Selling A Business Fundamentals

Selling a business is a series of steps that logically follow one another until the sale is complete. If you know the steps, then you have a plan of attack to sell your business. This plan will get you a fair price and help to make the sale go through as quickly as possible.

Setting a price after the decision to sell

The first step in the process of selling a business comes after the decision to sell the business. This decision can happen for many reasons and is an emotional one for many owners. Remember the current owner has put their heart and soul in the business for some time. They may be selling as they are ready to retire and their business represents a large part of the retirement stake. Declining health is often given as a reason for selling the business. A death of one or both of the owners may bring about the need to cash out in order to divide the money the business represents. This may have been the root cause for the decision to sell. The reason for the sale is important for many reasons to the buyer. If the current owner will not be available after the sale, this could be important if the new owner was going to need help in learning the business. If the old owner is leaving the area for retirement, this could also be a factor on whether this business is one you should consider for purchase. If these factors are in line with the buyer's ongoing need, then the step of looking at the financials of the business is next in line. The business owner should have documented proof of sales and expenses for the last few years so the buyer can see what the business trend is and where the business is heading. These financials should be in the form that your accountant can review and let you know the health of the business. These reports from you own accountant is important, as it will verify the numbers you are using to make a purchase decision. Nothing can happen without this step being in place. The numbers will give a current picture of the business's profitability. They also will give some idea of where the business is headed. Sustained growth is something each buyer would like to see when evaluating the purchase of a business.

Listing with a broker and the terms

Once this information is in hand, the owner must find a way to let buyer's know they are going to put up their business for sale. Listing with a business broker is a way to jump start finding potential buyers. Also the listing broker if a certified business broker, may be able to come up with a realistic price that the business should sell for. This is important, as the price of any business is what attracts potential buyers to sit down and discuss the purchase of the business. The owner also needs to come to grips with the fact that they will or will not carry back part of the purchase price. The terms of the sale are the grease that makes the sale come to pass or become an impasse. This decision by the owner should be made early and maybe even come up with two sale prices. The first price is for an all cash deal and the second price is one with part of the sale price being carried by the owner as a short-term loan. Some buyers will willingly accept the sellers price if the terms of the deal are easy and make the sale price one they can live with. If your business provides a good living and the future looks good, then let influential people know that you are willing to sell your company. Tell your banker, your accountant, your lawyer and your insurance person that you are considering selling and you would appreciate any help they may give toward that outcome. They could easily know someone who is looking to buy a successful business.

The negotiations

Once a real buyer candidate is found, then the negotiations will start. This is the time to lay out all of the cards on the table. Full disclosure should be the watchword as keeping things hidden should not be done and in some states it is illegal. Lack of candor can bring all information under suspicion. This is a situation that should be avoided as it could kill a deal that should have happened.

These negotiations will cover all the important factors that affect the sell. The purchase price, the terms of payment, the inventory credit, lease agreements, employee retention, legal requirements the business must maintain and will the old owner be available if needed for a specific time after the sale. If the business has very specific legal restrictions that are part of doing business where they are located, then this should be disclosed also. There could be OSHA requirements, city or state requirements and federal requirements for doing business.

Basically this is the time to lay out all of the nitty-gritty facts that the new owner will need to comply with. It is the time to explain any problems that are in place and how they will be resolved before the purchase. If there are ongoing leases, legal requirements from settled disputes or any other odd circumstances, this is the disclosure time and should be done with the idea of keeping nothing hidden from the buyer. If a freeway was going to bypass your business, and traffic was important to your success, then this would definitely need to be disclosed. Let the facts see the light of day and the new owner can make a decision on whether they want to still consider the purchase. Full disclosure is the one way to prevent future lawsuits over not letting the buyer know of potential problems.

Hiring a business broker

A good, well-qualified business broker can be an integral part of any sale of a business. They have access to people who are actively looking for a business to buy. They are grounded on how to come up with a fair price for the business. They will keep both parties honest in their dealings with each other as their creditability is on the line with the buyer. Their reputation is important to future business, so referrals about them from previous clients should be acquired and analyzed. Their experience will keep unintended mistakes from muddying up the deal. They help people buy and sell businesses all of the time. For this reason, they are in a better position to advise a client than probably anyone else the client may know. Sound information is key to making good decisions. This is what the business broker brings to the table due to their knowledge and experience. They also will know of possible answers to gaining financing or other professional help so that the deal can be completed fairly and quickly. You could sell your business without their help, but you will probably take longer and spend a lot of time learning something they already knew. One fact that should not be overlooked is they can bring qualified buyers to the table that are sincerely looking for a business to buy. Talking to people who read your ad in the paper may be an exercise in meeting tire kickers or people who do not have realistic expectations of what is involved in buying a business. A business broker can prevent this waste of time in selling your business.

Conclusions

The decision to sell comes about for any number of reasons, like retirement or ill health. The setting of a sale price is critical and most sellers would be wise to bring in a certified business broker. Documentation of the business's financials will back up the sales price. The negotiations are where the sale takes place. A good business broker can make this happen as they have experience in this phase of the sale. Selling a business is more difficult than selling a house or a car. There are numerous elements that need to be laid on the table so that a deal can be made.