Is it time to sell your business?
What's my business worth?
The first question most sellers asks is: “What is the value of my business?” To be fair, if we were selling our business, this would be the first thing on our minds. Before you ask that question, however, you must accept that there is a high probability that your business will sell for what the market is willing to pay. If money is the sole reason for you wanting to sell, then you’re not really ready to sell your business.
Are you sure you want to sell your own business?
The first and second question you have to consider is: “Are you sure you want to sell your business?” If you’re serious and have a good reason why you want to sell your business, the likelihood of that happening is strong.
You can increase the odds of you selling your business exponentially if you can answer yes to the following question truthfully: “Do you have reasonable expectations?” Yes to these questions are a good indicator you are ready to sell your business.
How to sell my business? Start Preparing
Before you even consider putting up your business for sale, here is a checklist of the information you need to gather:
- Profit and Loss statements for the past 3 years
- Business Federal Income Tax Returns
- List of fixtures and equipment
- Documents related to your lease
- A list of loans against the business (loan terms, amounts, payment schedule)
- Copies of equipment leases, if any
- A copy of the franchise agreement, if applicable
- An approximate amount of the inventory on hand, if applicable
- List of names of outside advisors, if any
Make sure the financial statements of the business are current and as accurate as possible. If midway through the current year, make sure last year’s figures and tax returns, and also year-to-date figures are available. It's wise to get professional help, if it can be afforded, to put make these statements presentable. We want to cast your business in the best light possible.
Pricing a small business is usually is based on cash flow, this includes business profits, the owner’s benefits, the depreciation, and other non-cash items. Don’t panic because the bottom line is different from what you anticipated, when the proper adjustments are accounted for, your business' cash flow may seem pretty good.
Prospective buyers will want to review your books. A Balance Sheet is not typically necessary, unless the sale price of your business is well over $1 million. Prospects will want to see income and expenses. Can they make the payments on the business and still make a living? Truthfully, if your business is not generating a living wage for someone, it probably won't be sold.
Who would buy my business?
- Unsecured future (laid-off, fired, transferred, etc.)
- Early retirement
- Career dissatisfaction
- Want more control over their lives
Here are some easy tips if you’re buying a business for the first time.
Whom To sell your business?
One of the primary reasons people go into business is change their present situation, whether it's unemployment, job dissatisfaction, or simply a desire to have more control over their lives. Prospective buyers want to be in charge of their own destiny, and don't want to have a boss. Monetary compensation is a factor, but it’s only one of many factors.
To chase the dream of being their own boss, a buyer must make that “leap of faith” to take on the risk of purchasing and operating a business. Buyers wanting to go into business solely for money are typically not realistic buyers for small businesses. The following are some traits of a willing buyer:
- They have the desire to buy a business
- They have financial resources
- They have the ability to make their own decisions
- They have reasonable expectations of what business ownership can do them
Do you want to keep your confidential information saved from falling into the hands of competitors? You have our back as we create a blind profile to protect your identity for proper buyer screening.
Contact us to get your business listed with us today!
What buyers are looking for?
Business owners need to understand not only who the buyer is, but also what they want to know in order to buy the business. Below are some questions you should be prepared to answer.
- How much money is needed to buy the business?
- What is the annual increase in sales?
- How much is in inventory?
- Is there any debt?
- Will the seller provide any training/assistance?
- What is the businesses unique value proposition?
- What further defines the product or service? Bid work? Repeat business?
- What can the buyer do to add value/grow the business?
- What are the figures like in good times and bad?
The main thing to be aware of if you want to sell your business is that the vast majority of buyers are interested in buying cash flow. Work with your bookkeeper to get your financial statements in order, with cash flow the order of business. Be careful not to confuse cash flow with profit.
Experienced buyers will look at the profit and loss statements or business tax returns, as well as owner compensation. They will review any excess compensation to employees and family. Buyers will take a look at large, one-time expenses such as new software systems and equipment.
Non-cash items like depreciation and amortization will be taken into consideration as well. Interest expenses and owner prerequisites will be reviewed. These are things an experienced business broker takes into account when advising a selling client on a selling price.
How to prepare
Presentation is key! Now it the time to replace that worn-out piece of equipment! Now is the time to rejuvenate the business, even if you don't want to sell your business. Fix any broken signage, put in new the carpet, give it a fresh coat of paint, even if you're not selling. It's simply good business.
Mind you, anything that increases sales increases profits which leads to more cash flow! Other things can be done to add value to your business. Customer lists, proprietary products and/or techniques, well-maintained equipment, custom software, or good employees. These “off-balance sheet items,” as they're called, are not used in most pricing valuations, but add to value.
Look at your business very carefully as to not overlook these items that make your business more attractive to a buyer. Before you decide to sell your business, anticipate the obstacles! Review each branch of the business and fix any problems that could arise during the sale process. Surprises are momentum killers! Whether it's legal, accounting, environmental, or anything else, get on top of it now.
We look forward to working as a team to help find a suitable buyer for your business. Below are some recommendations that will be beneficial in our marketing efforts when that time comes that you are ready to sell your business.
- Keep normal business hours. There may be a tendency to "take your foot off the gas" when putting your business up for sale. However, it’s important that prospective buyers see your business shed in the best light possible.
- Fix signs, replace light bulbs, put on some fresh paint. You don't want to have your business look neglected.
- Maintain inventory at a constant level. If your inventory dips, your business could look neglected. Tip* Increasing inventory can make you look busy.
- Repair non-operating equipment or simply remove if not in use.
- Spruce up the inside of building and outside premises.
Obviously, the financial statements of your business are crucial if you want to sell your business, but it's appearance to the buyer is nothing to brush off. First impressions matter! If a potential buyer doesn’t like the appearance of your business, the rest of it may never get a chance.
Still not sure? Check what our customers have to say!
If you have any questions that haven't been covered, please don’t hesitate to call us at (310) 340-9900. We look forward to hearing from you!