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HOW TO SELL YOUR BUSINESS
You’ve decided it’s time to sell. Now what?
You invested your time, money, and energy to build, run, and operate your business. It may well be your life’s work. If you have already decided that now is the right time to sell, working with us can help you get what your business is worth. Below you’ll find information on topics sellers frequency ask us about.
What is my business worth?
It doesn’t make any difference what you think your business is worth, or what you want for it. It also doesn’t make any difference what your accountant, banker, attorney, or best friend thinks your business is worth. Only the marketplace can decide what the value of your business is. But we can help you enhance the market’s perceived value of your business.
What information do buyers want to see?
Here’s a checklist of the items you should get together:
☑︎ Three years’ profit and loss statements
☑︎ Federal Income Tax returns for the business
☑︎ List of fixtures and equipment
☑︎ The lease and lease-related documents
☑︎ A list of the loans against the business (amounts and payment schedule)
☑︎ Copies of any equipment leases
☑︎ A copy of the franchise agreement, if applicable
☑︎ An approximate amount of the inventory on hand, if applicable
☑︎ The names of any outside advisors
why do buyers want to buy a business?
- They’re laid-off, fired, being transferred (or about to be any of these)
- They’re taking early retirement (forced or not)
- They don’t like their jobs
- They want more control over their lives
- They want to do their own thing
what are the traits of buyers?
Almost half of all buyers will have less than $100,000 to invest in the purchase of a business. In many cases the funds, or part of them, will come from personal savings of from family members. The buyer may never have owned a business before, and most likely will buy a business they have never considered previously.
Their most common reason for going into business is to get out of their present situation, such as unemployment or being unhappy in their jobs. But prospective buyers must be able to accept the risk of purchasing and operating a business.
what do buyers want to know?
- How much money is required to buy the business?
- What is the trend in your business, the annual increase in sales?
- What is the value of your on-hand inventory?
- What is your debt?
- Will the seller train and stay on for awhile?
- What sets your business apart from your competition?
- What can be done to grow the business?
- What can the buyer do to add value?
- What is the profit picture in bad times as well as good?
What is the buyer’s primary focus?
The majority of buyers want to buy cash flow. So, meet with your accountant or bookkeeper and begin to get your financial statements in order, with your main attention on determining your cash flow. Cash flow is not the same thing as profit. You can add back expenses that the buyer will not have to pay, such as:
- Excess compensation to employees and family
- Large, one-time expenses such as a new computer system or remodeling
- Non-cash items, such as depreciation and amortization
- Interest on loans
These are items that we look for when advising our sellers.
what can I do to prepare?
- Identify the things that add value to your business. Promote the value of customer lists, proprietary products and techniques, well-maintained equipment, secret recipes, customized software programs, and good employees.
- Eliminate surprises. Analyze your business. Solve the burning problems you identify.
- Document your standards of operations. This will impress buyers that you have your business act together and should help you sell more quickly. Prepare a collection of ads that you have placed in a catalog or sample of products, publications, or menus (if the business is food related.) Include anything to do with the business that might help a new owner. However, don’t include anything that is proprietary, such as customer lists, suppliers, or secret recipes.
How should I maintain my business during the sale?
- Clean the outside of your place of business.
- Repair non-operating equipment or remove it if you are not using it.
- Remove items that are not included in the sale and unnecessary items, especially if inoperative.
- Maintain inventory at normal levels.
- Repair signs, replace outside lights, replace the carpet, paint the place
- Keep normal operating hours.
- Spruce-up the inside of the business, etc.
Do you have other questions?
Please visit our Selling FAQ to answers to the following questions:
- How long does it take to sell my business?
- What can business brokers do – and, what can’t they do?
- What can I do to help sell my business?
- What happens when there is a buyer for my business?
- Why is seller financing so important to the sale of my business?
what is your business worth?
The 4-steps to valuation
Seller’s Discretionary Earnings
Owner’s Cash Flow
A multiple supported by marketplace
intelligence and informed by
1 A pet store produces an SDE of $345,678.
2 The marketplace for this industry sector supports a multiple of 2.
So, following the Business Reference Guide,
the asking price would be —
$345,678 × 2 = $691,356.
3 We round this up to $719,000. And we find comparable sales on BizBuySell that support this price.
4 The recommended asking price is $719,000.
Seller’s Discretionary Earnings (SDE) is your net business income before deducting the owner’s compensation and benefits; other discretionary, non-operating, or non-recurring income or expense; and depreciation, interest, and taxes. This is what buyers buy.
We use (a) nationally validated multiples found in the Business Reference Guide published by Business Broker Press, and (b) comparable sales found in BizBuySell.com.
We may round-up or adjust the price to allow for movement during negotionations.
The fact is your business is only worth as much as a buyer is willing to pay for it. So to increase the perceived value of your business, I will help you offer …
The 12 Things that Matter Most to Buyers
- A good return on their investment
- A good place of business and website
- Good FF&E
- Good products and services
- Good employees
- Good customers
- Good industry
- Good vendors
- A business that is competitive
- A business that is well run
- A business operating system
- Seller financing
which industry sectors are selling?
Retail companies make up 23% of all sales. This includes both brick and mortar and Internet-based business, such as:
- Vending Machines
- Gas Stations
- Convenience Stores
- Liquor Stores
- Grocery Stores
- Other Retail Stores
Restaurants, Bars, & Food Service make up another 23% of all sales.
manufacturing companies account for 4% of sales.
The balance of 12% are miscellaneous business sectors.
Service companies account for 38% of all businesses sold. This sector is comprised of businesses, such as:
- Auto Repair
- Beauty Salons
- Barber Shops
- Dry Cleaners
- Medical, Dental, and Healthcare businesses
Why does industry expertise matter?
For 30 years I helped businesses increase the value of their resources through retail, B2B, and indirect distribution. Through this experience I’ve gain insight into what management must do to succeed across a wide spectrum of business sectors. I apply these principles in my communications with sellers and buyers. This creates a common language that cuts through the fog, clarifies the value of your business, and help buyers visualize the growth opportunities.
DOWNLOAD OUR FREE ‘ROAD MAP TO SELLING YOUR BUSINESS’
In our Road Map To Selling Your Business you will discover how to get what your business is worth by offering The 12 Things that Matter Most to Buyers. —el
How can buyers find financial help?
Small Business Loans & SBA Loans
affiliation with financial sources
Through our affiliation with Ironhorse financial services we can help provide business solutions to the aspiring business buyer. Ironhorse knows a good opportunity when they see one and they’ll do everything in their power to help buyers seize it. If you’re a buyer, who is facing challenging fiscal obstacles, they want to talk to you. Their small business loans flow through the pipeline fast and easy, so you can forget about finances and get back to what matters: performing the due diligence required to buy the business.
Details About Their Small Business Loans
Ironhorse offers two distinct SBA loan programs for qualifying businesses: 7(a) and 504. With our 7(a) program, almost any type of business is eligible for financing through the Small Business Administration guarantee. Eligibility is determined by SBA size criteria.
Their 504 loan program is also backed by the Small Business Administration. With this option buyers can obtain:
- Flexible terms
- Fixed or variable interest rates
- Structure options for large projects up to $12,000,000
- Mortgages with great rates and term options
- Equipment acquisitions up to 80% financing
- Real-estate acquisitions up to 90% financing.
Fast Tracking Your SBA Loan Requests
As a ‘Preferred Financial Services’ company, Ironhorse can fast track SBA loan requests to cut through the red tape of traditional lending channels to get you the funding your business needs quickly and efficiently. Our preferred financial services status also gives us the ability to get business buyers the most favorable terms and rates on SBA loans.