Selling Process

For Business Sellers

Congratulations on taking the first step. 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 closely with you to determine the optimal market price.

Do you really want to sell this business?

The second question you have to consider is: “Do you really want to sell this business?” It’s important to get clear about your motivations.

When you feel that you have a solid reason (or reasons) why you want to sell, you will be in the right frame of mind to get started.

INSIDER TIP

It doesn’t make any difference what you think your business is worth, or what you want for it. It also doesn’t make any difference what your accountant, banker, attorney, or best friend thinks your business is worth. Ultimately, only the marketplace will determine the true value of your business.

The First Steps

Preparation is key! Before you place your business for sale, there are some important steps.
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 items 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

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 will pay in the long run to get outside professional help, if necessary, to ensure these documents are thorough and accurate.

You want to present the business well “on paper” and give prospective buyers insight into your 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. Not everything is dependent on your bottom line.

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 point of all of this is that before you consider price or even selling your business, it is important that you discuss the tax implications of a sale of your business with a tax advisor. You don’t want to be in the middle of a transaction with a solid buyer and discover that the tax implications of the sale are going to net you much less than you had figured.

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. Buyers who want to go into business strictly for the money usually are not realistic buyers for small businesses.
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. Chances are he is a male (however, more and more women are going into business for themselves, so this is rapidly changing). 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 and be in charge of their own destiny.
Money is important, but it’s not at the top of the list; in fact, it probably is in fourth or fifth place of priorities. 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.

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 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 assume that a new owner will want to do it or that the price will just be slightly lower 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 discount the value of customer lists, proprietary products and/or techniques, well-maintained equipment, secret recipes, customized software programs, or good employees. 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 may sound like something that should have been done when the business first started, so it may be “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 that you have your business “act” together and should help you sell more quickly and effectively. The truth is that preparing a manual on how to operate your business can also 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 that you have placed in a catalog or sample of products, publications, or menus (if the business is food related) is also impressive. 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.

Buyers who want to go into business strictly

Usually are not realistic buyers for small businesses. It might also be helpful if you took a good look at your business from the perspective of a buyer. Try to put yourself in a prospective buyer’s shoes and imagine what he or she would find attractive in a purchase.

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.

Below you will find a few recommendations that will help in our marketing efforts when you decide 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?

Obviously, the financial records of your business are critical to the sale of your business, but how it looks is also important. 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 Selling  a Business – 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?