Questions Owners Often Ask about Selling their Business
What Owners Want to Know About Selling Their Company
1. How much is my business worth? I’m uncomfortable with Mr. Schmerler’s answer: “…the price a Buyer offers you that you are willing to accept.” I feel a more complete explanation is: “A business is worth whatever the buyer, seller, and banker agree its worth. However, without significant extenuating circumstances, the maximum value is based upon the probability the business will produce a steady stream of cash flow sufficient to pay off the acquisition debt. And, that probability is based upon prior years’ actual performance.”
2. How long will it take to sell my business? The average time for businesses selling for less than $1 million is seven months from listing to closing, and nine to twelve months for companies that sell for $1 to $5 million. However, price and terms sell a business. The lower the price, the more affordable the business will be. The lower the down payment, the more people will be able to consider it. The greater the amount of owner financing, the easier/quicker the business will be to sell.
3. Is there anything I can do to make my business more desirable? The most important thing you can do is to put your ego aside and not make the business dependent upon you. This means that you want to hire and keep employees that make your customers happy with high quality work and excellent customer service – with as little direct involvement by you as possible.
4. Is there anything I should not due during the listing period? The simple answer is that you should not slack off in any way. You need to stay focused and operate your business as if you are trying to grow it for a future sale. You need to work hard, no matter how burned out you feel. Do not make any major changes. Try to retain all good and excellent employees, and remove those that are not contributing as they should. Try to keep your inventory fresh and eliminate any obsolete items. Keep your accounts receivable and accounts payable current. And, keep your equipment and machinery well maintained and properly functioning.
5. What is due diligence? It is the process where the buyer examines all your books and records, gets approved by the landlord, and (if applicable) by the franchiser, licenser, bank, etc. Your books and records need to be current and “bullet proof.” You need to remain current on your payroll, sales, state income, federal income, and all municipality taxes. Your various licenses need to be current, whether or not the buyer will have to apply for their own. You want to fully disclose everything, and not leave any skeletons in the closet. Its far better for you to reveal all, with an explanation, then to have the buyer find them – and question your integrity.
6. What else do you suggest I do to impress a Buyer? Have a job description for each employee. Put together a Policies and Procedures Manual. This will make any buyer feel more comfortable about taking over the reins. Make sure all your employee reviews are current. Prepare a business plan and/or marketing plan to show the buyer how he or she can grow the business. Put together a transition plan that shows the buyer how you will assist them daily for a period of one to three months. The buyer may not want you for the full transition period, but at least you are showing that you have thought it through and are willing to make yourself available.
7. What happens if I agree to do some owner financing and the Buyer misses a payment? The way your attorney prepares the paperwork, if a buyer misses a rent or note payment, that should be considered an event of default. This will allow you to take back the business or enter into serious discussions to protect your financial interests. While the best outcome is for you to get fully paid and the buyer to be successful, you must plan for the worst, and hope for the best. But, you should never sell your business to a person you feel will not treat your employees, customers, clients, or vendors properly. If you ever get a knot in your stomach during the negotiation, have your advisor gently explain to the Buyer that you do not feel it is a good fit – and don’t want to continue the process toward closing.
To read the entire article prepared by Loren Marc Schmerler, founder and president of Bottom Line Management, click HERE.
The Summit Acquisitions Group — Business Brokers and M&A Advisors — specializes in the sale, appraisal, and financing of privately owned companies ranging in valuation from $750,000 to $25,000,000. Contact their offices in Atlanta, GA or Charlotte, NC for a free consultation.