Selling Your Business For The Best Price
Selling your business? You’re not alone. Over 10,000 businesses are sold every year, and that number is only rising! Selling your business can be stressful, and finding the right price to sell it for is even worse.
Luckily, with the right tools, you can sell your business quickly and for the right price. Let’s talk about that.
How To Sell Your Business For The Best Price: Create A Checklist
Having a “sell your business checklist” should be your first priority. You basically want to crunch the numbers, look for hidden factors that can increase your sale, and determine how you’re going to sell it.
Consider All Factors
There are so many moving parts in a business, and there’s no one-size-fits-all way to determine what makes a company valuable. Brand loyalty, ad success, business location, scale, employee satisfaction, employee efficiency, the company’s assets, and its liabilities. Those are a small few.
Do the math and trying to value a business is tricky but it’s important to determine your selling price. Try to consider any unique factors to your business as well.
Determine Your Minimum And Ideal Price
Once you have a checklist and you’ve considered all the factors that should go into your price, you should have an ideal price tag as well as a minimum that you’ll accept. To create an example, we’ll say that after you’ve determined your business’ assets, liabilities, and prospects, you think that the ideal selling price would be close to $300,000.
If that’s the case, maybe you’re getting close to retirement, you have your social security coming to you along with your retirement account, and you’re looking to get the business off your hands so you can get to what you want to do. You don’t want to involve yourself for 2 or 3 more years just to get that extra bit out for your ideal price.
In that case, your absolute, bare minimum with no wiggle room at all could be something like $200,000. This makes sure that you walk away with enough to keep yourself going, maybe invest it into something else like a rental property, clear all your debts, and you’re good to go!
Now, you want to avoid that bare minimum as much as possible, there’s no doubt about it. $100,000 is a big difference, and you earned that money by running a successful business all this time. So, in the event someone offers you close to that low range, you let them know your bare minimum is something like $275,000! Keep your low figure in your head.
Figure Out Your Options For Buyers
You can take out ads in the newspaper or post “for sale” signs at your location. You can also sell your business online by posting them to business sale websites. There’s a lot more you can do, but the most important thing is to maximize the number of potential buyers you can find, as this will ultimately get you the best price.
Once You Have A Buyer, Make An Offer!
They may make the first offer. It’s your job to counter it if you have your prices in mind. Sticking with the $200,000 to $300,000 example, let’s say they offer you $225,000 for your business in cash. You might be happy with that but now you’re guaranteed a minimum payout of that. Keep the offer on the table at all costs.
If this event pops up, do everything you can to avoid burning that bridge. However, you can still negotiate. You can say: “You know, I ran through the numbers, this business has all of these great amenities to offer, we already have great employees and management, and our customers are very loyal. I definitely think this business is worth $320,000.”
You’re going high, sure. That leaves the space in the middle wide open to meet. While that’s a good opener for a negotiation to begin, it doesn’t mean it even has a shot at working. As we said, don’t burn the bridge. You want anything that’s above your minimum to stay on the table.
If they aren’t budging on a dime, say to them that you’re going to keep their information and that you’ll update them as soon as possible. If you get a better offer, great. If you don’t, you’re still ahead of your minimum.
What If I Can’t Sell Above My Minimum?
If you find yourself in a situation where you think you aren’t going to get a fair deal, have your business evaluated and let any potential buyers know exactly what your company is worth.
From there, you have a firm figure that you can use to your advantage along with any other selling points you have in your business. Think of it as if you’re selling your home. “The house was valued at $300,000 on Zillow, but it comes with a pool, central air, and all of these amenities not taken into account.”
What If I Can’t Find A Buyer?
If you’re expecting to put your business on sale on Craigslist and get a bite the next day, you’re in for a surprise. If you’ve exhausted everything you can think of and aren’t having any luck, it’s time to call in the professionals. Hiring a business broker to sell your business is like hiring a realtor to sell your house. It may cost a fee in the end but it’ll likely make you more money and do it in half the time!
Get The Best Bang For Your Buck!
If you’re looking to sell your business, you don’t have to do it alone. Hiring a broker will create more interest among potential buyers, sell the business quicker, and ultimately put more money in your pocket. If you’re interested, be sure to check out our seller’s tutorial to learn more!
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What Makes Your Company Unique in the Marketplace?
There are unique attributes of a company that make it more attractive to a possible acquirer and/or more valuable. Certainly, the numbers are important, but potential buyers will also look beyond them. Factors that make your company special or unique can often not only make the difference in a possible sale or merger, but also can dramatically increase value. Review the following to see if any of them apply to your company and if they are transferable to new ownership.
Brand name or identity
Do any of your products have a well recognizable name? It doesn’t have to be Kleenex or Coke, but a name that might be well known in a specific geographic region, or a name that is identified with a specific product. A product with a unique appearance, taste, or image is also a big plus. For example, Cape Cod Potato Chips have a unique regional identity, and also a distinctive taste. Both factors are big pluses when it comes time to sell.
Dominant market position
A company doesn’t have to be a Fortune 500 firm to have a dominant position in the market place. Being the major player in a niche market is a dominant position. Possible purchasers and acquirers, such as buy-out groups, look to the major players in a particular industry regardless of how small it is.
Customer lists
Newsletters and other publications have, over the years, built mailing lists and subscriber lists that create a unique loyalty base. Just as many personal services have created this base, a number of other factors have contributed to the building of it. The resulting loyalty may allow the company to charge a higher price for its product or service.
Intangible assets
A long and favorable lease (assuming it can be transferred to a new owner) can be a big plus for a retail business. A recognizable franchise name can also be a big plus. Other examples of intangible assets that can create value are: customer lists, proprietary software, an effective advertising program, etc.
Price Advantage
The ability to charge less for similar products is a unique factor. For example, Wal-Mart has built an empire on the ability to provide products at a very low price. Some companies do this by building alliances with designers or manufacturers. In some cases, these alliances develop into partnerships so that a lower price can be offered. Most companies are not in Wal-Mart’s category, but the same relationships can be built to create low costs and subsequent price advantages.
Difficulty of replication
A company that produces a product or service that cannot be easily replicated has an advantage over other firms. We all know that CPA and law firms have unique licensing attributes that prevent just anyone off of the street from creating competition. Some firms have government licensing or agreements that are granted on a very limited basis. Others provide tie-ins that limit others from competing. For example, a coffee company that provides free coffee makers with the use of their coffee.
Proprietary technology
Technology, trade secrets, specialized applications, confidentiality agreements protecting proprietary information – all of these can add value to a company. These factors may not be copyrighted or patented, but if a chain of confidentiality is built – then these items can be unique to the company.
There are certainly other unique factors that give a company a special appeal to a prospective purchaser and, at the same time, increase value. Many business owners have to go beyond the numbers and take an objective look at the factors that make their company unique.
Copyright: Business Brokerage Press, Inc.
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The Advantage of Buying an Existing Business
Most people think of starting a business from scratch, developing an idea, building a company from the ground up. Starting from scratch, however, has its disadvantages including – developing a customer base, marketing the business, hiring employees and creating cash flow … without any history or reputation to rely on.
To avoid these challenges, buying an existing business may prove to be the better solution. Buying an existing business has its advantages – including, but not limited to:
The Business Is Established.
An existing business is a known entity. It has an established and historical track record. It has a customer or client base, established vendors, and suppliers. It has a physical location with furniture, fixtures, and equipment in place. The term “turnkey operation” may be overused, but an existing business is just that, and more. New franchises may offer a so-called turnkey business opportunity, but it ends there. Start-ups are starting from scratch with all the disadvantages stated above.
The Business Has Existing Relationships.
In addition to the existing relationships with customers or clients, vendors, and suppliers, most businesses also have experienced employees who are valuable assets to the company. A buyer may already have established relationships with banks, insurance companies, printers, advertisers, professional advisors, etc., but if not – the existing business/owner does, and they can readily be transferred to the buyer as part of the acquisition.
The Business Isn’t “A Pig in a Poke”.
Starting a new business is just that: “a pig in a poke.” No matter how much research, time, and money you invest, there’s still a big risk in starting a business from scratch. An existing business has a financial track record along with established policies and procedures. A prospective buyer can see the financial history of a business – when sales are high and low, what the true expenses of the business are, and how much money an owner can make, and more. Also, in almost all cases, a seller is more than willing to stay on to teach and work with a new owner – sometimes free of charge.
An Existing Business Comes with A Price and Terms.
As stated above, an existing business has everything in place. The business is in operation and typically has an established selling price. Opening a new business from scratch comes with a great degree of uncertainty and can become a proverbial “money pit”. When purchasing an established business, a buyer knows exactly what he or she is getting for their money. In many cases, a seller is also willing to take a reasonable down payment and then finance the balance of the purchase price.
The “Unwritten” Guarantee.
By financing the purchase price, a seller is saying that he or she is confident that the business will be able to pay its bills, support the new owner, plus make any required payments to the seller.
Copyright: Business Brokerage Press, Inc.
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Why Use a Business Broker to Sell a Small Business?
According to experts, up to 90% of people fail to sell their businesses. Many business owners often ask themselves, “How to sell my business?” They end up debating whether to do this endeavor on their own or to use a broker.
People sell their businesses for multiple reasons, such as losing profit, wanting to do something else, wanting more time to themselves, or other reasons that aren’t listed. If you fail to sell your business, you may be stuck with debt or something you don’t want. It’s a challenging process, which is why using a broker plays a crucial role; continue reading to learn why you should get one.
Pricing
A knowledgeable business broker can assist you in obtaining the highest possible price. They know the market price structure and can provide important insight into how to price a small business.
If you overprice your business, the majority of prospective buyers will never ask about it. If you undervalue your business, you will not get what it is worth.
Save Time
A competent broker will free up time for you to operate your business and enjoy your personal life. It’s advantageous to have an expert on your side.
Apart from operating your small business, you have a lot of other responsibilities. Why not delegate the hard work to a business broker while you enjoy your time away from your company?
Confidentiality
A reputable business broker would ensure that a non-disclosure agreement or NDA is completed before disclosing anything about your company or even knowing its name. They may assist in explaining why a potential buyer will only get a limited amount of information before making an offer.
A seasoned business broker will weed out bidders who are just seeking information. They will spend time educating genuine buyers about the value of the business.
High-Quality Resources
Professional business brokers have access to resources and industry experts. They would know which SBA banks are lending due to their expertise.
They are acquainted with knowledgeable lawyers that can assist in crafting contracts or ending the sale of a business. They also offer a list of excellent accountants that are familiar with business finances.
Negotiation
Why waste time arguing back and forth when an expert can represent you to get your desired price. By using a business broker, you can remove the worry and personal aspects of the situation.
Marketing
A competent business broker will spend time developing a concise and effective business review (CBR or CIM) that summarizes all of your company’s critical information. A well-crafted presentation will assist the buyer in understanding the advantages of acquisition.
They’ll be able to provide an excellent overview with their acquisition advisers. A strong CBR is an effective instrument for assisting in the sale of your business.
Supportive Financial Representatives
A business broker can collaborate with you or your accountant to explain and clarify your company’s financial situation. This is often referred to as normalizing financial statements, and when presented properly, can help potential buyers understanding your business’s actual financial performance.
Tools
An expert broker will invest in and have access to various tools to help sell your business. They will have access to forms, databases of potential buyers, excellent websites, and much more. Before choosing a broker for the job, it’s advisable to ask them about the tools and techniques they will use to sell your business.
Brokers may use their years of expertise to look around corners and predict possible transaction difficulties in advance. They are intimately acquainted with each stage of the company’s selling process and will offer valuable guidance.
Sell Your Business Checklist: What to Prepare With Your Broker?
Approximately 20%-30% of small businesses listed for sale are successfully sold. In order to be better prepared, here are some items that are required to sell your business:
Required Records & Important Information Before Going To Market!
Prepare the following things before placing the company on the market:
- Three years worth of federal tax returns
- Three years worth of profit and loss statement and a balance sheet
- Three years worth of monthly bank statements
Ensure that you are aware of the proper yearly adjusted net income (cash flow, SDC) for the past three years. Serious buyers will want to know this information early on in the purchasing process, as well as how you obtained it from your tax returns and financial statements.
Obtains a Third-Party Business Valuation
Obtaining a competent company appraisal/valuation from a third party is essential for the selling process. 70% of all small businesses never sell because of the excessive asking price or poor deal structure.
The third-party valuation will be used by a variety of people throughout the selling process:
- Potential business buyers
- Lenders/financing companies for the buyer
- Other advisors/parties to the transaction
Prepare Your Team of Advisors, Attorney, and Accountants
A critical component of being prepared to sell a small business is having a reliable team of experts. This is not the time for your advisers to be on vacation. Make sure you have lined up expert advisers for the length of your transaction.
Database of All Potential Buyers
Maintain a folder or online database of all contacts, notes, and documentation. You want to ensure that you have backup purchasers if your initial one pulls out during the selling process. Maintain all escrow information, purchase agreements, signed non-disclosure papers, contact information for CPAs, attorneys, and other relevant information in this folder throughout the selling process.
Create a Business Profile
Buyers will need a great deal of information about the company being sold. Rather than having to describe the company to many buyers, create a one-page description of the business.
Here is the following information that should be in your one-page description:
- Business’s history
- The date it was founded
- Number of employees
- Significant characteristics
- Recommendation and strategies to run the business
- Geographic location
- Competition
- The reason for selling
- Amount of training provided following the sale
Non-Disclosure Agreements
Before disclosing any information, have all prospective buyers sign and date a Non-Disclosure/Confidentiality Agreement. Let them know the critical nature of maintaining the confidentiality of the company’s transaction and the legal consequences of failing to do so.
Gain Maximum Exposure
The most critical factor in this process is to ensure that large numbers of qualified buyers are aware that the business is for sale. You should expect to invest between $400 and $1,000 in advertising and marketing to reach an adequate amount of buyers.
Sell Your Business Tips: Finding a Reliable Broker
Many states require a broker to be a licensed real estate agent to sell their business. You can verify if an agent is properly licensed by doing a check on your state’s database. You should also make sure that the expert you choose has the experience and is sensitive to your requirements.
Finding a reliable broker can be challenging, but we are here to help. Contact Fusion Business Services to help sell your business today.
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12 Ways to Increase the Value of Your Company
1. Build a solid management team. A business with sales of $5 million and up needs a full complement of officers and directors. Such a team might include: a COO, a CFO, a sales manager and, depending on the of type business, an IT director. It is also beneficial to create a Board of Directors with at least two outside members. This professionalization of management can remove the stigma of “the one man band.” Not only will this build a stronger company, it will increase the value to a possible acquirer. Smaller firms should also build a strong management team, and creating an outside advisor group is also a good idea.
2. Loyal employees. Happy and loyal employees make for a strong company. Top management should have non-compete and/or confidentiality agreements. Solid benefits plans for all employees should be in place. A company’s greatest asset is its employees and perhaps its biggest value-increaser.
3. Growth. Some smaller companies are kept small to maximize the owner’s benefits – the proverbial “cash cows.” However, if building value is the goal, then developing new products or services, building market share, expanding markets or opening new ones, is critical. This generally requires a financial investment, but building a strong growth rate also builds value.
4. Understanding your market. The value of a company may be contingent on its industry, its place in the industry and the direction of the industry itself. How big is the industry, is it headed up or down, who is the competition and how big is the company’s market share? Is it time to change direction or diversify?
5. Size counts. Companies with less than $5 million in sales and an EBITDA of less than $1 million can be perceived as small. Therefore, they may be dependent on continuing outside financing and lack the critical mass for both buying and selling power. These companies can be perceived as too small for acquisition or are penalized when it comes to value. However, over the past few years corporate buyers, as well as private equity firms, have seen the advantages of purchasing smaller firms. Obviously, companies with $10 million or more in sales and an EBITDA of $1 million or more are considered as solid and able to stand on their own.
6. Changing direction. Small companies can be very adept at changing course and implementing change. They have to be able to change and move quickly to take advantage of new markets, to fill voids in existing markets and even to add or change products or services.
7. Documentation. Business plans, financial plans and personnel plans should all be in writing – and kept current. Terms of employment agreements should be spelled out and in writing. Business planning and company objectives, etc., should also be in writing and reviewed periodically. Contracts should be reviewed and maintained on a current basis.
8. Diversification. A major problem with many small companies is that their business is concentrated on one or two major customers or clients. Ideally, no customer or client should represent more than 10 percent of sales. Expanding to new markets, introducing new products, and finding new customers must be considered without deviating too far from the company’s core business.
9. Name and brand identity. Nothing beats the name Walt Disney, or Kleenex® or the soft drink called Coke® – they are household names. Small firms may not have the brand or name recognition of these companies, but they can work at it. This recognition is especially powerful in the consumer product area. But franchising has expanded this name or brand recognition to many different types of businesses.
10. Taking advantage of proprietary and other assets. Patents, brand names, copyrights, alliances, and joint ventures are all examples of not only proprietary assets, but, in many cases, valuable ones. Even equipment can be used in several different ways. Large landscape companies in cold climates put snow plows on their trucks, utilize their existing workforce and become a snow plowing company for their regular landscaping customers — office complexes, apartment and condo developments, etc.
11. “Lean and Mean.” Many companies lease their real estate needs, outsource their payroll, have their manufacturing done offshore, or have UPS handle all of their logistical needs. Since all non-core requirements are done by someone else, the company can focus its efforts on what they do best.
12. Do it now! The owners of small firms, even large ones, have an attitude that says, “I don’t have time now, I’ll do it tomorrow” or “I’m too busy now putting out fires.” So the real challenges of building the business, and value, get sidetracked or put off indefinitely. Creating value is critical to the long-term (and short-term) success of the business.
Keep in mind that the best time to consider selling is when business is good, the business is running profitably, and many of the above “value-adders” are in place. By contacting your local professional intermediary you can explore which of the above will add the most value to your firm, so it will be ready to sell when you are.
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