1. Not knowing what the business should sell for One of the most costly errors a business owner can make is not knowing the approximate price of his or her business prior to entering the selling process. Although the marketplace ultimately determines the final price, an owner needs to know what the approximate price his or her business is prior to placing the business on the market. Before making the decision to sell, owners should work with someone qualified to place a price on their company. An experienced business broker has both the technical ability and the market experience to produce the most realistic pricing opinion. The business broker will also be the only alternative for supporting his or her opinion by selling the business. Fair Market Value Asking Price is what the seller wants Selling Price is what the seller gets Fair Market Value is the highest price the buyer is willing to pay and the lowest price the seller is willing to accept. 2. Not preparing the business … [Read more...]

Buyers Want Cash Flow The first thing to keep in mind is that the vast majority of buyers want to buy cash flow. Sit down with your accountant or bookkeeper and begin to get your financial statements in order with cash flow the order of business. Cash flow is not the same thing as profit. Most buyers look at the profit and loss statement or tax return, and look at owners or family compensation. They will consider any excess compensation to employees and family members. Buyers will also look at large one-time expenses such as a new computer system, or remodeling. They will consider non-cash items like depreciation and amortization. Interest expenses will be reviewed, as will owner perquisites. These are items that a professional business broker considers when advising a selling client on a suggested selling price. Appearances Do Count The time to replace that old worn-out piece of equipment is before you decide to sell. Don't assume that a new owner will want to do it or that the … [Read more...]

Owners are often asked, "do you think you will ever sell your business?" The answer varies from, "when I can get my price" to "never" to "I don't really know" to everything in between. Most sellers may think to themselves when asked this question, "I'll sell when the time is right." Obviously, misfortune can force the decision to sell. Despite the questions, most business owners just go merrily along their way conducting business as usual. They seem to believe in the old expression that basically states, "it is a good idea to sell your horse before it dies." Four Ways to Leave Your Business There are really only four ways to leave your business. (1) Transfer ownership to your children or other family members. Unfortunately, many children do not want to become involved in the family business, or may not have the capability to operate it successfully. (2) Sell the business to an employee or key manager. Usually, they don't have enough cash, or interest, to purchase the business. And, … [Read more...]

Do have all of your business documentation ready. Everything starts with it. Don't underestimate the value of your business. Owners of privately held businesses usually minimize profits to lower taxes. The financial statements may not reflect the real value of the business. Don't overprice your business. The right buyer who is willing to pay the right price may not even want to consider your business because the price is way out of line. Do offer as favorable terms as you can. Buyers, even good ones, want to leverage the sale as much as possible. Don't use a "magic" formula to value your business. Your business is unique, different from every other business out there. Don't wait too long to sell. The best time to sell is when business is good. Don't wait until poor health or a downturn occurs - sell from strength! Do allow at least six months to sell your business. The larger the business, the more time you should allow. Do use a business broker. They can take the mystery out … [Read more...]

Some of you might remember the commercial for one of the major airlines in which a business lost a major client, because they never saw anyone from the company. The president handed out airline tickets to the entire sales staff so they could go out and visit the customers. When asked what he was going to do with the remaining ticket he replied that he was going to go see the lost client. And, a recent study revealed that customers really want contact with the business owner. In fact 83 percent of the decision makers want personal contact with salespeople. Both of these examples point out the importance of customer contact. From the small shop owner to the CEO of a large company, meeting with the customers is still the smart way to go. With today's technology, it may be easier to fax, telephone or e-mail a customer or client, but is it really the best way to contact that person? Remember how good you feel when the owner of a restaurant comes to your table and asks how everything is. … [Read more...]

In the day-to-day activity of making a business work, many owners overlook the importance of the buy-sell agreement. This document (also referred to as a business continuity agreement) is like a will; no one thinks about it until it's too late. However, it may just be the most important written agreement or document you ever create. If your business has more than one owner, either partners or stockholders, what happens if one or more of them dies or "wants out"? The same thing holds true in family-owned and operated businesses. A buy-sell agreement can dictate the transfer of business ownership under certain events as described within its specifically-written language. The well-drafted buy-sell agreement is designed to prevent the following: The sale of the company because one of the partners or stockholders desires to exit the business and no one can agree on the price or the terms; The necessity to sell or dissolve the business due to the lack of a written agreement determining … [Read more...]

For every reason that a pending sale of a business collapses, there is a positive reason why the sale closed successfully. What does it take for the sale of a business to close successfully? Certainly there are reasons that a sale might not close that are beyond anyone's control. A fire, for example, the death of a principal, or a natural disaster such as a hurricane or tornado. There might be an environmental problem that the seller was unaware of when he or she decided to sell. Aside from these unplanned catastrophic events, deals abort because of the people involved. Here are a few examples of how a sale closes successfully. The Buyer and Seller Are in Agreement From the Beginning In too many cases, the buyer and seller really weren't in agreement, or didn't understand the terms of the sale. If an offer to purchase is too vague, or has too many loose ends, the sale can unravel somewhere along the line. However, if prior to the offer to purchase the loose ends are taken care of and … [Read more...]

There are several things to consider when buying or selling a business. The most important is to listen to the other side. There are always reasons why someone wants something - even if you don't agree at first. Find out where the other side is coming from, then make a decision on whether you can live with it or not. Next, whether you are the buyer or the seller, you can not have everything your way. You can't win on every point or issue. Be prepared to give in on those areas that are not as important as those you feel most strongly about. If you are a seller, you may not be able to get a real high price and a real high down payment. You will have to decide which is more important. The same is true for the buyer. You can't have it both ways. Always enter the purchase or sale of a business with a spirit of cooperation rather than one of confrontation. The buyer or the seller, as the case may be, is not the enemy. If the seller wasn't interested in selling, the business would not be … [Read more...]

The buyer and seller have both agreed on the sale price and the terms of the transaction. Everyone appears satisfied. As the day of closing approaches, the seller seems less cooperative and more apprehensive about selling the business. Ultimately, the sale falls apart. Who's to blame? The buyer was ready, willing and able to buy the business, and the seller appeared ready to sell. The decision to sell one's business is a serious step - a milestone in one's life, both personally and professionally. Selling represents the end of ownership. It means, for many sellers, heading into uncharted waters. For others, it is the end of a dream -- they built the business, or perhaps even started it. A part of them will always be in the business. So, to the seller, selling the business, represents the end of something and the beginning of something else - pretty dramatic stuff. Often, selling the business means parting with one's biggest asset - the bulk of one's wealth. The business can be a very … [Read more...]

If you are considering selling your business, remember that there are positive factors that influence value and those that detract from it. Looking at your business from a buyer's perspective is important since a prudent buyer will be adding and subtracting these various factors when arriving at an asking price. It is perhaps more important to recognize when the buyer arrives at a price at which he or she will leave the negotiations. Buyers naturally try to buy the business at the lowest possible price possible, however most also have a top price over which they are probably not willing to go. Here are some of the "high value" indicators as well as some of the "low value" indicators to consider when evaluating your business. Indications of High Value High sustainable cash flow Room for the business to grow Anticipated industry growth Competitive advantage - location, area, etc. Business niche History and reputation Low failure rate in industry Modern, well maintained … [Read more...]