Timing and preparation is important when selling your business. A good broker helps, too!
NOW MAY BE A GREAT TIME TO SELL
Sellers, the market for selling is good right now, but not reflective of the economy.
There are 10 to 12 times the number of buyers than there are salable businesses according to the International Business Brokers Association. With corporate downsizing continuing, more and more middle and upper management employees are getting booted out of corporate America, and while they have money, they still need a regular income.
Money to buy a business is plentiful if you know where to look, so the seller is likely to get all cash at close of escrow for their business. In order to maximize the value of your business, you need to have accurate books and records, trained and competent staff in place, and a plan for what you will do after the sale.
You need a professional business broker to get the most out of your business. Unfortunately in a market that has short supply of and high demand for a salable business, the biggest challenge you will face is finding the right professional. You need to find someone to get the job done. There are far too many business brokers who, like doctors, are practicing, and far too few who can do a proper valuation or can market your business effectively. That is why, according to the Business Brokerage Press, 92% of businesses listed for sale with a broker never sell.
Timing is not everything, but it's close. It takes time to prepare your business for sale. You need to know today's fair market value for your business. You need to make sure that you know what to do to put the WOW! factor in your business prior to listing it for sale.
Getting the right price and the right buyer are important. Selling your business takes a willing seller and buyer working together to arrive at a deal that works for both parties. In order for you to get the best possible price for your business, you must combine your perception of its value with facts about your business presented clearly and concisely, so that the buyer's perception of its value equals yours.
Your best new customers are those referred to you by your current or past customers. It's no different in selling your business. Knowing that buyers are out there, ask yourself if you think you are the best person to find the right buyer for your business, while you are busy running your business. Here are a few simple questions: Do you know how or where to find a qualified buyer? Do you want to spend the time learning how to find them? Do you want to take time away from your business to talk to people who are perpetual lookers? What information is appropriate to divulge to prospective buyers right away, and what should you not tell them about your business, and when? Once they say they want to buy your business, what do you do?
Often the inclination is to get your attorney and/or CPA involved. While they may be long trusted advocates for you and your business, neither is likely to have the skill at negotiating a buy-sell agreement. In the case of handling an important transaction such as this, you are too close to, and they are too far from your business to make a deal happen.
Before you sell, keep in mind you need to plan your route in order to make things go smoothly while the business is for sale, negotiations are in process, due diligence and escrow begin, and finally at close of escrow. Plan an exit strategy and succession plan. Most importantly, find a professional broker with a proven system who can help you make it work.
Tap into the process of selling a business the right way. Call Rick Eggleton for more information at 1-888-222-0646 and you'll be on your way!
BABY BOOMER BUSINESS OWNERS
A vast number of baby boomer business owners will be retiring within the next several years. Unfortunately, most will not be properly prepared to sell their business for the best and highest price. In fact, some will not be able to sell their business at all. This impending tragedy can be averted if the owners know what to do - and how to do it.
It has been said that business buyers purchase future cash flows. While that is correct in theory, there is really much more to the story. Individual business purchasers are really purchasing a dream that is owned by the seller.
The purchaser really expects to buy:
- A good job
- Financial security with reduced risks
- Respect as a business owner
- Cash flow and a good return on investment
- An operating/functioning system that will provide items 1 through 4.
In reality, most business owners have no clue as to how to fulfill the potential buyer's expectations. That's because business owners normally don't think in terms of the value of their businesses. Rather, they think in terms of the bottom line. The bottom line is only one side of the coin. The other side of the coin is value.
Value can be defined as the amount of money in cash equivalents, that a buyer will pay you to willingly part with your business.
The most important part of value deals with the potential buyer's perception of the worth of your business. As with many things, perception is reality. What perception would an investor (purchaser) have of your business?
Perceptions of businesses are often fogged by the tax-saving mania that grips business owners. Some business owners believe that the most important thing in business is to avoid taxes. Many small businesses even keep their books on the "income tax basis" of accounting. When this happens, profits from the business may look very low - adversely impacting a potential buyer's perception of value associated with the business.
While the business owner has saved income taxes - without proper long term strategies and tactics to offset the implied damage caused by low profits - the business owner will actually suffer financial loss because of decreased business value.
I do not advocate paying more income tax than is legally necessary. However, without effective counter measures to offset the numerous tax advantages enjoyed by the business - business value can suffer terribly. And this can become a terrible curse when it comes time to sell a business.
Some business owners understand that they should do things differently a few years before they plan to sell. These owners think that they have time before they need to get their business ready for sale. The truth is, that we all live on borrowed time. Life events such as divorce, disability and death (the three big Ds) may find business owners caught with their pants down, regarding the salability and valuation of their business. Many business owners have also been caught suffering the effects of bigger economic conditions, as well. It is never too soon to position a business for sale.
So, how does one go about saving income taxes while making (and keeping) a business valuable and marketable?
Here are a few suggestions:
- Engage a Certified Public Accountant (not an unlicensed bookkeeper) to prepare an annual financial statement for your company. Engaging a CPA shows that you care enough to do things right, rather than doing them on the cheap. This may seem like a small thing, but psychologically it has a huge impact on a potential buyer's perception of your business.
- Ask your CPA to prepare the financial statement on an accrual basis of accounting using Generally Accepted Accounting Principles (GAAP) rather than using the standard "income tax basis" which is used by many small businesses. The GAAP financial statements are usually better accepted and respected by investors and lenders than are "income tax basis" financial statements. The more acceptable your financial statements are, the less risky your business appears.
- Be sure to have your accountant prepare a special EBITDA statement for the business each year. EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. Many investors and lenders look at prices of businesses as a multiple of EBITDA. By being able to track EBITDA, a potential buyer may have some perception whether the estimated market value of your business is on the rise. This may prove to be a great tool for the business owner, too.
- Remember that tax return profits are meant to show the very worst-case scenario. However, the types of financial statements discussed in the preceding paragraphs are needed to measure the true capabilities of your business.
- Do a self-examination of your own business from time to time. Is your business one that you would want to purchase, if you were to make an investment? If not, ask yourself why you wouldn't want to purchase it. This may be the same reason others would place little or no value on the business. Then ask yourself "what would make the business more attractive?" If you act upon what would make the business more attractive, then you are actually improving the value of your business.
ADVANTAGES OF USING A BROKER
Most people are concerned about the cost of using a broker to sell their business. It is true that you can sell your business by yourself. You need to consult your accountant and attorney for tax and legal advice. But neither one of them can help you find a buyer, get the deal financed, and make sure you get the best possible price for your business.
A business broker can save you an irreplaceable commodity - time. And, the wrong broker can waste a lot of your time if they don't know what they are doing. An experienced professional broker can save you the headaches of dealing with hundreds of inquiries from lookers, tire kickers, and other unqualified callers.
If your broker does the job right, you'll be expected to provide a lot of detailed information about your business before you sign a listing agreement. Based on the information you provide the broker, you should expect a market valuation that both you and the broker are comfortable with. If you feel the broker is willing to take your listing at any price, then be prepared for disappointment, as you may eventually face a number of price reductions or the possibility that your business won't sell.
There are no standard fees in business brokerage. According to Business Brokerage Press, fees range from 10-14% of the sales price. Minimum fees range from $10,000 to $25,000 per deal. Yes, that seems expensive but a professional broker can often bring you a better price than you could get on your own. Beware the broker who negotiates his fee. A broker who waivers on their own fee structure will likely waiver in negotiating a sales price for your business.
When choosing a broker, it is vital that you find someone who makes you feel comfortable. They must exhibit an interest in you and your company, and be willing to do the work necessary to provide you with: a proper market valuation, a solid marketing plan to find you a qualified buyer, and all the tools necessary to help your buyer obtain funding to close the deal. Once in the hands of a professional broker, your business will then need you to continue running it so that you can move on to the next chapter of your life.
Rick Eggleton May Be The Right Choice For You
I have a simple philosophy. I only represent a select few sellers at any given time. I provide prospective sellers first with a quick evaluation of their business's salability in the current market. If the business looks like a salable listing, I then provide prospective sellers with a more comprehensive market valuation of their business. I discuss the process thoroughly with the seller, and coach the seller on their role in talking with prospective buyers. I don't take listings I know I can't sell, and I don't work with sellers who lack adequate books and records.
In the last several years I have sold 95% of the businesses I have represented. I understand what sellers need and want, having been in the shoes of a seller many times in the last 35 years, in a variety of fields including restaurants, retail, business-to-business, business-to-consumer services, distribution and light manufacturing. When I was ready to sell, I wanted 110% from my broker, the facts even if I didn't like them, and great communication. Most of all, I found it necessary to be left alone to run my business until there was a qualified buyer ready to talk.
When you think you're ready, call me and we can discuss your situation. It usually takes just a few minutes for us to figure out what you need to do next. I can give you some resources if you're not there yet, or we can take the next step and move forward to listing your business. I look forward to talking to you!