Selling Tutorial

Time To Sell? You’ve Come to the Right Place

Congratulations on taking the first step

For Business Sellers

We have designed this section to address commonly asked questions about the process. Feel free to reach out to us with any additional questions you might have.

What is my business worth?

Almost every seller starts with, “What is my business worth?” If we were selling our business, that is the first thing we would want to know, too! However, before you ask that question, you must be ready to sell for the market price. There are a wide variety of factors that go into a valuation. Our brokers will work closely with you to determine the optimal market price. At Foresight, our ability to uphold value above price separates us from the pack, often leading to selling above the listing price. Make sure to ask how we do this during your consultation.

Do you really want to sell this business?

The second question you must consider is, “Do you really want to sell this business?” It’s essential to be clear about your motivations. Without a clear vision and proper motivation, fear and anxiety will make you second-guess your decision and wreak havoc on the selling process for everyone. Nobody wants that.

This is not the time to take a test drive or dip your toe in the water. That alone would tell us your timing is off. Once you have a solid reason (or reasons) for selling, you will be in the right frame of mind to get started.

Why Now?

Finally, timing is critical in this decision. This cannot be overstated. There is a process to do this effectively and help you maximize your return. It takes an entire team effort, and everyone (you, your spouse, your broker, etc.) needs to be on the same page to be successful.

Why is now the right time for you to sell this business and go through this process? What’s next for you after you sell it? Do you think you’ll regret it?

The Hard Truth

It doesn’t matter what you, your accountant, banker, attorney, or best friend think your business is worth. Ultimately, the market determines its value. The better prepared you are, the more you will get for your business.

Preparation is key!

First Steps in the Process

Okay, let’s assume your timing and motivation are correct, and you’ve decided to sell your business. Before you even think about placing your business for sale, there are a few things you need to do first, such as gathering information about the company.

Here’s a checklist of the items you should get together:

Three years’ profit and loss statements
Federal Income Tax returns for the business
List of fixtures and equipment
The lease and lease-related documents
A list of the loans against the business (amounts and payment schedule)
Copies of any equipment leases
A copy of the franchise agreement, if applicable
An approximate amount of the inventory on hand, if applicable
The names of any outside advisors

Ensure That the Business’s Financial Statements Are Up-to-Date and Accurate.

If you’re halfway through the current year, ensure you have last year’s figures, tax returns, and year-to-date figures. Make sure all your financial statements are presentable. If necessary, it will pay off in the long run to get outside professional help to ensure these documents are thorough and accurate. You want to present the business well on paper to give prospective buyers confidence and insight into your cash flow. This includes the business’s profit, the owner’s salary and benefits, depreciation, and other non-cash items. Not everything is dependent on your bottom line.

Prospective Buyers Will Eventually Want To Review Your Financial Figures.

Notes

Like many small business owners, you might have to search for some of this info. Once you gather all the necessary documents, update the information and fill in any blanks. Ensure everything is organized neatly as if you were presenting it to a prospective buyer. This information is the foundation of the process.

Insider Tips

The big question isn’t just how much your business will sell for; it’s how much you can keep. Federal Tax Laws ultimately determine how much money you can retain, and the legal structure of your business can significantly impact your tax status when selling.

For example, is your business a corporation, partnership, or proprietorship? If incorporated, is it a C corporation or a sub-chapter S corporation? There are also tax rules that affect seller financing for certain businesses. Before considering selling your business or setting a price, you must discuss the tax implications with a tax advisor. You don’t want to be in the middle of a transaction with a solid buyer and discover that the tax implications will net you much less than you anticipated.

Who are the Buyers?

Buyers buy businesses for many of the same reasons that sellers sell them.

It is important that the buyer is as serious as the seller when it comes time to purchase a business.

If the buyer is not serious, the sale will never close. Buyers who want to go into business strictly for the money usually are not realistic buyers for small businesses.

Here are just a few of the reasons that buyers buy businesses:

A Typical Buyer Profile

Here is a look at the make-up of the average individual buyer looking to replace a lost job or wanting to get out of an uncomfortable job situation.

Chances are he is a male (however, more and more women are going into business for themselves, so this is rapidly changing). Almost 50 percent will have less than $100,000 in which to invest in the purchase of a business. In many cases the funds, or part of them, will come from personal savings followed by financial assistance from family members. The buyer will never have owned a business before, and most likely will buy a business he or she had never considered until being introduced to it.

Their primary reason for going into business is to get out of their present situation, be it unemployment or job disagreement (or discouragement). Prospective buyers want to do their own thing and be in charge of their own destiny.

Money is important, but it’s not at the top of the list; in fact, it probably is in fourth or fifth place of priorities. In order to pursue the dream of owning one’s own business, the buyer must be able to make that “leap of faith” necessary to take the risk of purchasing and operating a business.

Keep the Following Traits of a Willing Buyer in Mind:

The desire to buy a business
The need and urgency to buy a business
The financial resources
The ability to make his or her own decisions
Reasonable expectations of what business ownership can do for him or her

What Can You Do to Prepare?

You can start various activities to prepare to sell your business. For instance, creating an operations manual will help the new owner understand the company’s inner workings. This can have a similar effect to having a key employee. Businesses with documented policies and procedures tend to sell faster and for more money. Additionally, this will help you prepare for your upcoming training and transition when you sell.

Appearances Do Count

The time to replace that old worn-out piece of equipment is before you decide to sell. Don’t assume that a new owner will want to do it or that the price will just be slightly lower because you haven’t replaced it. The time to “spiff up” the business is now, even if you aren’t selling. Fix the sign, replace the carpet, paint the place – make it look good. Even if you’re not selling, it’s just plain good for business, and you never know when the time to sell will occur. Keep in mind that anything that increases sales also increases profits and the all-important cash flow!

Everything Has Value

There are other things that add value to your business. Don’t discount the value of customer lists, proprietary products and/or techniques, well-maintained equipment, secret recipes, customized software programs, or good employees. These are termed “off-balance sheet items,” and although not used in most pricing models, they add to value. Look at your business very carefully so you don’t overlook those items that make your business more attractive to the buyer.

Eliminate the Surprises

Long before you put your business on the market, eliminate the surprises! Review every facet of the business and remedy any problems that could appear during the sale process. No one likes surprises – most of all potential buyers. Whether legal, accounting, environmental, or anything else – solve it now.

Take an Outsider Perspective

Push yourself to look at your business from the perspective of a buyer. Put yourself in their shoes and imagine what they would find attractive in this purchase. This is good practice because you’ll do much of this throughout the selling process.

Here are a few recommendations that will help market the business when you are ready to sell:

Tidy up the outside premises.
Repair non-operating equipment or remove it if you are not using it.
Remove items that are not included or anything unnecessary, especially if it’s inoperative.
Maintain your inventory at a constant level. If you let your inventory slide, your business will look neglected. You want your business to look busy.
Repair signs, replace outside lights, etc. Show them you care about maintaining your business.
Keep regular operating hours. There may be a tendency to “let down” when you put your business up for sale. However, prospective buyers must see your business at its best. Continue to run the company as if you weren’t selling it. Keep the pedal down, you’re almost there!
Spruce up the inside of the business. Remove the clutter, clean it well, freshen up paint if needed, etc.

How Can We Enhance Its Appeal and Marketability?

While the financial records of your business are crucial in the selling process, appearance is equally important. First impressions matter! If a potential buyer is not impressed by the look of your business, they may not give the rest of it a chance. Remember, there’s a lot of fear and anxiety in this process, so you want to eliminate as much of that as possible.

We’ve already determined that the market will ultimately determine the price of your business. We are experts in helping you prepare for the market to maximize your selling value. If you have any questions, please feel free to contact us. We are here to help!

Do you have other questions?

Visit our Seller FAQ Section for More Information

How long does it take to sell my business?
What can business brokers do – and, what can’t they do?
What can I do to help sell my business?
What happens when there is a buyer for my business?
Why is seller financing so important to the sale of my business?

Or, if you are ready now, click here to connect with one of our advisors.

Applied Knowledge | Personal Experience | Predictable Outcomes