– Know your reason for selling
Buyers are always curious as to why a seller wants to sell their business. (i.e. If things are going so well, then why are you selling?) Be prepared to articulate your reasons.
– Identify your company’s most attractive feature(s)
Every company is different when it comes to strengths. Industries served, operational efficiencies, excellent equipment, low cost of goods %, large customer base, low customer saturation and a positive reputation are just a few examples of what a prospective buyer might find appealing when looking at business opportunities.
– Make sure the timing is right for YOU
Industry trends can shift in a moments notice and you don’t want to find yourself desperate to sell during a slump. So, planning ahead in order to respond to optimal timing is important. Today’s “hot business buy” might not be so hot tomorrow. On the flip side, if your industry is currently down & trending upwards, you might actually add value to your business by waiting 6 to 12 months before pursuing a sale. Understanding this, along with the fact that specific buyers, in specific fields can be a challenge to find, makes the timing of the business sale critical. In fact, good timing can be the difference between getting maximum value for a business versus not selling that business at all.
– Hire a professional team
An ideal professional team consists of an attorney, an accountant and a professional business broker. Are the closing documents worded correctly? What are the tax ramifications of the transaction? Where do I find a buyer? It is important that your professional team has experience in the area of business sales; so, hiring your personal accountant or attorney may not always be the ideal fit. To avoid duplication of tasks and/or exorbitant fees, it is also important that you be specific when defining the roles of your advisory team.
Why do I need a business Broker?
You should strongly consider hiring an intermediary to represent and help you through the selling process. After all, you don’t want to let your business performance decline because you’re too focused, and distracted, on the sale of your business. You also want to maintain the confidentiality of the sale and having buyers contacting you directly, at work, can quickly “get the word out.” An experienced business broker will have qualified buying candidates, they will have the wherewithal to be creative when structuring a deal and they will be able to keep the deal alive when emotions and egos come into play.
– Organize corporate documents – i.e. financials, tax returns
Have you ever bought a house? Well, if you have, you know that a lot of documentation is required from the bank in order to obtain financing. It’s safe to say that in a business transaction, you will need even more. To get things started, you’ll need the last 3 years financials & tax returns, an equipment list, any applicable real estate information and your organizational (employee/managerial) breakdown. Basically, you will want to provide as much information as possible, in a timely manner, or you run the risk of the buyer losing confidence in the deal.
– Make certain the business is presentable
How clean is your ship? First impressions can be lasting and just like selling your home, you need to pay attention to detail and make certain you’ve “de-cluttered” and cleaned the work environment before showing it to potential buyers.
– Understand your business’ true profitability
Many businesses claim a variety of nonoperational expenses. For example, your business may be paying for your personal cell phone usage and/or automobile payment. There may be moving expenses if you’ve moved to a larger facility, equipment purchases or unusual legal expenses. You may have incurred infrequent, “1- time,” expenses during the past three years. All of these examples should be accounted for and can be excluded in a buyer’s analysis of recurring cash flow. So, it’s very important that you retain supporting documentation for these expenses.
– Understand how a buyer will calculate value
The bottom line is that recent performance and hard assets will be the major factors considered when determining the price of your business. Oftentimes, emotional attachment and a past history of success will dictate the price in the mind of a business owner and this is completely understandable. However, a prospective buyer will more than likely look at your business with regard to how it has performed in recent times, not 20 years ago or what it’s “potential” might be.
– Share Future Growth Strategies
Although the “proven track record” of a business will be the primary focus to a buyer, it still makes sense for you to put together a future growth strategy to show to potential buyers. You are the expert of your business and industry; so, use that to point out opportunities and build excitement for the new owner to expand the business. A little bit of extra work in this area may pay dividends in a sale.
– Establish the level of confidentiality
Keeping the sale of your business confidential is critical and of the upmost importance. However, the level of confidentiality can differ from business to business. Employees, vendors and the competition all need to be heavily considered when determining the level of confidentiality you’d like to have when selling your business.
Prior to sharing any information with prospective buyers, BIB Group makes certain to share the name of the inquiry with the seller first, before proceeding.
– Do you have a succession plan?
How vital are you to the day-to-day operations of the business? Who will a buyer be able to turn to for help running the business after you leave? In order to answer these questions, that WILL be posed by the buyer, you should have a succession plan in place before going to market.
– Determine willingness to stay involved after sale & for how long
A smooth transition of ownership is critical to both the seller & buyer of a business.
From a seller’s perspective, you’ve spent many years building your business, you have many loyal employees who have helped pave the way; so you want to make certain that the business is positioned to succeed and your employees are taken care of.
From the buyer’s perspective, there is a certain level of ” the unknown” going into a new business venture. So, after the sale, the buyer will oftentimes request that the prior owner stay involved with the business for an established period of time to help with introductions to vendors, customers and employees. As a seller, your post-sale involvement can instill confidence in a buyer, offer insight with regard to the day-to-day trends and idiosyncrasies of the work environment and give a solid, overall introduction to the business itself.
– Are you willing to offer “seller financing?”
Because it has become increasingly difficult to obtain traditional lending, more and more business transactions are financed, at least in part, by the sellers themselves. The terms & conditions of the seller note are usually similar to that of a bank. The rule of thumb in a seller financed deal typically includes: sellers will usually finance from 1/3 to 2/3 of the sale price, they will establish a payment schedule, they will charge interest (theinterest rate of the seller note is normally at or below bank prime rates) and they will require a personal guaranty (promissory note) that assures the buyers’ personal assets as collateral
By offering seller financing, the seller is put in a stronger position to get a better price and it oftentimes results in a faster sale. Seller financing is also a “vote of confidence” in the eyes of the buyer that shows the seller is confident in the business’ ongoing success.
– Don’t forget about receivables, inventory, work-in-progress & finished goods
Since these 4 items are constantly changing – they need to be accounted for , and will usually have a final value adjustment on the day of closing. Of course, like everything else in a business transaction – everything is negotiable. For instance – in the case of inventory being more predictable to the seller, rather than being added to the price, it can be included (up to a certain amount) in the sale price of the business – particularly in the case of when a larger cash-flow multiple being used. In any case, the seller needs to be aware that there is a value here.