How to Sell Your Business
Hiring a Business Broker to Sell Your Business
The selling of a business is a very complex process. It involves many aspects that most successful business people are not exposed to in the day- to-day operation of a company. Business owners in general do not have the time or knowledge to recognize and understand the complexities of selling their own business. Most businesses do not have the personnel capable of handling the sale of a business. Selling a business involves much more than just placing an ad in a newspaper. You should rely on experts trained in the sale of businesses. Someone familiar with the nuances of selling a business will prove an invaluable asset.
During the process, the Seller's job is to do what he does best, which is to run the business as if he were going to keep it. The Broker's job is to confidentially market the business, find and screen the Buyers, educate them, negotiate the terms of the sale and provide a buffer for the emotional highs and lows that we all experience. The Buyer benefits because the Broker has already pre-qualified a business before he lists it. He has also done a lot of the legwork to assemble the financial information and background of the business. This helps to reduce some of the uncertainty for the Buyer and make this search more efficient.
Why should I use the services of a Business Broker ?
Confidentiality, as well as establishing the right selling price, are crucial to the success of the deal. Your business broker has the ability to maintain your confidentiality, properly research qualified buyers, utilize a worldwide network to advertise your business and establish the right selling price. During a transaction, the broker requires that a prospective Buyer review and sign a non-disclosure statement outlining his responsibility in having access to a Seller's confidential information. This occurs before any detailed information concerning a specific opportunity is released. The broker is committed to protecting the confidentiality of the business sale. He understands that public knowledge of a potential sale can affect the attitudes and actions of customers, employees, competitors, lenders, suppliers, or investors, and thus the value of the company. He also wants to safeguard the employment status of a potential Buyer while he considers a very important change for his future.
A broker will attempt to maximize the selling price of your business. His goal is always to obtain the best possible deal for each client. Unlike a residential agent, he specializes in selling businesses.
Structuring the Offer to Purchase Your Business
Most businesses sell for 50% to 75% down. The remainder is financed by the Seller, by a bank or through family resources. Sellers generally prefer to receive all cash at closing and some Buyers are able and willing to accommodate them. However, Buyers are usually trying to get the most bang for their buck and will want to leverage their down payment into the largest business they can buy. Although, Buyers may want to make a no-money or low-money down offer, it is very rare that they will succeed. Usually a business cannot earn enough to pay salary to the owner and service such a level of debt. In addition, the lender, whether it is the seller or a bank, wants the Buyer to show his commitment to the business by having vested financial interest in its success.
Available Financing
Seller financing is usually the cheapest and easiest to obtain. It also tells the Buyer that the seller has confidence in the business. There are no loan fees and the interest rate is usually lower than the bank rates, but the term of the loan is often shorter. Seller notes make up the majority of Buyer financing. Banks usually wont loan money without collateral. They sometimes will loan money on businesses that show a strong earnings history on the tax returns. They require a lot of documentations and the payment of upfront fees. In recent years, bank loans, which are guaranteed by the Small Business Administration (SBA), have become very popular and more readily available. If all else fails, family or friends will sometimes offer to help out. They can either provide funds or sign a guarantee for a bank loan.
The Closing Cycle
It usually takes longer to sell a business than a house or a commercial building. Because of the confidential nature of a business sale, a business broker cannot put a For Sale sign on the window. The average time to sell a business is usually between six to eighteen months. However, there are exceptions. Some businesses may sell within a month of being put on the market. Others may take several years to attract the right Buyer. A business broker seeks out and talks to Buyers everyday. The next one may be just right for a particular business.
The Marketing of a Business for Sale
The Business Broker wil advertise your business on the Internet--now the #1 source for business buyers. He may also advertise in various local and national newspapers, including the Wall Street Journal. Ads may be placed in journals and publications that target particular industries. Busines Brokers network with fellow members of trade associations such as the Florida Business Brokers Association (FBBA) and Business Brokers of Florida (BBF). Busines Brokers often receive referrals from attorneys, accountants, immigration specialists, and real estate professionals.
Guidelines to Selling Your Business
Structure of the Deal There are many things that go into structuring the deal. Items such as leverage buy-outs, leases, royalties, earn-outs, consulting agreements, non-compete contracts can add immeasurable value and security to both buyer and seller alike.
Adjust the Net Owner Benefit
To determine a proper value of the business, the balance sheet and income statements must be recast. Items such as owner's salary, depreciation, interest and fringe benefits may be added or subtracted depending on the circumstances. The adjusted income statement will reflect the actual owner benefit (Cash Flow) in order to help determine the market value.
Maintain Confidentiality
Confidentiality is vital to the selling of a business. If employees know that you are selling and changes are coming, they may seek other opportunities. Competitors may use this information as a selling tool. Vendors may not continue to extend favourable terms. Profitability and market value may be affected.
Securing Qualified Buyers
Knowing how to qualify a buyer is critical. A Business Broker will pre-qualify each buyer to avoid a negotiation that is doomed to fail. This saves you time and money. It can eliminate hundreds of wasted hours and misdirected efforts.
Continue to Run Your Business
It is important to maintain your business at peak operating capacity. The performance and productivity of your business is what you are really selling. The time taken from your business to sell it will have a toll on the business and as a direct result, could lower its market value.
Properly Adjust for Economic Conditions and Owner's Ability Generally speaking, the higher the skill level required to operate the business, the more difficult it will be to sell it. The value may increase when an industry is in a growth stage. For many industries there are specific valuation methods that are highly subject to the owner's duties in the company as well as outside economic conditions.
Provide Credible Information
A potential buyer will want information about your customer base, competition, financial history and industry characteristics, such as size, growth potential and areas of opportunity. This information must be provided in a saleable format and in a way to ensure your confidentiality.
Negotiating Techniques In many deals, poor negotiating techniques can cost the seller considerably in terms of selling price, terms and other opportunities. Many times a deal will fail to close because of poor negotiation or communication between parties.
Getting the Price Right the First Time
A buyer is buying a job. Your business has a value to a buyer because of its anticipated earnings from its established resources and a demonstrated successful track record. Proper evaluation is crucial, enhancing the chances of selling your business.
Consider Alternative Investments All buyers have alternative investment options. To make your business attractive, you must show a return on investment greater than stocks, bonds, real estate or other similar business opportunities. You should be prepared to offer seller financing.
Prepare for Proper Due Diligence
Due diligence issues are very important to the selling process. These issues can have a major impact on the closing of a business sale. It is imperative to be prepared and organized. You must be able to defend and substantiate representations made during the selling process or the deal can fall apart in the 11th hour.
Seek Professional Assistance and Consultation There are legal, financial. marketing and other vital considerations that must be addressed in the selling process. Many decisions in the selling process should not be made without the advice of the right professionals. A wrong decision could lead to a fatal mistake!
What You Will Need To Sell Your Business
There are certain criteria that buyers have when acquiring a business. Most buyers approach the purchase with a certain level of scepticism. It is our job to reassure them with solid facts and believable information that your business is a good investment. We can gain the buyers confidence by being prepared!
Effective Records
Have all required documents and relevant business listing information available for the Business Broker.
Competitive Price
You need to be attractively priced to entice offers. The price should not be too high or too low.
Leverage You must be receptive to seller financing. Most businesses are sold with seller financing.
Equipment InventoryYou will need a complete list of all assets. Furniture, vehicles, fixtures and equipment should be in working order and acceptable to a buyer.
Lease All buyers will want a good lease. This must be pre-arranged so there are no problems as the transaction progresses.
Training You must be prepared to train the new owner and possibly some of the new staff. This is customary and almost always required.
Appearance From the moment you place your business for sale, you need to keep it neat, clean and organized. Make any necessary repairs prior to showing.
Non-Compete
You must be prepared to sign a non-compete covenant or contract. This provides the buyer some peace-of-mind. Many buyers fear that you will open up the same type of business and become their competition.
Response
Because time is of the essence, it is crucial that you place yourself in a position to respond to an offer as quickly as possible.
No Surprises Surprises will make the buyers uneasy. It is imperative that we know everything about your business. What may seem to you a trivial matter could potentially become a "deal killer" if not handled properly.