20 STEPS TO SELLING YOUR BUSINESS
To help guide you through the process of valuing and selling your business, get our free 20 STEPS TO SELLING YOUR BUSINESS white paper for step-by-step advice when preparing your business for sale. Includes topics such as:
* How to Price Your Business
* Negotiating Offers
* Retaining Key Employees and Operations During a Sale
* Using Social Media to Market Your Business
IBBA AND M&A SOURCE RESEARCH REPORT
The quarterly IBBA and M&A Source Market Pulse Survey was created to gain an accurate understanding of the market conditions for businesses being sold in Main Street (values $0-$2MM) and the lower middle market businesses (values $2MM -$50MM). The national survey was conducted with the intent of providing a valuable resource to business owners and their advisors.
Where are business values headed?
How long is it taking to sell businesses nationwide by business size?
Are sellers able to get their asking prices?
What's My Business Worth?
Small and mid-sized businesses typically depend on four key value factors:
- Seller's Discretionary Earnings (SDE).
- Terms of the Sale.
- Profit or loss as reported.
- Owner's Salary.
- Discretionary Expenses.
- Non-recurring Expenses.
- Non-cash Expenses.
- Expenses not included in the P&L.
- Years in business and with the current owner.
- Profit trend.
- Quality of books and records.
- Franchise membership.
- Brand recognition/strength.
- Level of competition.
- Dependence on current owner.
- Diversification of customer base.
- Lease length and terms.
- Asset value.
- Down payment.
- Interest rate.
- Monthly payment.
- Non-compete agreement.
- Seller training of buyer.
- The fun and ease of operating the business.
- Employee relations.
- Operating hours.
- Growth potential.
Preparing to Sell
We have identified specifics needed in order to aid a successful transaction:
- Having provable books and records increases the numbers of potential buyers. Buyers want proof of sales and profits the business has attained in the past.
- Expectation of a reasonable price and terms. Educated buyers only consider competitively-priced businesses.
- List of assets including furniture, fixtures and equipment. A complete inventory that can be referenced during inspection.
- Attractive lease. Knowing the terms of assignment or of a new lease.
- Best possible appearance. Having the business premises neat, clean and in good repair.
- Valuing the business properly. An appraisal on the business creates a document that proves value to the buyer and shows the business to be competitively priced.
- Covenant not to compete. Preparing the terms of non-competition within an appropriate distance and for a reasonable period of time.
- Reason for sale. Buyers will want to understand the reason for sale and be comfortable that there is not undisclosed information that could negatively affect their investment in the future.
- Time is of the essence. Be prepared to move forward when a qualified buyer shows interest in the business.
- No surprises. Most adverse situations such as landlord problems, outstanding loans, tax arrears, unfavorable equipment leases as well as non compliance with zoning, health or other regulations can be overcome if disclosed.
Developing Your Exit Plan
- What are your preferred options and timing for exiting the business? For example, sale to outsider, sale or gift to family or employees, merger with competitor, buyout by a partner, etc.
- What family members, if any, are involved in the business, and what are their objectives?
- What are your financial objectives and retirement plans?
- What is the value of your business now?
- What key actions are necessary to increase business value and position it for sale at the optimum after-tax amount needed to achieve your financial objectives?
- What actions are necessary to manage estate, trust and tax issues you will face through retirement and beyond?
- What actions, programs and agreements are necessary to ensure continuity of the business in the event of departure, death, or sudden injury of any of the owners or key executives? Examples include training programs, system development, buy/sell agreements, key man insurance, and non-compete agreements.
- Who will replace you or other owners upon departure? Are any current executives and/or family members capable of doing so, and if so, what additional skills, training, licensing, etc. are needed? If not, what is the strategy for recruiting and developing a replacement?
- What changes in the business and your role are needed now to preserve your quality of life and your passion for the business?
- A comprehensive exit plan addresses a wide variety of intricate strategic, operational, financial, tax, human resource and legal issues. While a primary focus is meeting the owner’s objectives, it should ideally reflect the desires and concerns of all important stakeholders, including family, business partners, employees, and in some cases customers, suppliers and the community. Input should be gathered from key advisors, including your CPA, wealth planner, estate planner, business consultant, insurance broker, appraisers and mergers and acquisitions advisor.
How to Finance a Purchase
- Cash equivalents (checking and savings accounts; money market funds).
- Stocks and bonds.
- Certificates of deposit.
- Gifts/loans from friends and family.
- Second mortgages and other real estate loans.
- Seller financing.
- Credit card financing.
- SBA financing/bank loans/bank lines of credit.
- Retirement accounts (IRAs, 401Ks, SEPS, pensions, etc.).
- Borrowing against a different existing business (lines of credit, accounts receivable factoring, inventory financing, equipment financing).
- Asset sales (real estate, autos, etc.).
- Customer and supplier financing.
- Venture capital.
- Small business investment companies.
- Private placement.
- Convertible debt financing.
Buy or Start a Business?
- The market cannot support another competitor.
- Can get your new business up and running quickly.
- A successful business may stay successful while you get up to speed.
- Your new business may already have the equipment and assets you want.
- Set-up and installation costs are cheaper or non-existent.
- The old clientele may well be your new clientele.
- Get the "best" location or acquire a favorable lease.
- Expenses and revenues are known.
- Easier to get licenses and permits.
- Easier to get loans and other financing.
- Intangibles: Goodwill/Brand Name.
- Supplier relationships are established.
- Trade credit may be established.
- Inventory is in place.
- Get key employees on your team.
- Get trained experienced employees and staff.
- Prevent competitor from entering area.
- Little competitive backlash or reaction.
- May be able to use the experience and advice of the previous owner.
The Buying Process
Background Information: You provide us with information about yourself such as a resumé and financial statement. The more we know about you, the more likely we can find a business you will like. The more information we provide the seller, the better the terms he will consider.
Background: We provide the seller information regarding your background, financial wherewithal, and professional experience. Favorable background information about you will result in favorable consideration of your offer.