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Selling A Business: What You Put In is What You Get Out
From Tiare Rath, About.com
You've put your blood, sweat and tears into building your business, and now it's time to sell a business. But potential buyers won't flock to your business if you simply put up a for sale sign.
Selling a business requires a fair amount of legwork, including financial analysis, market research and sales savvy. The good news is that you probably have already developed these skills as a small-business owner.
Start Early
Selling a business takes at minimum several months – and that's if everything is already in order. Significant planning is involved: You will need to get your financials in order, figure out what your business is worth, evaluate the selling market, decide whether to use a Realtor, determine tax liabilities and work with potential buyers.
Have a Clear Reason to Sell A Business
If you've spent years building your business, made millions of dollars and want to enjoy retirement, you're probably in a good position to sell. However, if you're burned out, running low on cash or simply bored, keep in mind that selling is not your only option. The Small Business Administration encourages business owners who want out to also consider the following alternatives: franchising, developing a partnership, merging with a similar company, going public, and absentee ownership or partial retirement.
Get Your Financials in Order
‘Clean it up’
Restructure your financial statements so they're easy to read. You should have the past three years of financial statements and tax returns available for the buyer. Take care of any outstanding issues with the Internal Revenue Service or lenders, as these could diminish the trust of potential buyers. Make sure that your cash flow figures are clear and kept separate from the extras in your business, such as nonessential travel. Personal expenses, possibly your salary, should also be left out because your buyer will not inherit those costs. A cloudy financial picture of your business “ruins the deal.”
Build a Mini-Business Plan
Selling a business requires sales skills. Owners of small businesses should develop a business plan to sell to potential buyers. This is “your story,” and it includes your business' financials, sales, the business plan, industry projections, recent improvements and other important aspects of your business. Have you had employees for 20 years? That's a great selling point. You may also need to explain why you want out if your business is a great investment. For example, you can tell a potential buyer that you think the business would thrive with a sales representative, but you couldn't afford one.
Know Your Worth
Valuing your business is an arduous yet necessary task when you decide to sell. There isn't a single formula that can accurately determine the worth of your business. The best way to know your business valuation is to hire an appraiser, who can work through the technicalities of determining its value. But this isn't necessary for many small businesses that have straightforward finances and business strategies.
Stay in Business While Preparing to Sell
It takes most U.S. and Canadian businesses four to 12 months to sell. Without knowing how long your business will be on the market, there's no reason to shut it down before you've secured an offer and financing. Selling your business may be an incentive to push harder in the final months, which could increase sales, profits and the selling price.
Add Value to the Business
This is a similar strategy to home sellers who upgrade fixtures before the property goes on the market. If you have rusty equipment, replace it. If possible, sell off assets that aren't generating revenue. Do what you need to increase the financial attractiveness of your assets, especially if you can wait a year or two before selling your business.
Consider Hiring a Business Broker
A Realtor's fees are usually 6 percent, which will take a bite out of the revenue generated by your sale. However, some brokers have buyer contacts that could speed up the sale of your business. Realtors are generally paid after the sale is concluded. Many only sell businesses, and some even serve certain industries or small businesses. I network and promote my businesses for sale abroad and of course locally. It's important to not limit yourself to the local market.
You'll probably also want to work with a tax professional, an attorney and other experts to make sure that all aspects of a sale are handled properly and I can help you through that process.
Know the Market
Even if you have a broker, it's important to know the recent sale prices of comparable businesses. It's also important to monitor whether your industry or the economy is about to slow down or grow. Growth potential is key for potential buyers, who are often looking to invest in an emergent market or business. This takes some market research that can be done online or through industry publications. Projections will significantly affect the amount of time it can take for your business to sell and the selling price.
Know Your Buyers
Competitors and other businesses with similar services are probably better buyers than those simply interested in your business for financial reasons, Chamberlain says. It's also important to know what kind of return on investment potential buyers expect -- and what your business can deliver.
Sound complicated? It isn't if you want to sell your business. The first step is calling Rob Brown at 902-221-2264 and together we can make it happen. |
