Selling Your Business
Selling your business is THE most important decision of your career
You have invested considerable resources, including time, capital, and effort, into establishing, managing, and operating your business. It likely embodies the culmination of your life's work. If you have reached the decision that the present moment is opportune for selling your business, it is crucial to seek the highest level of professional guidance available.
Collaborating with a seasoned business broker can significantly impact the outcome, differentiating between mere disposal of the business and achieving an optimal sale price and favorable terms.
Outlined below are several prevalent subjects and frequently raised topics among sellers. Should you have any additional questions that have not been addressed, please do not hesitate to reach out to us.
Business Sellers
What do I need to know?
If you’ve gone this far, then selling your business has aroused enough curiosity that you are taking the first step.
You don’t have to make a commitment at this point; you are just getting informed about what is necessary to successfully sell your business. This section should answer a lot of your questions and help you through the maze of the process itself.
Question 1
What is the value of my business?
The first question almost every seller asks is: “What is my business worth?” Quite frankly, if we were selling our business, that is the first thing we would want to know. However, we’re going to put this very important issue off for a bit and cover some of the things you need to know before you get to that point. Before you ask that question, you have to be ready to sell for what the market is willing to pay. If money is the only reason you want to sell, then you’re not really ready to sell.
Insider Tip
It doesn’t make any difference what you think your business is worth, or what you want for it. It also doesn’t make any difference what your accountant, banker, attorney, or best friend thinks your business is worth. Only the marketplace can decide what the value of your business is.
Question 2
Do you really want to sell this business?
The second question you have to consider is: “Do you really want to sell this business?” If you’re really serious and have a solid reason (or reasons) why you want to sell, it will most likely happen. You can increase your chances of selling if you can answer yes to the second part of this question: “Do you have reasonable expectations?” A yes answer to these two questions means you are serious about selling.
The Process
What does it take to sell a business?
Okay, let’s assume that you have decided to at least take the first few steps to actually selling your business.
Before you even think about placing your business for sale, there are some things you should do first. The first thing you have to do is to gather information about the business.
Make sure your business financials are current and up to date.
If you’re half way through the current year, make sure you have last year’s figures and tax returns, and also year-to-date figures. Make all of your financial statements presentable. It will pay in the long run to get outside professional help, if necessary, to put the statements in order. You want to present the business well “on paper.” As you will see later, pricing a small business usually is based on cash flow. This includes the profit of the business, as well as the owner’s salary and benefits, the depreciation, and other non-cash items. So don’t panic because the bottom line isn’t what you think it should be. By the time all of the appropriate figures are added to the bottom line, the cash flow may look pretty good.
Know that buyers will want to review your business financials
A Balance Sheet is not normally necessary unless the sale price of your business would be well over the $1 million figure. Buyers want to see income and expenses. They want to know if they can make the payments on the business (more on this later) and still make a living. Let’s face it, if your business is not making a living wage for someone, it probably can’t be sold. You may be able to find a buyer who is willing to take the risk, or an experienced industry professional who only looks for location, etc. and feels that he or she can increase business.
Notes
If you’re like many small business owners, you’ll have to search for some of these items. After you gather all of the above items, you should spend some time updating the information and filling in the blanks. You most likely have forgotten much of this information, so it’s a good idea to really take a hard look at all of this. Have all of the above put in a neat, orderly format as if you were going to present it to a prospective purchaser. Everything starts with this information.
Insider Tips
The big question is not really how much your business will sell for, but how much of it can you keep? The Federal Tax Laws determine how much money you will actually be able to put in the bank. How your business is legally formed can be important in determining your tax status when selling your business. For example: Is your business a corporation, partnership or proprietorship? If you are incorporated, is the business a C corporation or a sub-chapter S corporation? There are also tax rules that impact certain businesses on seller financing. The point of all of this is that before you consider price or even selling your business, it is important that you discuss the tax implications of a sale of your business with a tax advisor. You don’t want to be in the middle of a transaction with a solid buyer and discover that the tax implications of the sale are going to net you much less than you had figured.
Business Valuation Checklist
Fully executed valuation questionnaire
Three years of profit and loss statements "Plus YTD and TTM if Available"
Three years of federal business tax returns
List of all business assets, fixtures, and equipment
A copy of current lease and related documents
Business debt schedule if applicable
Copies of equipment or vendor lease agreements
Copies of franchise or other related business agreements
Value of approximant inventory on hand at cost
Contact information for any outside advisors
Buyers
Buyers buy businesses for many of the same reasons that sellers sell businesses
It is important that the buyer is as serious as the seller when it comes time to purchase a business. If the buyer is not serious, the sale will never close. Buyers who want to go into business strictly for the money usually are not realistic buyers for small businesses.
A Buyer Profile
Here is a look at the make-up of the average individual buyer looking to replace a lost job or wanting to get out of an uncomfortable job situation. Chances are he is a male (however, more and more women are going into business for themselves, so this is rapidly changing). Almost 50 percent will have less than $100,000 in which to invest in the purchase of a business. In many cases the funds, or part of them, will come from personal savings followed by financial assistance from family members. The buyer will never have owned a business before, and most likely will buy a business he or she had never considered until being introduced to it.
Their primary reason for going into business is to get out of their present situation, be it unemployment or job disagreement (or discouragement). Prospective buyers want to do their own thing, be in charge of their own destiny, and they don’t want to work for anyone. Money is important, but it’s not at the top of the list; in fact, it probably is in fourth or fifth place in the overall list. In order to pursue the dream of owning one’s own business, the buyer must be able to make that “leap of faith” necessary to take the risk of purchasing and operating a business.
Here are just a few of the reasons that buyers buy businesses
Laid-off, fired, being transferred (or about to be any of these)
Early retirement (forced or not)
Job dissatisfaction
Desire for more control over their lives
Desire to do his or her own thing
Keep in mind the following traits of a willing buyer
The desire to buy a business
The need and urgency to buy a business
The financial resources
The ability to make his or her own decisions
Reasonable expectations of what business ownership can do for him or her
What are buyers looking for?
Vast majority of buyers want to buy cash flow
This may be a bit premature if you not have decided to sell but it may help in your decision-making process to understand not only who the buyer is, but also what he or she will want to know in order to buy your business.
Insider Tip
What about the Internet? The Internet is a real “buzz” word – and if its use is appropriate for your business, then developing a web site is important not only to your on-going business, but also to a buyer. Many buyers are conscious of what the Internet is doing for many businesses. If you have a web site for your business, it could be a big plus.
Here are some questions that you might be asked – and, should be prepared to answer:
How much money is required to buy the business?
What is the annual increase in sales?
How much is the inventory?
What is the debt?
Will the seller train and stay on for awhile?
What makes the business different/special/unique?
What further defines the product or service? Bid work? Repeat business?
What can be done to grow the business?
What can the buyer do to add value?
What is the profit picture in bad times as well as good?
How to Prepare to Sell Your Business
1. Make the Business Presentable
The time to replace that old worn-out piece of equipment is before you decide to sell. Don’t assume that a new owner will want to do it or that the price will just be slightly lower because you haven’t replaced it. The time to “spiff up” the business is now, even if you aren’t selling. Fix the sign, replace the carpet, paint the place – make it look good. Even if you’re not selling, it’s just plain good for business, and you never know when the time to sell will occur. Keep in mind that anything that increases sales also increases profits and the all-important cash flow!
2. Adding Value
There are other things that add value to your business. Don’t discount the value of customer lists, proprietary products and/or techniques, well-maintained equipment, secret recipes, customized software programs, or good employees. These are termed “off-balance sheet items,” and although not used in most pricing models, they add to value. Look at your business very carefully so you don’t overlook those items that make your business more attractive to the buyer.
3. Eliminate Surprises
Long before you put your business on the market, eliminate the surprises! Review every facet of the business and remedy any problems that could appear during the sale process. No one likes surprises – most of all potential buyers. Whether legal, accounting, environmental, or anything else – solve it now.
Insider Tip
This may sound like something that should have been done when the business first started, so it may be “after-the-fact”. You should create an operations manual. You may already have one, or started one years ago, or simply, have thought of doing one. Now is the time! It may actually create added value to the business. Even if it doesn’t, it will impress buyers that you have your business “act” together and should help you sell more quickly and effectively. Preparing a manual on how to operate your business can also be helpful even if you don’t want to sell. It doesn’t have to be elaborate, just cover the basics. A collection of ads that you have placed in a catalog or sample of products, publications, or menus (if the business is food related) is also impressive. Include anything to do with the business that might be helpful for a new owner. However, don’t include anything that is proprietary, such as customer lists, suppliers or secret recipes, etc.
The Buyer's Prospective
What The Buyer See
It might also be helpful if you took a good look at your business from the perspective of a buyer. Try to put yourself in the place of a prospective purchaser of the business.
Below you will find a few friendly recommendations that will help in our marketing efforts when you decide you are ready to sell:
Tidy-up outside premises.
Repair non-operating equipment or remove it if you are not using it.
Remove items that are not included in the sale and unnecessary items, especially if inoperative.
Maintain inventory at a constant level. If you let your inventory slide, your business will look neglected. If anything, increase it so your business will look busy.
Repair signs, replace outside lights, etc. You don’t want your business to look as if it has been neglected.
Keep normal operating hours. There may be a tendency to “let down” when you put your business up for sale. However, it’s important that prospective buyers see your business at its best.
Spruce-up the inside of the business.etc.
What would you do to make it more attractive or more saleable?
Obviously, the financial records of your business are critical to the sale of your business, but how it looks is also important. First impressions really count! If a potential buyer doesn’t like the appearance of your business, the rest of it may never get a chance. If you have any questions, please don’t hesitate to call us. We look forward to hearing from you!
Do you have other questions?
Be sure to visit Selling FAQ to answers to the following questions
How long does it take to sell my business?
What can business brokers do – and, what can’t they do?
What can I do to help sell my business?
What happens when there is a buyer for my business?
Why is seller financing so important to the sale of my business?
Contact us today and start planning your Exit Strategy
Office
1150 Pelican Bay Dr Daytona Beach FL 32119
Call
386-507-6247
j.godwin@fbxbrokers.com
Site
www.exitstrategygroup.com
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