It takes preparation and focus to sell most businesses. The reality of the situation is that it can take years to achieve this goal. Partnering with a business broker or M&A Advisor is a smart step towards selling any business, as these pros know the very best tips. In that spirit, let’s take a look at some great tips for selling your business.
Getting your business ready to sell means carefully evaluating the foundation. Any significant problem can send buyers “running for the hills,” so be sure that you work out any problems well before placing your business on the market. If you have any litigation or environmental issues, you most definitely want to address those issues before it is time to sell. Nothing will scare away prospective buyers quicker than pending litigation or the specter of a potentially costly environmental clean-up.
A second key issue you’ll want to address is determining who exactly has the legal authority to sell the business. If a board of directors or majority stockholder situation is in place, then selling a business can become more complex than it would be if you were dealing with a sole proprietorship or partnership. Again, the last thing you want is for “legal surprises” to occur when you get ready to sell a business.
If you have non-negotiable items, be certain that those items are discussed upfront. Revealing your non-negotiable items at the very beginning of negotiations will save everyone involved a great deal of trouble.
Tip three involves maintaining a flexible mindset. In most circumstances, you simply can’t have everything that you want. Both buyers and sellers need to be flexible. Sellers will want to be flexible about any real estate. Buyers may not want real estate associated with a given business, and you need to be prepared for this. Sellers should also be prepared to accept valuation multiples for lack of management depth and other factors, such as reliance on a small number of customers.
At the end of the day, sellers should partner with experienced professionals such as attorneys and business brokers. You’ve put a lot of time, energy and resources into building your business. When it comes time to sell, it is only prudent to put together the best team in order to achieve optimal results.
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Thinking about whether or not you are ready to exit is an important question. It’s something that every business owner will have to address at some point. Importantly, you don’t want to wait until the 11th hour to prepare to sell your business. There are far too many pieces in this particular puzzle to wait until the last minute. You’ll want to begin the process sooner by asking yourself some key questions.
First, you’ll need to determine the actual value of your business. It is a harsh truth, but what you think your business is worth and what the market feels that it is worth may be two very different things.
This point serves to underscore the importance of working with a business broker or M&A advisor early in the process. An experienced broker knows how to go about determining a price that will generate interest and seem fair. Remember that at the end of the day, it will be the marketplace that determines the value of your business, but working with a seasoned professional is an excellent way to match your offering price with what the market will ultimately bear.
Secondly, you’ll want to consider whether or not you truly want to sell. It is not uncommon for business owners to begin the process of selling their business only to realize a few hard facts. Wanting to sell and the time being right to sell are often two different things.
Upon placing your business on the market for sale, you may learn that you’re not emotionally or financially ready. If this happens to you, consider it a learning experience that will serve you well down the line.
Get Your Ducks in a Row
If you have done a financial assessment, a little soul searching and have begun working with a business broker or M&A advisor to determine that now is a good time to sell your business, then there are several steps you’ll need to take. You can be sure that any serious prospective buyer will want a good deal of information regarding your company.
At the top of the list of items potential buyers will want to see are three years of profit and loss statements as well as federal income tax returns for the business. Other important documents ranging from lease and lease related documents, lists of loans against the business and a copy of a franchise agreement, when applicable, are all additional documents that you will need to provide. You should also have a list of fixtures and equipment, copies of equipment leases, lists of fixtures and equipment, and an approximate amount of inventory on hand. A failure to not have this information organized and ready to present at a moment’s notice could be a costly mistake.
Working with professionals, such as accountants, lawyers, and brokers, is a savvy move. Owning and operating a business can be a complex process, and the same holds true for selling a business. Investing the time to seek out experienced and professional advice is the first step in selling your business.
The post It’s Time to Exit. Are you Ready? appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
Business acquisitions are red hot, and all kinds of businesses are being snapped up. Some people are under the impression that only large businesses are being acquired, but this is far from the reality of the situation. It would surprise many to learn that so much of the “action” is, in fact, small businesses buying other small businesses.
In his Forbes article, “Take Advantage of the Golden Age of Business Acquisitions,” author Christopher Hurn explores the true state of the “acquisitions game.” His conclusions are quite interesting. In Hurn’s opinion, there has never been a more active time in the realm of business acquisitions.
If you own a business and are looking to grow, then you may want to consider acquiring a competitor in order to consolidate the market. As Hurn points out, there are many reasons that you might want to consider acquiring a business in addition to consolidating the market. These reasons include acquiring a new product or service, acquiring a competitor that has superior technology or even identifying a business that you believe is primed for substantial growth.
Yet, there are other forces at work that are combining to make this moment the “golden age of acquisitions.” At the top of the list of why now is a good time to investigate acquiring a business is demographics. According to a 2019 study by Guidant Financial and Lending Club, a whopping 57% of small business owners are over the age of 50. The California Association of Business Brokers has concluded that over the next 20 years about $10 trillion worth of assets will change hands. A mind-blowing 12 million businesses could come under new ownership in just the next two decades! As Hurn phrased it, “The stars are aligning for the Golden Age of business acquisitions.”
This all points to the fact that now is the time to begin understanding what kind of acquisition would best help your business grow. Hurn believes that turning to the Small Business Administration in this climate of rapid acquisition is a savvy move.
In particular, he points to the 7(a) program and a host of reasons that the SBA can benefit small businesses. Since the SBA lowered equity injection requirements, it is now possible to finance a staggering 90% of business acquisition deals with loan terms up to 25 years and lower monthly payments. Additionally, the SBA 7(a) program can be used for a variety of purposes ranging from expanding or purchasing an existing business to refinancing existing business debt.
Hurn truly does have an important insight. Baby Boomers will retire by the millions, and most of them will be looking to sell their businesses. With 12 million businesses scheduled to change hands in just the next 20 years, now is a highly unique time not only in the history of acquisitions but also in the history of business.
Business brokers understand what is involved in working with the SBA and acquisitions. A seasoned business broker can point you towards opportunities that you may have never realized existed.
There is no doubt about it, it can be exciting to buy a new business. However, in the process, it is very important that you don’t become unrealistic about future growth. Keep in mind that in the vast majority of cases, if a business is poised to quickly grow substantially, the seller would be far less interested in selling.
Richard Parker’s recent article for Forbes entitled “Don’t Be Delusional About Growth When Buying a Business” seeks to instill a smart degree of caution into prospective buyers. Parker notes that when evaluating a business and talking to the owner, many buyers come away with a sense that enormous growth is just “sitting there” waiting to be seized. In particular, Parker cautions those buyers who are buying into an industry that they know nothing about; those individuals should be very careful.
When buying into an industry where one has no familiarity, there can be a range of problems. The opportunities that you see may not have been tapped into by the existing owner for a range of reasons. You couldn’t possibly guess what these reasons might be without more of a knowledge base. Since you are an outsider, you likely lack the proper perspective and understanding. In turn, this means you may see growth opportunities that may not exist, as the seller may have already tried and failed. Summed up another way, until you actually own the business and are running it on a day to day basis, you simply can’t make a proper assessment of how best to grow that business.
The seductive lure of growth shouldn’t be the determining factor when you are looking for a business. A far more important and ultimately reliable factor is stability. The real question, the foundation of whether or not a business is a good purchase option, is whether or not the business will maintain its revenue and profit levels once you’ve signed on the dotted line and taken over. You want to be sure that the business doesn’t have to grow to remain viable.
As Parker points out, the majority of small business buyers will buy in a sector where they don’t have much experience, and that is fine. What is not fine is assuming that you can greatly grow the business. Of course, if new buyers can achieve that goal, that is great and certainly icing on the cake. But don’t depend on that growth.
In the end, everyone has some ideas that work and some that don’t. You may take over a business and, thanks to having a different perspective than the previous owner, are able to find ways to make that business grow. But realize that many of your ideas for growing the business may fail completely.
A professional business broker will be able to help you determine what business is best for you. A business broker will help keep you focused on what matters most and steer you clear of the mistakes that buyers frequently make when buying a business.
Determining when it’s finally the right time to sell can be a tricky proposition. If you are thinking about selling your business, one of the best steps you can take is to contact a business broker. A good business broker will have years, or even decades, of proven experience under his or her belt. He or she will be able to guide you through the process of determining what you need to do in order to get your business ready to sell.
One major reason you should contact a business broker long before you think you might want to sell is that you never know when the right time to sell may arise. Market forces may change, unexpected events like a large competitor entering your area, or a range of other factors could all lead you to the conclusion that now, and not later, is the time to sell.
In a recent The Tokenist article, “When is the Best Time to Sell a Business?”, author Tim Fries covers a variety of factors in determining when is the best time to sell. At the top of Fries’ list is growth. If your company can demonstrate a consistent history of growth, that is a good thing. Or as Fries phrases it, “What never varies, however, is the fact that growth is a key component, buyers will look for.” Growth will be the shield by which you justify your price when you place your business on the market.
If your business is experiencing significant growth then you have a very strong indicator that now could be the time to sell. Fries points to a quote from Cerius Executives’, CEO, Pamela Wasley who states, “When your business has grown substantially, it might be time to consider selling it. Running a business is risky, and the bigger you get, the bigger the risks you have to face.” Again, growth is at the heart of determining whether or not you should sell.
Knowing the “lay of the land” is certainly a smart move. For example, have there been a variety of businesses similar to your own that have sold or were acquired recently? If the answer is “yes,” then that is another good indicator that there is substantial interest in your type of business.
Reviewing similar businesses to your own that have sold recently can help you determine how much buyers are paying for comparable businesses. This can help you spot potential trends. In short, you should be aware of market factors. As Fries points out, everything from relatively low taxes and low interest rates to strength in the overall economy and an upward trend of sales prices can impact the optimal times for a sale.
Now, as in this exact moment, might not be the right time for you to sell. Getting your business ready to sell takes time and preparation. Fries points out that smart sellers “look for a good time, not the perfect time” to sell a business. Working with a business broker is a great way to determine if now is the right time to sell your business and what steps you have to take in order to be prepared for when the time is right.