3 Warning Signs for Sellers to Be Aware Of
If you’re getting ready to sell your business, you’ll want to be on high alert for potential warning signs that could potentially derail the deal. Of course, time is of the essence when it comes to finalizing your deal. Why spend time negotiating with a buyer who is either not really interested or is simply not qualified to buy? Let’s take a look at some of the top buyer warning signs.
1. Lack of Buyer Experience
When it comes to individual buyers, you’ll want to see if they have experience in your industry. If a prospective buyer is not knowledgeable about your business, they might initially seem very excited but then get cold feet once they dive in and learn more about the industry.
The same can be said for a potential buyer who has never purchased a business before. If you’re dealing with a newbie, you’ll want to feel confident that this individual understands the ins and outs of buying a business before you dedicate too much time to their deal. After all, the process of buying a business can be long and complicated. Inexperienced buyers might find that they no longer want to continue progressing once they get a better idea for what is involved.
2. Undisclosed Financial Information
Along similar lines, you’ll want to work with a buyer who is open about their financials. If you are denied access to financial statements, you will have no way to verify that this buyer is actually equipped to purchase your business.
3. Early Communication Issues
Another common red flag to watch for is that a company says they are interested in buying your business, but the company’s actual decision makers are uninvolved in the communication. If a company is legitimately interested in purchasing your business, you will be communicating with a key player like the President or CEO.
Protect Your Interests
When your business is on the market it is a very important time to make sure that things stay consistent. If a legitimate buyer sees dips in sales or quality of your offerings, it could put a future deal on the line. That’s why you will want to protect your time by not wasting it with buyers who are not a good fit or who lack a high level of interest. Along the way, be sure to trust your intuition. If you sense something might be “off” with a potential buyer, this might very well be the case.
When you work with a business broker or M&A advisor, it will offer you a high degree of protection against falling into a rabbit hole when you should be focusing on keeping your business running as successfully as possible. Your brokerage professional will carefully vet buyers to ensure that they are actually viable candidates.
Copyright: Business Brokerage Press, Inc.
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Sell My Business: How to Sell a Business in 7 Steps
In 2018, 10,312 small businesses were sold. However, many business owners that list their businesses for sale do not ever sell. This is often because they don’t have a transition plan or they try to do it all on their own.
If you are wondering “how do I sell my business”, it is important that you learn the right steps to follow to ensure that you are able to successfully transfer ownership of your business. Do you want to learn more about selling a business and the steps you must take?
Keep reading this article to learn the top seven steps to learn how to your business.
1. Plan for the Future
One of the most important parts of selling your business is planning for the future. It takes a long time to find a reliable buyer, for them to get their finances in order, and to officially sell your business.
Because of this, it is important that you prepare for the sale as early as possible! It is best to plan at least a year or two in advance.
This way, you can find ways to prepare your business structure and customer base for the new owner. It will also allow you to get your business in order before selling.
2. Hire a Business Broker
Once you are prepared to sell your business, you should consider hiring a business broker. While many business owners avoid this to make more money on the sale, it is best to hire a broker if you need help finding a reliable buyer or if you want to get the highest price possible.
A business broker will help you with every step of the business selling process. They can help you find potential buyers, screen them to ensure that they are reliable, and more.
They can also help you find ways to increase your business value before you sell, which will give you a better deal from the sale.
3. Determine the Worth
Before you start marketing your business or find potential buyers, you need to determine the worth of your business. Your business broker can help you with the business valuation process.
You can also find a business appraiser who will provide you with more details about the worth of your business.
This way, you will not price your business too high or too low! It is a great gauge for your listing price and will ensure that you do not get taken advantage of when you are selling your company.
It will also help with the negotiation process and will help you stay firm with your asking price.
4. Make a List of Buyer Prospects
Next, you can make a list of your potential buyer prospects. There are many different places where you can find a buyer for your business.
For example, you may know of a retired business executive that wants to purchase a company. You may even be able to find competitor companies that are looking to expand their brand.
Different buyers will have different motivations for purchasing your company. By working with a business broker, they can help you identify reliable buyers. They will also help you screen the buyers to make sure they are a good fit.
5. Prepare Your Documents
Next, you need to have all of your business documents prepared. This will make the purchase of the business go much more smoothly and will ensure that you have everything you need in one place.
First, you need to get your financial statements and tax documents from the past several years. If you have a business accountant, they will have this information for you.
You should also create a list of information that your new buyer will need. This includes your business contacts, suppliers, your lease agreement, and more.
Having this information for your new buyer will help them understand how you conducted business and will make the transition much more smooth.
6. Market Your Business
Even if you have a few potential buyers that you are interested in, it is still important that you market your business to them. Marketing your business to strategic buyers will increase the likelihood of you selling your business for a good price.
If you know that there are many people interested in buying a business similar to yours, you can use this to your advantage to find many people that want your business.
This may even help you make a bigger profit. A business broker can also help you market your company if you are looking for “how to sell my online business.”
7. Negotiate and Accept an Offer
Finally, the last step of selling your business is to negotiate with your potential buyers! When you have several people interested in buying your business, you will likely get a much better price for your sale.
However, in a buyer’s market, the person purchasing your business has much more control. They may try to talk you into a lower price for your business and may not be willing to pay you as much money.
By negotiating with your buyer, you can settle on a price that works for both of you. Before you accept their offer, you must ask the buyer for a letter of intent and ensure that they are financially qualified to buy your business.
Learn How to Sell My Business Online
When you’re selling your business, you must carefully research the process to get the best deal for your sale. By hiring a business broker and following each of these steps, you will be able to find a reliable buyer!
Have you been searching “how to sell my business” or “help selling my business?” Fusion Advantage can help! Our business brokers can help small and medium-sized businesses find reliable buyers in the St. Louis area.
Contact us today to learn more about our services or to start the selling process.
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When It Comes to Selling Your Business, Let Others Do the Heavy Lifting
While brokerage professionals are working to sell your business, it’s important for you to keep running things in a smooth and seamless manner. In countless cases, sellers have made the mistake of letting things slide simply because they are distracted while trying to sell. You’ll want to make sure things remain the same, as prospective buyers will otherwise start to become nervous. Be sure to keep the premises in tip top condition. Things such as operating hours and inventory levels should remain unchanged. After all, if sales and earnings decrease, that will raise a red flag for buyers.
Business brokers and M&A advisors will help tremendously with various details and events that will take place during the sales process. From start to finish, they will keep their eye on the prize so that you have the time and energy to focus on running your business. The same holds true for other professionals who may help you, such as attorneys and CPAs.
Get Professional Advice on Pricing
You may have a pre-established figure in your mind of what your business is worth and how much you expect to make when you sell. However, the truth is that you will only receive what the market will allow. That’s why it’s so important to get a professional valuation before you decide on a price. If you set too high of a price on your business, it will only slow down or even halt your journey towards successful results.
Keep Things Confidential
Until your sales transaction is completed, you’ll also want to make sure the highest standards of confidentiality are held. If your vendors and employees know that you are selling, it could lead to circumstances that are detrimental to the value of your business. For example, key employees could seek employment elsewhere and/or vendors could terminate contracts.
Decide On Your Strategies
Will you be willing to stay on in some capacity? In many cases, this decision can help increase what you receive for your business. Buyers will often pay more when a seller stays on for a designated period of time as they see this as a reduction in their risk. Would you be willing to offer seller financing? Again, buyers will see this as a sign that you believe in the future success of the business.
Prepare in Advance
It’s always best to prepare when you are not experiencing external pressures. You never know when life could take its toll and force you to sell. That’s why so many sellers start preparing years in advance by taking actions such as cleaning up paperwork, handling litigation and/or environmental issues, and organizing documents.
Selling a business can be highly distracting for business owners. That’s why most reach out to a business broker or M&A advisor. In fact, the best policy is for business owners to start talking to brokerage professionals quite a few years in advance. That way they can make sure everything is optimized for positive results.
Copyright: Business Brokerage Press, Inc.
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Takeaways from the Latest BizBuySell Insight Report
Whether you are thinking of buying or selling a business, it’s worth taking a look at the quarterly BizBuySell reports. The findings from these publications are taken from analysis of sales and listing prices of approximately 50,000 businesses across the United States. The report covers the statistics of sales prices and successful transactions. It also discusses the trends that are at play. Regardless of your role in the business world, these trends likely will have some sort of impact on you.
A Boom for Sellers
The latest BizBuySell report, which covers Q4 of 2021, found that now is a very positive time for sellers. Q4 actually surpassed the pre-pandemic numbers of the fourth quarter of 2019. Of course, this is a major shift away from the sales numbers in 2020. It is typical to see transitions dip in the fourth quarter; however, 74% of brokers stated that their sales were steady during this time period. Experts say that this strength has carried into early 2022.
Other notable sales statistics include the following:
- 8,647 closed transactions were reported in 2021, an increase from 7,612 in 2020
- Sales prices increased 16% year-over-year
- Median cash flow grew 10% year-over-year
Buyers are Looking for Quality
In terms of what buyers are currently looking for, 60% of surveyed buyers indicated that strong financials were simply a “must have” when they were considering a business. This number is in stark contrast to 18% of buyers who responded that discounted opportunities were a top consideration.
Labor Shortages a Factor
The BizBuySell report also discussed the prevalent factor of labor shortages. In fact, 64% of owners surveyed say that this issue has impacted them. Business brokers agree that labor shortage is currently the largest problem for small businesses. Another corresponding issue is that of supply chain disruptions, which 75% of the business owners responding to the survey said had an impact on them.
A More Balanced Landscape
In the survey, brokers were asked if they believed that owners were more or less likely to sell their business in 2022 versus 2021. The general trend was towards brokers believing that there would be more businesses sold this year as compared to last year. Last year, the view was that buyers had the edge over sellers. However, now it seems as though brokers feel that the landscape has shifted and become more balanced overall.
Copyright: Business Brokerage Press, Inc.
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What You Need to Know About Family Businesses
Family businesses are critical to both the US and World economies. In fact, in the US alone, there are approximately 5.5 million family owned and controlled businesses.[1] While much of the world’s wealth is a byproduct of family-owned businesses, the fact is that most are not actually prepared to sell in a way that will profit the owners for their life’s work.
Many owners of family businesses care deeply about the legacy that they built and want it to remain in their family or with someone that will continue it with the same mission, vision, and values on which it operates. This is often difficult as the owners lack an established succession plan or exit strategy.
Studies show that about one-third of family owners never even plan to retire. As a result, they have no succession or exit plan in place. In some cases, the business is forced to form a strategy by default when the business owner becomes burned out, disabled or worse, passes away. This is clearly not the best path when it comes to maximizing profits.
Pros and Cons of Conveying Your Business to Family Members
According to Businessweek.com, the average lifespan of a family-owned business is 24 years. About 40% of family-owned businesses are successfully passed down to a second-generation with only about 13% passed down to a third generation. [2] With the fourth generation and beyond, the survival rate is 3% or less. Regardless of whether a family business owner intends to convey their business to a third party or have it remain in the family, it is important to maintain confidentiality and have the proper documentation in place for a successful transition.
There are disadvantages that need to be considered if you plan to sell your business to a family member. One key disadvantage is that a family business owner will typically receive less value for their business than engaging the sale with an independent third party. Selling to an independent third party can often force a family business owner to also paradoxically agree to a lower value in an effort to negotiate the retention of jobs and incomes for the family members they wish to remain with the business after the sale. It is important to prepare the remaining family members that they will have to accept the fact that they now answer to new ownership and management with the business.
Handling Multiple Owners and/or Decision Makers
If there are multiple owners and/or decision makers in the family-owned business and the business is being sold to a third party, it is important to appoint one family member to represent the negotiations. Having multiple decision makers at this critical step in the process of conveying the business to a third-party owner can lead to numerous issues and headaches for both the buyer and seller. Many times, multiple decision makers cause failure in the ability to transition the business to third-party ownership, as the parties involved have competing priorities with the sale of the business that prevents satisfying everyone involved in the process. Keep in mind that all family members must be in consensus with the price, terms and sale of the business or it will never happen. This fact can be true even if the family members involved are just employees or active/passive investors in the business. Disagreements among family members often derail the possibility of a deal happening.
Obtaining Outside Assistance
To increase your probability of success with conveying a family-owned business to future generations or new independent ownership, having a third-party guide you through the process who is not emotionally involved like the various family members involved, can be critical in making the deal happen. That’s why a variety of professionals including business brokers, M&A advisors, lawyers, and accountants should be brought in to help.
This article highlights just a few of the myriad of issues and process involved in conveying your business to new ownership once you decide it is time to retire or move on to a new venture. If you are just beginning or actively considering transitioning your business to new ownership, please do not hesitate to reach out to us for advice and assistance.
[1] https://www.gvsu.edu/fobi/family-firm-facts-5.htm
[2] https://www.johnson.cornell.edu/smith-family-business-initiative-at-cornell/resources/family-business-facts/
Copyright: Business Brokerage Press, Inc.
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