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. This is when working in tandem with Commerce Business Advisors can make the difference between just getting rid of the business and selling it for the very best price and terms!
Following are 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 tocontact us.
Are You Curious Enough to Take the First Step?
If you’ve come to this site, 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. Good preparation can make the difference in the amount of money you receive for your business, so getting started early is advisable.
What Is My Business Worth?
The first question almost every seller asks is: “What is my business worth?” and that makes sense. However, there are some really important 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 – only the marketplace can decide what the value of your business is. If money is the only reason you want to sell, then you’re not really ready to sell. We can provide you with a free market analysis based on our experience and a software program that uses sales of similar businesses as a guide of what the market is dictating.
Do You Really Want to Sell?
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.
Gather Your Information
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.
Here’s a checklist of the things you should get together:
- 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
- A list of any issues with governmental agencies or notice letters concerning any potential claims
- Any lawsuits pending or threathened
Make sure you take the time to review and update the information, filling in any blanks and organizing everything. Financial statements of the business should be current and as accurate as you can get them. 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.
Prospective buyers eventually will want to review your Profit and Loss Statements for the past three years and the current year as well as your most current Balance Sheet. Buyers want to see income and expenses. They want to know if they can make the payments on the business and still make a living. If your business is not making a living wage for someone, it probably can’t be sold.
Who are the 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. 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
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. 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.
Buyers who want to go into business strictly for the money usually are not realistic buyers. 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 Buyers Want
This may be a bit premature if you not have made a firm decision 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. 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?
Buyers Want Cash Flow
The first thing to keep in mind is that the vast majority of buyers want to buy cash flow. Sit down with your accountant or bookkeeper and begin to get your financial statements in order, with cash flow the order of business. Cash flow is not the same thing as profit. Most buyers look at the profit and loss statement or tax return, as well as owner or family compensation. They will consider any excess compensation to employees and family. Buyers will also look at large, one-time expenses such as a new computer system or remodeling. They will consider non-cash items like depreciation and amortization. Interest expenses will be reviewed, as will owner prerequisites. These are items that a professional business broker considers when advising a selling client on a selling price.
How We Help
We can ask all the right questions – including the tough questions. We prefer to seek out buyers who are financially sound with strong credit and who have management experience. Our ultimate goal is to structure a sale where the seller only carries a small percentage of the sale price in a note. We can make suggestions you may not have thought about – either in the preparation for sale, the valuation, the marketing process or in the area of creative financing. We can assist with the due diligence process and guide you around the typical pitfalls associated with selling a business.
As part of the process we create a professional, comprehensive packet for each of our businesses for sale. We spend numerous hours up-front in preparation of selling a business and our buyers appreciate the work because they have all the preliminary information needed in order to make an educated decision. Buyers also appreciate the fact that they can take the packet to a bank and it’s all that is typically needed for a pre-qualification letter.
Assisting with the buying and selling of businesses is what we do – and it’s the only thing we do. We have experience and as our return clients know, we’re good at what we do.
Our goal is to make the process as hassle free as possible, but to be very open and honest to the potential buyer, and to you, our client.
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