Selling A Business
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Is It Time To Sell?
Selling your business is a major decision! You have devoted your time, money, and energy into building, running, and operating your business. It may well represent your life’s work. If you have already decided that now is the right time to sell, you want the very best professional guidance you can get. This is when working in tandem with a professional business broker can make the difference between just getting rid of the business and selling it for the very best price and terms!
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Most Common Topics & Questions
If you’ve gone this far, then selling your business has created enough curiosity that you are taking the first step. You don’t have to make a commitment at this point; you are just getting informed about what is necessary to successfully sell your business. This section should answer a lot of your questions and help you through the maze of the process itself.
What Is My Buisness Worth?
The first question almost every seller asks is: “What is my business worth?” Quite frankly, if we were selling our business, that is the first thing we would want to know. However, we’re going to put this very important issue off for a bit and cover some of the things you need to know before you get to that point. Before you ask that question, you have to be ready to sell for what the market is willing to pay. If money is the only reason you want to sell, then you’re not really ready to sell.
It doesn’t make any difference what you think your business is worth, or what you want for it. It also doesn’t make any difference what your accountant, banker, attorney, or best friend thinks your business is worth. Only the marketplace can decide what the value of your business is.
Do You Really Want To Sell This Business?
The second question you have to consider is: “Do you really want to sell this business?” If you’re really serious and have a solid reason (or reasons) why you want to sell, it will most likely happen. You can increase your chances of selling if you can answer yes to the second part of this question: “Do you have reasonable expectations?” A yes answer to these two questions means you are serious about selling.
The First Steps
Okay, let’s assume that you have decided to at least take the first few steps to actually selling your business. Before you even think about placing your business for sale, there are some things you should do first. The first thing you have to do is to gather information about the business.
Here’s a checklist of the items you should get together:
- Three years’ profit and loss statements
- Federal Income Tax returns for the business
- List of fixtures and equipment
- The lease and lease-related documents
- A list of the loans against the business (amounts and payment schedule)
- Copies of any equipment leases
- A copy of the franchise agreement, if applicable
- An approximate amount of the inventory on hand, if applicable
- The names of any outside advisors
If you’re like many small business owners, you’ll have to search for some of these items. After you gather all of the above items, you should spend some time updating the information and filling in the blanks. You most likely have forgotten much of this information, so it’s a good idea to really take a hard look at all of this. Have all of the above put in a neat, orderly format as if you were going to present it to a prospective purchaser. Everything starts with this information.
Make sure the financial statements of the business are current and as accurate as you can get them. If you’re half way through the current year, make sure you have last year’s figures and tax returns, and also year-to-date figures. Make all of your financial statements presentable. It will pay in the long run to get outside professional help, if necessary, to put the statements in order. You want to present the business well “on paper.” As you will see later, pricing a small business usually is based on cash flow. This includes the profit of the business, as well as the owner’s salary and benefits, the depreciation, and other non-cash items. So don’t panic because the bottom line isn’t what you think it should be. By the time all of the appropriate figures are added to the bottom line, the cash flow may look pretty good.
Prospective buyers eventually will want to review your financial figures. A Balance Sheet is not normally necessary unless the sale price of your business would be well over the $1 million figure. Buyers want to see income and expenses. They want to know if they can make the payments on the business (more on this later) and still make a living. Let’s face it, if your business is not making a living wage for someone, it probably can’t be sold. You may be able to find a buyer who is willing to take the risk, or an experienced industry professional who only looks for location, etc. and feels that he or she can increase business.
The big question is not really how much your business will sell for, but how much of it can you keep? The Federal Tax Laws determine how much money you will actually be able to put in the bank. How your business is legally formed can be important in determining your tax status when selling your business. For example: Is your business a corporation, partnership or proprietorship? If you are incorporated, is the business a C corporation or a sub-chapter S corporation? There are also tax rules that impact certain businesses on seller financing. The point of all of this is that before you consider price or even selling your business, it is important that you discuss the tax implications of a sale of your business with a tax advisor. You don’t want to be in the middle of a transaction with a solid buyer and discover that the tax implications of the sale are going to net you much less than you had figured.
Make Sure The Financial Statements Of The Business Are Current and Accurate
If you’re half way through the current year, make sure you have last year’s figures and tax returns, and also year-to-date figures. Make all of your financial statements presentable. It will pay in the Most buyers are seeking to obtain the following when considering the purchase of a business:
- Pride in the service or the product
- Control of own destiny
- Customer and employee contact
Do you have more questions about selling a company? Check out our FAQ’s for more information.
- Why should I sell my business instead of close the doors?
- How do I know what my business is worth?
- How are businesses priced?
- What is the process to sell a business?
- How do you keep the business sale confidential?
- What happens when a buyer makes an offer?
- Why should I go to a business broker?
- Do I need an attorney?
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Our office is Located at:
7401 S. Bitterroot Place STE 202, Sioux Falls, SD 57108