase extra inventory in the amount of $700,000 in December. At the time of closing, your company’s working capital is close to $3 Million due to the extra purchase of $700,000 in inventory, but as there was no language about excess working capital, $700,000 of your proceeds is in jeopardy. If the Asset Purchase Agreement had included the working capital language of an asset purchase agreement stating, “a purchase price of $9,000,000 minus the amount by which the Working Capital as of the Closing Date varies from the six-month trailing average of the Working Capital.” The calculation methodology used for the working capital will then be described in the asset purchase agreement, and a working capital target is set by a twelve-month average trailing the closing date. At closing, if the working capital exceeds the average monthly working capital balance for the twelve months before the closing, you would’ve walked away with more funds.

Get a Second Look

The examples are just a few ways a deal can go sideways during M&A transactions. For business owners, a well-planned utilization of working capital can help accelerate their exit strategy and increase the valuation and amount they receive at closing. Although working capital can be simple to calculate at its basic formula, applying it to a company can become very complex in M&A transactions. Having a professional M&A Advisor like V-AID Business Investment take a second look at your working capital can help you better plan your exit strategy.

About V-AID

Since 2001, V-AID Business Investment, a team of resilient business brokers and M&A advisors in Dallas, TX, has been specializing in selling small to mid-size businesses in the main street to the lower middle market. V-AID’s experienced team of experts has a proven strategy that will ensure strict confidentiality, a streamlined selling process, and the maximum value for the business. With deep expertise accumulated from hundreds of done deals, V-AID delivers superior results by providing clients with strategic planning and creative solutions tailored to each transaction. Combining V-AID’s proprietary database of buyer networks and industry-leading marketing, V-AID offers a proven selling method that has been the solution to a value-added exit for hundreds of business owners with a completion of 585 transactions totaling over 124 Million Dollars and continuing.

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Should you lower the asking price?

Whether you’re selling a car, a house, or a business, it’d only make sense that you’d want to sell for the highest price possible. However, when it comes to selling a business, asking for the highest possible price doesn’t necessarily mean more. There are many variables when it comes to determining the valuation of a business and even unexpected and unforeseeable variables when it comes to selling a business. Some of these variables are not within our control, nor is it something we can factor out when it comes to selling businesses. Some of the things a seller controls when selling their businesses are the asking price, the timing, and how they choose to sell their business.

Variables

Some of the most common variables when determining a business valuation for the purpose of selling are the profitability of the business, assets, the sector the company is in, owners’ hours, etc. Those are variables associated directly with the business, but some variables affect the valuation and the purchase price of the company that is not directly tied to the business itself. According to recent Market Pulse reports (a quarterly survey of market conditions for businesses sold in Main Street and the lower middle market by the IBBA and M&A Source), macro events have brought certain variables into the spotlight affecting business Purchase Prices.

• Labor Shortages
• Supply Chain Disruption
• Interest Rates
• Inflation
• Market

If we look at the charts below, we can see how these variables, such as inflation and interest rates, have affected purchase prices for businesses, which will factor into business valuations as markets adjust.

(Above is a data chart of CPI provided by the U.S. Bureau of Labor Statistics)

(Graph of fed interest rate from Oct 1st, 2021 – Sep 1st, 2022)

These variables can have a ripple effect as buyers, sellers, and advisors must adapt to the changing market conditions. As these variables impact a business’s profitability and the sellers’ net income, the businesses’ valuation and the purchase price will be adjusted accordingly, thus changing median multiples across the market.

We can see how much of a difference there was when comparing Q2 of 2021 and Q2 of 2022. It’s important to note that these multiples are median, and the multiple will vary depending on the industry. After reviewing these charts, we can see how these variables affect business purchase prices. As inflation started rising, it started eating into business profitability and SDE, followed by the fed trying to tame inflation, thus raising interest rates and pushing out once-qualified buyers from the market. As shown in the chart above, business owners who sold their businesses in Q2 of 2021 received a higher price than those who waited to sell for a higher price. On the other hand, business owners that had listed their businesses on the market declined an offer for lower than the asking price and waited for the total asking price to sell for lower than the offer they received previously as the buyer pool and market multiples has shrunk.

So, lower the price?

Although price can and will play a significant role in anything you sell, especially for businesses, you don’t want to leave any money on the table either. Although inflation has caused interest rates to rise and the median in market multiples to shrink, it doesn’t mean you need to lower the asking price immediately. Current events such as labor shortages, supply chain issues, and rising costs have caused buyers to search for “recession-proof” businesses. Depending on the industry and market sector the company is in, the demand from buyers is much higher and is not affected as much or at all, even though the cost of borrowing and market multiples have shifted.

As you can see in the chart above, the top-selling businesses in the market sector of $500k or below were restaurants, while business services were the top sellers in the market sectors from $500k to $2 Million. Finding the correct asking price can be tricky as many variables are involved. Having a reputable business broker and M&A Advisor like V-AID Business Investments assist when selling your business can help determine the valuation of your business and get the best results when it comes to selling your business.

About V-AID

Since 2001, V-AID Business Investment, a team of resilient business brokers and M&A advisors in Dallas, TX, has been specializing in selling small to mid-size businesses in the main street to the lower middle market. V-AID’s experienced team of experts has a proven strategy that will ensure strict confidentiality, a streamlined selling process, and the maximum value for the business. With deep expertise accumulated from hundreds of done deals, V-AID delivers superior results by providing clients with strategic planning and creative solutions tailored to each transaction. Combining V-AID’s proprietary database of buyer networks and industry-leading marketing, V-AID offers a proven selling method that has been the solution to a value-added exit for hundreds of business owners with a completion of 585 transactions totaling over 124 Million Dollars and continuing.

Sources

https://data.bls.gov/timeseries/CUUR0000SA0L1E?output_view=pct_12mths

Industry Research

https://assets.ibba.org/wp-content/uploads/2022/05/IBBA_Q1_2022_Executive-Report.pdf?_ga=2.58834475.761602016.1663699207-584194243.1663163676&_gl=1*1eghuo5*_ga*NTg0MTk0MjQzLjE2NjMxNjM2NzY.*_ga_WCBM3ZRXC4*MTY2MzY5OTIwNi4zLjAuMTY2MzY5OTIwNi42MC4wLjA.

https://tradingeconomics.com/united-states/interest-rate