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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.