Is it time to sell?
Selling your business is a major decision. 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 already decided that now is the right time to sell, you want the very best professional guidance you can get.
Working with a professional Business Broker can make the difference between just getting rid of the business and selling it for the very best price and terms.
For Business Sellers
If selling your business has aroused enough curiosity that you are taking the first step, you do not have to make a commitment yet. You are simply getting informed about what is necessary to successfully sell your business.
The first question almost every seller asks is what the business is worth. Before asking that question, the owner has to be ready to sell for what the marketplace is willing to pay.
Only the marketplace can decide what the value of a business is. It does not matter what the owner, accountant, banker, attorney, or best friend thinks the business is worth if buyers will not support that value.
Do you really want to sell this business?
The second question sellers should consider is whether they really want to sell the business. If the owner is serious and has solid reasons for selling, the sale is more likely to happen.
Owners can increase their chances of selling if they also have reasonable expectations. A yes answer to seriousness and reasonable expectations means the owner is more prepared to sell.
The first steps
Before placing the business for sale, owners should gather important information about the company and organize it in a format that can eventually be presented to a serious prospective purchaser.
Everything starts with this information. Many small business owners have to search for these items, update them, and fill in missing details.
Make financial statements current and accurate
If the business is halfway through the current year, the seller should have last year's figures and tax returns as well as year-to-date figures.
Financial statements should be presentable. Pricing a small business is usually based on cash flow, including business profit, owner's salary and benefits, depreciation, and other non-cash items.
Prospective buyers will eventually want to review financial figures, so the information should be organized and accurate before serious conversations begin.
Tax implications matter
The big question is not only how much the business will sell for, but how much of it the seller can keep. Federal tax laws determine how much money will actually be available after the sale.
How the business is legally formed can be important. A corporation, partnership, proprietorship, C corporation, or S corporation can each create different tax considerations.
Before considering price or selling, owners should discuss the tax implications of a sale with a tax advisor.
Who are the buyers?
Buyers buy businesses for many of the same reasons sellers sell businesses. The buyer must be as serious as the seller when it comes time to purchase a business.
Buyers who want to go into business strictly for the money usually are not realistic buyers for small businesses.
The average individual buyer may be replacing a lost job or trying to get out of an uncomfortable job situation. Many have never owned a business before and may buy a business they had not previously considered until introduced to it.
What buyers want
The vast majority of buyers want to buy cash flow. Sellers should sit down with an accountant or bookkeeper and begin getting financial statements in order with cash flow as the order of business.
Cash flow is not the same thing as profit. Buyers look at profit and loss statements, tax returns, owner or family compensation, excess compensation, one-time expenses, depreciation, amortization, interest expenses, and owner perquisites.
These are items a professional Business Broker considers when advising a selling client on a selling price.
What sellers can do before market
Sellers should create an operations manual and improve the appearance of the business before deciding to sell.
The time to replace worn-out equipment, fix signs, replace carpet, paint the place, and make the business look good is before a buyer visits.
Customer lists, proprietary products, well-maintained equipment, secret recipes, custom software, and good employees can add value even when they are not reflected directly on the balance sheet.
Eliminate surprises
Long before putting a business on the market, sellers should review every facet of the business and remedy problems that could appear during the sale process.
No one likes surprises, especially potential buyers. Legal, accounting, environmental, operational, or equipment problems should be solved before they affect a transaction.