The economy continues to heal. Many business owners were holding off selling their business while the economy was performing poorly and finance hard to get as they had the belief they would not get the best price for the business.
Part of what I do includes getting calls from business buyers who are frustrated that they are motivated to buy a particular business but they cannot get the answers they need and wonder if I can help.
When I bring the two perspectives together and how I work best as a business broker with the seller and/or buyer is to allow both parties to do things from a position of strength. At the end of the day, the seller will only sell and the buyer will only buy if all parties have the information they need to make an informed decision and at the very minimum feel that what they are doing makes sense to them.
If you plan to sell your business and want to do things from a position of strength, here are the steps I use to make sure I assist you.
If you plan to sell your business you are making a major change to your life. By definition, owning and operating a business forces disciplines and this often includes doing things you would prefer not to do. If you therefore sell your business and incur this major change, what do you plan to do? Be clear with the new world and options that will open up to you so if and when your business sells, you can easily make the transition. It’s not unusual for a business owner to get to the close of escrow and change their mind as they are not sure what they would do if they now sell the business. It’s also not unusual for a business owner to sell the business and want to buy another business after a period of down time because they are bored. While you own and operate your current business, look after your health, play some golf or do things you want to do so it has balance and you do not burn out. Burn out is the number one reason owners sell their business.
If it’s time to sell the business the first place to start is with a business valuation. There is no need to spend thousands of dollars on a valuation as it does not need to be complex. If the business has partners and they are in a dispute, the owner is going through a divorce or some other complex legal matter then a certified appraisal may be necessary. I put together an opinion of value for around $750 that looks at the last three years tax returns and current profit and loss and balance sheet. All this information is then rolled into a 19 page report that includes comparable sales data from sales in the same industry to arrive at a price the business will sell. Looking at the tax returns and profit and loss statements are critical as too many sellers offer financial statements that are inaccurate or would not be accepted by a buyer or lender. Just recently I was asked by a buyer to appraise a small business from cash flow projections the seller had put together and convinced the buyer his business was worth. After finally getting meaningful documents and information my value was less than half of the sellers as there were errors in his projections.
Once the seller knows the value of his business and still wants to proceed, one of the steps I take is to see what third party finance is available. Most sellers don’t want to sell the business and carry any finance. At the moment, the main form of lending to buy a small business is SBA lenders. These banks will look at writing an SBA loan but they do not lend for all businesses in all industries. It’s not unusual for me to approach many banks before getting a business pre-qualified. Knowing finance is available though really helps the seller with their planning and speeds up the process should a qualified buyer come along.
With these details in place the next most important step is to put a comprehensive confidential report together on the business. The confidential report can be as long and detailed as necessary. A rule of thumb would be the higher the purchase price the longer the confidential report. Buyers have questions. If there are many buyers you can expect a lot of the questions to be the same. Why not have this information ready to go? It makes the seller, their business and me look very professional to request a buyer to complete a non disclosure agreement and then in my case, provide them with a username and password where I have this confidential report as well as supporting documents such as a copy of the lease, franchise agreement, sample marketing material, financial statements and other relevant information.
All the above items take time and planning. If you are selling a business and want qualified buyers to respond in a businesslike manner, take the time to do the work and get it right. A buyer has options. If they don’t feel your business is the right option because of the way their questions are asked or how the answers to their questions are given then they will look for alternatives and there are alternatives out there including doing nothing.
Andrew is a 5-time business owner that helps entrepreneurs exit or enter business ownership. His services include helping owners sell and/or buyers purchase an existing business or consult on purchasing a franchise. He also provides certified machinery and equipment appraisals and business valuations.