The time has arrived to sell your business. As you start the process of figuring out what exactly might be needed in order to advertise the sale, you realize that getting the proper and relevant support is quite important. In this segment, we will go with the premise that you will use a business broker to help you list the business, rather than doing it on your own.
Some obvious things to keep in mind: selling an underperforming business is never a good thing. Any average buyer will shy away from a business that is losing money. Typically these kinds of transactions become an asset sale, where the seller simply disposes of the assets in the business, tangible and intangible, that have value.
Next, the financials for at least the last three years showing steady profit need to be ready. Plenty of buyers walk away because the seller’s CPA is too busy to produce updated reports. You, the seller, need to be prepared to explain dips in profit, external factors, family issues, anything that potentially will not affect the buyer in the future.
If there are two or more owners, there must be a full consensus that the business will be sold. If husband and wife own the business, there has to be full agreement that the business will sell (50/50 ownerships in C or S corporations or 50/50 partnerships in LLC’s, as an example). The business broker working on behalf of the seller would know to acquire a written document that specifies authorization for the sale.
More fairly obvious things… the business premises must be clean, organized, sharp, ready for any unexpected or expected visit from a prospective buyer. Few people would be willing to buy a messy company.
Regarding the asking price: tons of owners set an asking price in their head based on various personal factors. While there are lots of issues to consider when performing a valuation, the main one is financial performance. There are several ways to come up with a price, a range, typically driven by comparisons in the market, or income-driven formulas, or even the replacement cost of the enterprise. Additionally, there are industry multiples used by many business brokers, usually applied in the beginning of the process to get an idea of the price. But if an owner is set on a particular amount and a business broker agrees to market it that way in order to just get the assignment, it will be a very difficult sale. Numbers talk and drive the process – the rest can increase or decrease the ideal price (location, longevity, clientele, contracts and more).
When it is time to negotiate, a business broker is very handy. The last thing you want as a seller is to negotiate back and forth directly with a buyer. Plenty of room for potential friction.
In most situations, a business broker needs to prepare a recasting sheet, which shows the actual profit of the business after personal owner expenses are factored out of the financials – as an example, owner’s payroll might be much higher than normal industry standards, so the potential buyer would actually show more profit if the business were purchased and a more ‘normal’ lower payroll is paid.
Marketing materials, copywriting, advertising venues and such have to be professionally prepared and chosen. A business broker will assume the burden of all these tasks, which would be too cumbersome for a seller to perform while also running the business at the same time.
The seller must be prepared to offer some reasonable training to the buyer – the more helpful and engaging the seller is, in order to make it as easy as possible for the buyer to assume the business, the better. When the seller makes the decision to work with a business broker, ideally everything that should be expected needs to be addressed and understood from the very beginning.