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When you started your own business, you probably weren’t thinking ahead to the day you would sell it.?
But after years of hard work spent building your enterprise into a success, that time has now come. You’d like to cash out and move on to the next phase of your life.
Selling your business, usually, is a one-time event. Unless you start and sell several businesses over the course of your career, you’re probably not going to have the benefit of experience to guide you. So, you’ll listen to some advice.
Regardless of the type of business you have, know that there are fundamental issues you’ll have to deal with when selling out. Here’s a look at five of these issues, with tips on how to confront them
1. Determine a value, factoring in your bottom line. The first step in selling a business is determining what it’s actually worth. There are lots of formulas for valuing a business. Buyers may base a purchase offer at least in part on the value of the assets in your business, the cash flow, gross revenues, annual growth and other factors .No matter how many numbers are cranked into how many equations, sale prices typically depend on profits, says Vivian Evans , a business broker based in Mendocino. “Usually, you can figure on the value of your business being driven by its bottom line,” Evans says. “The sale price is almost always a multiple of the business’s profit.”That multiple varies from industry to industry and business to business. But the multiple will be considered whether the buyer is an individual who wants ownership of a company or a larger organization searching for strategic acquisitions.”When you’re talking about smaller businesses with no more than 25 employees, you can probably figure that about three-quarters of the buyers are going to be people looking to purchase and operate their own company and earn [a living] from it,” Evans says.Coming up with a value for a business is a little like coming up with a sale price for any product or service: There’s a lot more to do before you actually make a sale. Read on.
2. Figure on recasting your financials. Many small businesses show little profit. That’s good for tax purposes, but bad when it comes time to determine the value of what you’ve built. You want to show prospective buyers the business in the most positive and accurate light possible.Evans often recommends that his clients have their tax pros recast profit-and-loss statements to reflect adjustments for what the business owner takes out of the business in terms of salary, health care and other benefits, and automobile expenses and other perks. This can be especially useful when dealing with a buyer who would operate the business himself.
3. Don’t count on a cash sale.
Business sales pros say that more than half of all small-business owners finance the sale of their businesses. You could find yourself lending as much as 70% of the purchase price to the new owner.Terms on these financing deals vary, but many owners and buyers agree on payoff periods of four to five years. Part of the process will involve getting information on the buyer’s financial records and background, just as the buyer will need information on your business’s history.
4. Keep it quiet. Letting other folks know that your business is for sale can be a big mistake. I’ve talked with small-business owners who’ve told me that when their suppliers heard that the business was for sale, lines of credit were pulled and all orders were filled only on a cash-on-delivery basis.”There’s a tendency toward letting key employees know that your business is for sale,” Evans says. “What can happen is that they start telling other people, including other employees, and before you know it your employees are sending out resumes and looking to leave the company. Since good, experienced employees are part of the assets that are transferred in a business, this all can be very costly.”
5. Use a broker. A good business broker can help you determine a realistic price for your business. He or she also can identify and qualify appropriate buyers, put together a sales prospectus, negotiate terms of a sale, and maintain your business confidentiality so that only prospective purchasers know your business is on the block. You’ll probably also want to work with your tax pro, attorney and other experts to make sure that all aspects of a sale are handled properly. You can start the search for a broker by talking with other small-business leaders, checking your local phone directory under “Business Brokers,” contacting state business and business broker associations, and contacting the International Business Brokers Association.
Ask for references. Past projects may be the only way to judge a contractors work. (I’m proud of my past projects and I encourage people to contact my references). Here are a few questions you might like to as:
- Was the project completed in a timely and business-like fashion?
- Did the financial arrangements go smoothly?
- Were they happy with the quality of the workmanship?
- Would they use the contractor again?
When considering different contractors, here are a few questions to ask yourself:
- Do you feel comfortable with this contractor? Will you have a person and business-like relationship?
- Is the contractor qualified and capable of the project? Can he maintain your standard of quality?
- Does the contractor carry Workers Compensation Insurance and General Liability Insurance?
- Does the contractor provide a written proposal with fair, honest prices?
- Can the contractor work with changes in the project? Often changes in design can be made prior to the actual building and can be made to the owner’s advantage. (I try to be flexible).
- Is the contractor efficient with time and materials?
TYPES OF FINANCIAL ARRANGEMENTS USED: Bids and Cost Plus Contracts
BIDS: A bid is a proposal to complete a project for a specified amount of money. All aspects of construction must be described as closely as possible. Types of doors, windows, cabinets, etc. should be described or allowances given for the unknown amounts. Scheduled payments are also stated in the proposal.
- Advantages: The total costs are already known.
- Disadvantages: Less room for flexibility, overall cost may be higher due to contingencies.
COST PLUS: Simply put, the cost of labor and materials for the job, plus a percentage for the contractor’s profit and overhead.
- Advantages: More flexibility. Decisions and changes can be made throughout the project: you pay for the actual cost of the project.
- Disadvantages: You must trust that the contractor is trying to find the best prices for materials and subcontractors.
PRIORITIES AND POSSIBLILITIES
Here are some ideas compiled to assist you when planning to build a house, and addition or to remodel:
The first question I am most frequently asked is “What can you build a house for, per square foot?” This is a difficult question, due to the design, the building site, the building materials, and the fixtures to be used (bath tubs, cabinets, heating systems, etc.). All of these aspects are unique to an n individual project.
Priorities are very important. One thing I suggest to people is to list their priorities when planning a project. Some ideas to consider might be:
- Large square footage
- Custom cabinets
- Interesting design
- Cast iron tub and sinks
- Special views
- Custom tile work
- Large closets
Unless you have limitless funds, priorities should be established in the planning stage. To get ideas look in magazines, look at other houses and talk to friends.
With some projects, not all of the funds are available to complete the project as the owner would wish. Sometimes rooms can be left temporarily unfinished. If you plan to add on a room at a later date, this should be considered in the original plans. This will allow the addition to be easily added and be complementary to the rest of the house.
Location of the house on the site would be considered in the planning stage. Orientation to take advantage of the sun and view should e discussed.
Many types of materials are available, creating many possibilities when building, but a high level of quality should always be maintained.
I hope the ideas on these pages have been helpful and given you some things to think about. I have been building ton the coast since 1978 and I know how important a good reputation is. I strive to give the most for your money when it comes to quality, whether you are building a house, an addition or remodeling. If I can be of any, give me a call.
Also, please check out my website (thorntonconstructionmendocino.com) for information about my company, past projects and testimonials from my clients. I look forward to answering any of your questions and working with you.
GENERAL BUILDING CONTRACTOR
CA LICENSE # 570578
TELEPHONE 707 937-0424
POST OFFICE BOX 599 ALBION, CALIFORNIA 95410