Selling A Business:
Thinking about selling your company? Every business owner should have an exit plan. Of the close to one million businesses that will change hands this year, most will involve privately held companies selling for $100,000 to $15,000,000. Yet, until business owners experience a merger or acquisition, few will know what to expect or how to proceed. In the lives of entrepreneurs, few events are more emotional, or significant, than selling their business. Entrepreneurs should always be thinking about the possibility of selling. The smart business owner should start planning for a sale and create a file labeled “Sale of the Business” years before they have any meaningful intention of selling. Set forth below are some questions frequently asked by existing business owners.
When Is The Best Time To Sell?
The optimum time to sell is before you are forced to do so by health or financial reasons. This places you in the strongest negotiating position. You should actively start the process at least one to two years before you want to complete the transaction, because it usually takes at least 6 to 12 months to sell a business, and the buyer may ask you to stay on for a transition period. Additionally, depending on the quality of your financial records, it may take a year or more to properly position your business for sale.
How Do You Determine How Much A Company is Worth?
There is no simple method. But to approximate the value of your business, you should consider both its assets and earning power. The appraised or fair market value of assets provides the minimum price you can expect. Earning power is a function of annual earnings, with expenses due to private ownership, added back to profits. This “Adjusted Profit” is divided by the appropriate capitalization rate, usually in the 25 to 50 percent range. Most buyers and lenders place extensive weight on the company’s ability to generate earnings. As in most things in life, demand will also influence value. For example, technology businesses commanded a larger premium several years ago than they do today.
How Do You Get The Best Price And Find The Right Buyer?
To maximize your price, you need a steady record of profits, hard assets on your balance sheet, a proprietary product line or a strong market position, and backup management that can run the business in your absence. Good accounting records are one of the most critical tools in maximizing value. Most offers don’t appear out of the blue…they must be solicited. Discretion and confidentiality are usually crucial. Key employees, customers, and suppliers have been known to vanish if a company’s future seems in doubt. Although employees and competitors may be buyers for a business they often pay lower prices than third party buyers. An experienced business broker will work with you to develop a customized marketing plan to help maintain confidentiality.
Why Is Confidentiality Important?
If it becomes known that a business is for sale, it can be destructive to the relationships the business has in place among its employees, creditors, competitors and customers. Weakened relationships can deteriorate a company’s position and thereby make it less valuable. In order to help maintain confidentiality, we require that all buyers sign a non-disclosure agreement and a buyer profile prior to releasing any confidential information about your business. Only a limited amount of information should be disclosed prior to determining if the potential buyer is either legitimate or capable of completing the transaction.
Should You Seek The Assistance Of A Business Brokers?
Selling a business can be a long and time-consuming job. Generally, the best thing an owner can do is manage his business profitably while engaging an experienced intermediary to prepare a presentation package, screen prospective buyers, negotiate and evaluate offers, and perform the myriad of other necessary tasks associated with the selling process. In addition, an outside party brings objectivity and can act as a buffer between the buyer and you.
Selling a business is a difficult undertaking. An owner trying to sell himself or herself may find themselves distracted from his or her most important responsibility, running the business. If the sale is not handled properly, the process can damage the business irreparably. What if competitors find out the business is for sale? What about employees? Suppliers? Customers?
We believe experienced, professional expertise is necessary to sell a business. Inexperience can be a terrible handicap in such an important endeavor. For the process to work, potential buyers need to be first identified, then qualified, before any information about the business is disclosed. The buyers need to be followed-up after presentations are made. An owner following a buyer may weaken his or her negotiating strength. A third party, such as a broker, is useful because of their relative objectivity and experience, especially when the process gets delicate.
A full-time, professional business broker with extensive experience, references, and a pool of buyers already qualified, who has the experience and resources to efficiently and effectively sell businesses, working with an owner and his or her advisors is the best combination to sell a business. At KeyStone, most of our representatives have owned their own business before becoming business brokers. We have been in your “shoes”. We understand your concerns and your goals.
If you are considering selling your business, call Keystone Business Advisors. for a confidential (no cost or obligation) appointment and interview. We will explain our services, our commission, what your business is worth and if we feel we can help you.