Are You 100% Sure You Want to Sell Your Business? You Better Be!!!
If you are starting consider how to sell your business, you should know selling your business can be a long process involving a lot of time and effort from all involved parties (the Buyer, the Seller and the Business Broker). Make sure you are committed to the sales process before formally engaging a Business Broker and Buyer in the process. Some of the worst experiences I’ve had are ones where the Seller is half-heartedly committed to the sales process. Nothing turns off a Buyer more than when they can’t get financial reports on the business or they are slow to arrive. There is always some level of doubt but be committed and serious.
How To Sell Your Business? Utilize A Business Broker
Years ago I owned and operated a small construction business. When I was wondering how to sell your business I decided that selling without the use of a Business Broker was the right answer. I quickly discovered what a mistake that was. I had no idea how to determine the value of my business. I was fielding calls from potential buyers while running the day to day operations. I was uncertain of the protocol that should be followed, etc., etc. Within one month I able to find a local Business Broker who professionally handled all those tasks and sold my business for twice the amount I originally had established as the list price. Business Brokers are worth every dollar you pay them and make the entire process run more smoothly.
What Is My Business Worth?
One of the first questions you will asks a Business broker when considering how to sell your business is “What is the value of my business” or “How do I determine the value of my business”? Almost every business owner that has never sold a business previously tends to over-value their business. Buyers are very sophisticated and there is a wealth of knowledge available via the internet on business valuation. Most buyers aren’t going to pay a 50% premium for your business just because you want that premium. Would you overpay by 50% for a house you wanted to purchase? The words from a potential Seller that make me want to pack up my briefcase or hang up the phone are “my business is always for sale at the right price”. Be realistic when arriving at a list price for your business and put stock in the valuation you get from the professional you are using. If the valuation formula doesn’t get you to the price you desire, then maybe it isn’t the right time to sell. Be realistic in pricing your business and it will sell….and sell faster.
Be Disciplined And Prepare
I tell most sellers, from the first time you start considering how to sell your business, to begin preparing for the sale of their business 18-24 months before they want put it on the market. It is advisable to have a minimum of two years of P&L reports and tax returns that are consistent and similar. If your tax return shows one thing and your P&L (recast EBITDA) another, the Buyer and the bank are going to base their decisions on the numbers on the tax return, which will result in a lower valuation and offer. In many cases poor financial records make it all but impossible to get a bank loan. Many time small business owners use a consultant or business broker to set up an exit strategy for their business well before the time comes to actually sell the business. Start cleaning up your financial reports 24 months in advance of a sale to maximize the values of your business.
Keep Your Eye On The Ball
Running a business is a full time job and it is easy to get overly caught up in the sales process. It is imperative you keep the business running at a high level while navigating the sales process. Don’t make the mistake of mentally “checking out” of the business until after the transaction closes. If you become too enthralled with your upcoming retirement, many times your business will suffer. If a Buyer senses you’ve crossed the Rubicon before the deal closes, you might get taken advantage of. Commit yourself to handing over your business at a peak performance level.
Never Talk With Just One Buyer
I specialize in selling document shredding businesses for clients and many times, there are experienced buyers with M&A teams on staff looking to make acquisitions. It always amazes me the number of times a business owner will approach that type buyer, start discussions on a sale without a Business Broker and then close the transaction without speaking to another Buyer. A Buyer will approach the process entirely different if he suspects there are multiple parties interested versus only his company. The best way to maximize value and find the appropriate Buyer is to take the opportunity to the market place. Utilize a Business Broker to help you respond to multiple buyer inquiries.
Offer Owner Financing And Qualify Your Buyer
The sale of most small businesses today involves some form of owner financing. Typical terms are 3-5 years at an interest rate of 3-5 %. It isn’t unusual for the amount of the owner note to be 25%-50% of the purchase price. If you are going to act as the bank, you need to qualify the buyer. Beyond financial condition, it is also important the Buyer be well suited to operate your business. You want him to be successful for a variety of reasons but at the top of the list is so he can pay back the note you’ve extended. If you want to maximize the sales price of your business, be prepared to offer owner financing.
Rely On Your Business Broker And Attorney To Close The Deal
Drafting and acceptance of closing documents has killed many a deal. It is heart breaking to see a deal fall apart after a basic agreement is reached because the Buyer and Seller can’t come to terms on the closing documents. Common areas that are negotiated are purchase price, terms and deal structure, promissory notes, non-competes, and owner training and support during the transition period. It is vital to utilize your Business Broker and attorney when negotiating, drafting and accepting the terms of the Purchase Agreement. Both the seller’s and buyer’s attorney will need to communicate effectively with each other to successfully close the transaction. Rely on your team to get to closing but stay extremely involved. Your opinion and input is vital at this point in the process.
Most buyers will want a commitment from the seller in the form of assistance during a transition period immediately after the transaction closes. The degree of involvement and seller participation will vary by industry and buyer preference. However, you should prepare to stay on board for some period of time. This is an important step in the transfer of a business from the seller to the buyer. If this process is undertaken in a rushed or careless manner, the business could falter and experience a rough patch. A responsible business seller will dedicate time to work with the buyer (included in the sales price) for anywhere from a couple of weeks to a couple of months. If the buyer desires a transition period longer than that, it is usually on a negotiated paid basis.
Obviously, these are not all of the points one should consider when pondering how to sell your business but they are a few that I, as an experienced Georgia Business Broker, feel are important.