Is it time to sell? Selling your business is a major decision!
We have included some of the most common topics and questions frequently brought up by sellers. If you have any questions that we have not covered, please don’t hesitate to contact us.
You have devoted your time, money, and energy into building, running, and operating your business.
It may well represent your life’s work.
If you have decided that now is the right time to sell, you want the best help available. Working with a professional business broker can make a big difference. It can help you sell your business for the best price and terms. Below are some common topics and questions that sellers often ask. If you have any questions we haven’t covered, please feel free to contact us.
Congratulations on taking the first step
For Business Sellers
We have designed this section to address commonly asked questions about the process. Feel free to reach out to us with any additional questions you might have.
What is my business worth? 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, before you ask that question, you have to be ready to sell for what the market is willing to pay. There are a wide variety of factors that go into a valuation. Our brokers will work with you to find the best market price. Do you really want to sell this business? The next question to think about is: “Do you really want to sell this business?” It’s important to understand your reasons for selling. When you know why you want to sell, you will be ready to start.
Insider Tip
It doesn’t make any difference what you think your business is worth, or what you want for it. It doesn’t matter what your accountant, banker, attorney, or best friend thinks your business is worth. In the end, only the market will decide the real value of your business.
Preparation is key!
The First Steps
Before you sell your business, there are some important steps to take. Let’s say you have decided to start the process of 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 need to do is gather information about the business. Here’s a checklist of items to collect:
- Three years’ profit and loss statements
- Federal Income Tax returns for the business
- List of fixtures and equipment
- The lease and lease-related documents
- A list of the loans against the business (amounts and payment schedule)
- Copies of any equipment leases
- A copy of the franchise agreement, if applicable
- An approximate amount of the inventory on hand, if applicable
- The names of any outside advisors
Make sure the financial statements of the business are current and as accurate as you can get them.
If you’re halfway through the current year, make sure you have last year’s figures and tax returns, and also year-to-date figures. Make sure all of your financial statements presentable. It is worth getting outside help if needed. This will make sure the documents are complete and correct.
You want to present the business well “on paper” and give prospective buyers insight into your cash flow. This includes the business’s profit, the owner’s salary and benefits, depreciation, and other non-cash items. Not everything is dependent on your bottom line.
Prospective buyers eventually will want to review your financial figures.
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. 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 main point is that before you think about price or selling your business, talk to a tax advisor. They can help you understand the tax effects of selling your business. You don’t want to be in a deal with a good buyer and find out that taxes will leave you with much less money than you expected.
Who are the Buyers?
Buyers purchase businesses for many of the same reasons that sellers sell them. It is important for the buyer to be as serious as the seller when buying a business. If the buyer is not serious, the sale will not close. Buyers who want to start a business just for money are often not realistic. Here are some reasons why buyers purchase 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
A Buyer Profile
Here is a look at the average buyer who wants to replace a lost job or leave a bad job. He is likely a male. However, more women are starting their own businesses, so this is changing quickly. Almost 50 percent will have less than $100,000 in which to invest in the purchase of a business. In many cases, the money will come from personal savings and help from family members. The buyer has never owned a business before. They will likely buy a business they had not considered until now. Their main reason for starting a business is to escape their current situation. This could be due to unemployment or a disagreement at work. Prospective buyers want to take control of their own lives. Money matters, but it is not the most important thing. In fact, it is likely fourth or fifth on their list of priorities. To achieve the dream of owning a business, a buyer must take a “leap of faith.” This means they need to be ready to take the risk of buying and running a business. Here are some important traits of a willing buyer to consider
- 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 Can You Do to Prepare?
There are various activities you can begin to prepare for selling your business. For example, creating an operations manual will help the new owner understand the inner workings of the business. Creating such a manual will be time well-spent.
The time to replace that old worn-out piece of equipment is before you decide to sell. Don’t think a new owner will want to fix it. Also, don’t expect the price to be lower just 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!
There are other things that add value to your business.
- Don’t ignore the importance of customer lists.
- Unique products are valuable.
- Special techniques matter.
- Well-maintained equipment is important.
- Secret recipes can be a big asset.
- Custom software is useful.
- Great employees are essential.
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.
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 might seem like something to do when the business first started. It may feel “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. They will see that you have your business organized. This should help you sell more quickly and effectively. The truth is that making a manual for your business can be helpful, even if you are not ready to sell. It doesn’t have to be elaborate, just cover the basics. A collection of ads you have placed in a catalog or sample of products is impressive. This includes publications or menus if your business is food-related. 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.
Those buyers are not realistic buyers for small businesses
Buyers who want to go into business strictly
It might also be helpful if you took a good look at your business from the perspective of a buyer. Try to think like a buyer. Imagine what they would find appealing in a purchase. Here are some tips to help with our marketing when 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?
The financial records of your business are very important for the sale. However, how they look is also key. 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 Seller FAQ for 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?
