How To Sell Your Business - Professional Business Brokers, Inc.
Each day, thousands
of U.S. businesses are sold. Yet for lack of proper preparation, many would-be
sellers remain owners.
A recent study of 3.7 million companies revealed that less than 20 percent of those companies offered for sale actually are sold. Professional Business Brokers sells 90% of the businesses that we list within 12 months. Adherence to the following suggestions will increase the likelihood of a timely and successful sale.
Begin preparing now. Are you considering selling your business within the next five years? If so, then you should develop a priority list of issues that, if addressed, would later increase the company's value.
These issues are usually the same ones that you would normally focus on, but the daily battles sometime prevent owners from dropping a losing product, documenting a process, training a replacement, or resolving a legal liability. Correct the problems now.
Now is the time to invite an experienced, unbiased professional to review your business through the buyer's eyes. Your accountant or an experienced business broker can survey your business and provide a list of perceived strengths and weaknesses that could cause significant swings in the amount a buyer would pay for your business. Professional Business Brokers has two Certified Business Valuation Specialists on staff.
Timing is critical. Timing the sale according to your energy level, capabilities, and financial situation is important. The owner normally thinks of selling when business is down and forgets the idea when business is good. Reverse this thinking to maximize your sale price.
Don't postpone a decision to sell. More than half of small business owners retain their businesses until they are burned out or bored. As the owner loses focus, the bottom line drops, and so does the company's value.
Other owners put off selling while hoping for a business turnaround, only to find the value of the business continues to deteriorate. Remember, delaying the sale until health or business conditions force a sale at depressed prices puts the owner in a double bind.
Internalize the decision to sell. You need to make a firm decision: Do you really want to sell your business? A survey conducted by the International Business Brokers Association found that the biggest obstacle to a sale is the owner's wavering decision to sell.
Yes, this is an emotional decision. The time to deal with your feelings and concern is before sitting down with a prospective buyer. How will you react to the new owner's changing of business policy and assuming your role in handling employees and dealing with customers? Visualize what you will be doing with your time after the sale and start planning now for that inevitable day when someone else is sitting at your desk.
Select a business intermediary. You will need someone to facilitate the sale process. The steps to a sale include: valuing the business, obtaining and qualifying prospects, providing and qualifying prospects, providing a broker produced booklet that details facts about the business (after a confidentiality agreement is signed), more qualifying work by both parties, discussions and visits, signing a preliminary agreement, exchanging more information, final negotiations, preparing the contracts, and finalizing the sale. Can you sell it yourself? Maybe. Should you? No! There is a reason that athletes make millions per year. Agents do their negotiating.
Surprisingly, some successful owners abandon good business practices when selling by leaving the process to chance. When you decide to sell, be sure to interview and select the business professional who can best package and market your company to the most qualified and largest audience.
When interviewing a potential intermediary, ask about marketing strategies that will reach the greatest number of potential buyers without alarming employees and customers. Evaluate the individual's experience in market research, business analysis, selling, and contact negotiations. What sort of information services does the broker have access to that will provide you with current industry comparisons and lists of prospective buyers? Does the broker have a local office and will he or she personally participate in visits and negotiations with the buyer?
Review marketing materials that will be used, and select someone who will work well with your accountant and legal counsel. Most licensed business brokers represent business opportunities (businesses priced under $300,000) strictly on a commission agreement. When the price exceeds $1 million and more experience is required, then retainer plus commission is the norm. This retainer defrays the expenses of buying mailing lists, industry-specific advertising, and other costs done solely for your buyer search.
Overpriced businesses do not sell. Set a realistic price using an appraisal based on your financial reports as well as comparable business sales. The most qualified buyers are also the least likely to agree to an inflated price. Ask yourself the question “Would I buy this business?”
Before looking for buyers, your broker and your tax advisor should identify ahead of time the terms that best fit your financial and tax situation. Be prepared to negotiate; remember, you have already decided to sell.
The terms of sale often require the owner to stay during a transition period. Also, you should expect to finance the portion of the sale price that exceeds the down payment. Your experienced broker will be able to suggest terms that are appropriate for your business and market area.
Anticipate questions. The booklet your broker has prepared should answer most of the buyer's questions prior to a written offer.
Use of other professionals. How do you choose a lawyer or a CPA to play a role in the sale of your business? We suggest that you select licensed professionals who have had recent (six months or less) participation in the sale of a business. Ask them “how many businesses they have sold”?
In the meantime, begin updating and gathering the information that a serious buyer will ask for, including: detailed financial statements, equipment lists, leases, benefit plans, compensation tables, shareholder lists, corporate minutes, tax returns, major customers by volume, and a supplier list.
When you started your business you probably mortgaged your home, experienced sleepless nights, worked long hours, and made a lot of other sacrifices. It takes introspection and planning to make sure you get an equitable return. A business that is well marketed attracts prospects. A business that is well prepared turns prospects into buyers.
Keep the following in mind as you consider selling.
Sell when business profits show an upward
trend.
Sell when the management team is complete and
experienced.
Sell when the business cycle is on the
upswing.
Sell when you are convinced that your
company’s future is bright.
Have excellent books and records.
Clean up the balance sheet.
Have a good profit record.
Have the business in good general condition.
Have adequate personnel.
Get a valuation analysis.
General Disclaimer
This information is presented for the use of customers and clients of Professional Business Brokers, Inc. and is presented for informational purposes only. It is not intended to supplant the need for consultation with other licensed professionals. We strongly advise all customers and clients to seek the assistance of a licensed attorney or a certified public accountant, licensed to practice within the State of Florida.
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