Selling A Business
Businesses are sold for many reasons
Owners choose to sell their businesses for many reasons, from retirement to a hope that new management can turn a greater profit. If you're considering a business sale, you may need help in determining the best time to sell. Obviously you'd like to sell your business when market demand is high. During a national recession, or a more localized downturn in your geographical area or business sector, you may want to gauge whether it's worthwhile or possible to wait until things improve. Other factors that can help you decide when to sell include changes in the neighborhood, the health of your business, interest rates, and industry trends.
Selling your business requires some work—organizing your books & tax records, rebranding or renovation, & even computer updates—even spending some money on branded advertising to increase the asking price of your business.
In the coming decade, many independent ventures will change hands as baby boomers continue to retire in droves. And according to the online business marketplace BizBuySell, it’s a good time to sell: 1,685 small businesses sold between July and September, up from 1,189 in 2012.
If you're considering a business sale, you may need help in determining the best time to sell.
7 Steps to Stay on the Offensive
If you’re considering selling your small business, consider these seven steps to stay on the offensive.
Value Your Company For Sale
A third-party valuation can provide a realistic estimate of what your business is worth, says Timothy Lee, managing director of corporation valuation services for Mercer Capital, a business valuation and financial advisory firm in Memphis, Tenn. For a set fee, often ranging from $3,000 to $7,500, a qualified valuation professional can review a business and its competitive environment. The review typically considers everything from sales to receivables, inventories and other assets, as well as outstanding debt or liens, all with the goal of identifying business threats and opportunities that define value.
Small businesses are typically worth three to six times their annual cash flow, Lee says, depending on their overall financial health, industry trends, market demand, location and other variables. “The analysis itself relates to how risky the business is and how much growth it has in front of it,” he says.
Organize Your Financials
An owner can avoid red flags by working with an accountant to present clean financial statements and business tax returns dating back at least three years, and ensuring that all income is accounted for.
Among the no-no’s are keeping family cars and boats on the business books. And don’t be surprised if would-be buyers ask for year-to-date results, Rosen says.
On the seller’s side, even commercial landlords are getting into the due diligence game in the post-recession world, taking on the role of bankers by vetting the credit-worthiness of interested buyers before they’ll consider transferring a lease.
Strategize An Exit
All too often, an unexpected factor—an aging or ill owner, lack of interest in succession from adult children, a competitive threat such as the arrival of a big-box store—forces small business owners to sell. So if you plan to outlast your competitors, prepare your exit strategy now, before such a situation forces a sale.
Grow Your Sales
Buyers want to see businesses with some upside, that works on retainer to help small to mid-size companies prepare for sales and identify buyers. When sales are declining, that’s not when to sell, buyers might also get skittish if a single customer represents more than 20 percent of revenue, putting sales at risk if that business is lost. If necessary, diversify the customer base or jumpstart sales with increased marketing and promotions.
While you’re at it, push out bloated inventories and get operating systems up to date. Retail establishments might warrant a fresh coat of paint and some new fixtures, while restaurants might update their menus and say goodbye to disagreeable staff.
Connect With Us
You might be a terrific widget maker but a lousy salesman. That’s one of many reasons to consider outside help with a sale. For companies with less than $5 million in annual revenue, “help” usually means enlisting a business broker who will charge a commission to provide a service. In this case, the broker often performs the business valuation. He or she then prepares a prospectus and taps into a large network to locate buyers, including listing the business with suitable marketplaces, and applies a background in deal-making to get the best price. Brokers like Shawn can also steer buyers to financing resources.
We Understand Your Buyers
The vast majority of small business transactions are paid for in part by third-party loans, with many backed by the U.S. Small Business Administration. A major reason many deals fall through, is because sellers enter transactions with buyers who are unable to secure financing.
We always pre-qualify your buyers. In most deals, banks will also want the sellers to provide a portion of financing for the transaction; this ensures the seller has a vested interest in the venture’s ongoing success under new ownership.
And the new owner should fit into the company culture. Several advertising agencies are approached before closing a deal.
We Can Help Get Contracts In Order
There are a host of legal considerations when selling a small business. Among those necessary to close the deal is the asset purchase agreement, the legal contract for the sale and the purchase of the business assets, including physical as well as intellectual property, says Harry Styron, an attorney in Ozark, Mo., who provides legal advice to small business buyers and sellers. This comprehensive document—which can be several pages long—will consist of exhibits such as noncompete agreements, asset listings, employee agreements and guidelines for the use of website domain names. It does not account for the sale of any stock. “The hardest part is collecting the information,” says Styron, whose fees typically run from $750 to $1,500 for a basic asset purchase agreement.
Often deals will stipulate that the prior owner remain in an advisory capacity for a set period of time to ensure a smooth transition.