WHEN SHOULD YOU SELL YOUR BUSINESS?
SELLING YOUR BUSINESS
Do you have an exit strategy?
Selling a business is a specialized function. Just as business owners wouldn’t attempt to do their own legal or tax work, they should seek professional assistance when it comes to selling such an important asset. Owners choose to sell their business through a business broker because:
An owner representing him or herself cannot maintain anonymity. The lost confidentiality could seriously hurt the business prior to its sale if competitors or employees became aware of the sale.
An owner may not be knowledgeable in current areas of law, accounting, taxes, and marketing of businesses.
An owner typically does not have the ability or time to contact, screen and qualify a large group of prospects to find a qualified buyer who is serious and will offer a fair price.
A broker has the experience, knowledge, and negotiating skills to sell businesses effectively and for the best price particularly in a highly emotional negotiation where the buyer’s objectives are totally opposite of the owner’s.
Working with a professional business broker can make the difference between an owner just “selling” a business or selling it to the right buyer for the right price and terms. Because of Beltway’s extensive contacts with qualified buyers, we have a greater ability to find the right buyer than would business owners on their own.
7 Seller Questions
What does a business broker do?
Business brokers facilitate the successful sale of businesses by helping determine the price of the business, helping to structure terms that will be acceptable to both the seller and to the buyer and finally, coordinating the sales process until the transaction is successfully closed.
In addition to helping the seller fairly value the business, structure the transaction and find the right Buyer, Biz Buy also acts as a “project manager.” Biz Buy coordinates the sale process with a seller’s other professional advisers, lenders and other relevant parties, works with the seller to obtaining financing and plans for an orderly, profitable change in ownership.
How are businesses priced?
Inevitably in a first meeting a prospective seller will ask Biz Buy what we think their business will sell for. However, before Biz Buy can arrive at a price or a range of suggested prices for the business a review of the businesses’ financial information will be necessary. Most sellers have some idea about what they feel their business should sell for and this is certainly taken into consideration. However, Biz Buy is familiar with market considerations and by reviewing the financial records of the business we can make a recommendation of what we feel the market will dictate. A range is normally set with a low and a high price. Sellers that are willing to help the buyer with financing typically get a higher asking price.
How long does it take to sell a business?
It generally takes, on average, between seven and twelve months to sell most businesses. Some types of businesses will take longer to sell, while others will sell in a shorter period of time. It is important that the business be priced properly right from the start. Some sellers, operating under the premise that they can always come down in price, purposely overprice their businesses. This theory often backfires, because buyers often will refuse to look at an overpriced business. Almost all businesses are salable if the price is fair and the terms are structured properly.
Experience has shown that the down payment is a key ingredient affecting how quickly a business sells. A lower down payment generally results in a shorter time to a successful sale. A reasonable down payment also tells a potential buyer that the seller has confidence in the business’s ability to make the payments.
What happens when a buyer becomes interested in a business?
When a buyer is sufficiently interested in a business, we help the potential buyer in the preparation of an offer. This offer, proposal or letter of intent may have one or more contingencies. Usually contingencies concern detailed reviews of financial records and may also include a review of lease arrangements, franchise agreement (if applicable) or other pertinent business details. The buyers’ proposal will then be presented to the seller for his or her consideration.
It is important for sellers to look at each offer carefully. At first glance sellers may not be pleased with a particular offer. However, offers may be lacking in some areas but may have counterbalancing advantages in other areas that warrant serious evaluation. There is an old adage that “the first offer is generally the best offer.” This does not mean that all first offers should be accepted but it does mean that all offers should be carefully evaluated.
When the parties reach agreement.
When a seller and buyer come to an agreement, Biz Buy works with both parties and their trusted advisors (attorney, CPA, partner, etc) to satisfy and remove contingencies in the offer. It is important that sellers cooperate fully in this process. Most important for a seller is that they do not do anything that might lead the buyer to believe that some aspect of the business is being hidden. The buyer may bring in outside advisors to help evaluate the business and an advisor’s reasonable request warrants a timely response.
When all contingencies have been cleared final papers will be drawn and signed. Once the closing has been completed, money will be distributed and the new owner will take possession of the business. As your business broker, Biz Buy will work with you throughout the entire sales process.
What can sellers do to help sell their business?
First and foremost consider the sale of a business like the sale of a home: fix up, clean up, paint as appropriate, and make sure everything is in good working order. This is very basic but many sellers overlook or give little attention to this very important first step. “You get only one chance to make a good first impression.” Also, seller should notify his attorney and account so that any necessary paperwork can be started.
Sellers must take time to cooperate fully with Biz Buy and with any other professionals involved in the process. A buyer will want up-to-date financial information and sellers must work with their accountants to make current information available. Also, the attorney that is involved should be familiar with the closing process for a business in the appropriate state. If the seller and buyer want to close the sale quickly, usually within a few weeks, the attorneys must be prepared to meet the schedule. The failure to close on schedule may permit the buyer to make changes in the original proposal.
And, finally, a seller’s team of advisors must all be working towards the common goal of selling the business for the best price and terms available in the marketplace, and closing the sale as quickly as possible. As your business broker Biz Buy is on your side every step of the way.
Should the seller finance part of the transaction?
Perhaps a better question is “how much of the purchase will a seller finance?” In order to assure your business is sold as soon as possible, it a good idea if the seller helps a qualified buyer with some seller financing. If a seller is unwilling to help with the financing there will almost always be a longer sales process and lower price. On the positive side however, sellers only have offer short term financing—generally five to seven years. The loan will be amortized over a longer payment schedule, perhaps 15 to 20 years, so there will be a “balloon” principal payment to the seller at the end of the term. But 5 to 7 years after the sale the new owner should be well established and in a better position to obtain his or her own financing.