Why sell your business?

There are many common reasons why you would want to sell your business:

• It's time for you to retire
• You've received one or more purchase offers; maybe it's time to do something else
• Your health is making it difficult to continue running the business
• The competition is growing; your sales and profits are declining
• You'd like the business to continue without estate taxes wiping out your estate
• You have one or more other businesses you'd like to concentrate on
• New technology has changed the market
• Your business is not producing enough profit for the amount of time you devote to it
• Your partner(s) or key employees have exited
• You've discovered that you're not enjoying the work and responsibility anymore
• You've lost some major customers or suppliers and can't find replacements

Whatever your reason(s), here are your options:

• Give or sell the business to one or more family members
• Sell the business to a third party
• Liquidate the business and sell the assets
• Have the business file for bankruptcy if liabilities exceed assets

You must choose your option carefully and with professional advice. Even if you don't intend to sell your business soon, it's wise to have an exit strategy in place because no one can accurately predict what may happen in the future.

How much is your business worth?

The value of your business is based mainly on its financial condition and goodwill.

Typical factors used to determine the value of a business are its cash flow, profit margins, earnings before interest and taxes (EBIT), earnings before interest, taxes and depreciation (EBITD), amount of debt, interest rate on that debt, costs of renting or leasing, and whether or not key employees will remain after the business is sold. Whether or not you will remain with the business may also be a factor.

Fortunately for sellers, most successful businesses also have an intangible asset known as goodwill. This is the reputation your business has built up over the years, your customer lists, your loyal and hard-working employees, your relationship with suppliers, and so on. Putting a dollar figure on all this is difficult, but it's certainly worth something over and above what the tangible assets alone are worth. And the more goodwill your business has, the more likely it will continue to be successful under a new owner.

Selling price is based on one or more of the following:

• What similar businesses, with similar assets, are currently selling for
• Total assets, including book value, goodwill, and/or liquidation value
• Future earnings potential
• Historical earnings, including the capitalization of earnings or cash flow, gross income multipliers,
debt-paying ability, and dividend-paying ability

Can your business be sold?

If there are assets and customers, almost any business can be sold.

In fact, we are currently experiencing one of the healthiest buying markets in recent history.

Whether or not your company will sell is determined by:
• Your company's financial health
• How well your company's positioned in the market
• Ease of transition for a new owner

When should you sell your business?

It's almost impossible to predict the best time to sell your business.

There are many different factors that go into the timing of selling a business. For example, external factors, especially unexpected ones, may affect the operation of your business and its future value. A hurricane, flood or fire may destroy the building you're in. Traffic patterns may change and if walk-in business is vital, sales may rise or fall. Equipment may require costly repairs, updating or replacement while your inventory may become dated or obsolete. Competition, suppliers, government regulations or the economy can adversely affect revenues, income and profitability. Conditions may remain the same during the next year or two, but the longer you wait, the more likely conditions will change, perhaps adversely.

How do you prepare?

Selling a business is much more complex than selling a product, service, or a piece of property. You will need to find answers to questions like these:

• What experts should you call for advice and how will you find them?
• How will potential buyers determine a price to offer?
• How do you position the business for the highest price?
• How do you find potential buyers?
• What can a professional business broker do to help you sell your business?
• What are the tax implications of the various options available to you?
• Should you consider seller financing, third-party financing, or a leveraged buyout?
• What should you know about a letter of intent, due diligence, closing details, etc.?
• If you have partners, shareholders, or officers, what must you do before you sell?
• Should you still be involved, in some way, after the business is sold?

Who buys businesses?

There are 3 main types of buyers:

1. Company insiders — current or former employees, family members or friends may know all they need to know about the business. However, they may lack enough money to buy it outright and you may be asked to personally finance some of the transaction. If there are numerous employees, selling to a group via an ESOP may also be possible.

2. Financial buyers — individuals or firms who wish to buy a cash-generator. They look for companies that are successful, expertly-managed, reasonably trouble-free and can be run with little or no changes. Some buyers in this category will want to get personally involved in the operation, while others are content to leave the current management in place. There are also buyers who specialize in turnaround situations and look for businesses that are not profitable but have potential.

3. Strategic buyers — companies that are in the same or a related field. Perhaps they're a local competitor, a similar company elsewhere, a supplier, or even a major customer of yours. They may be seeking to expand, reduce costs, or obtain additional outlets or distribution channels for their products or services.

What information will you need to share?

The information requested is unique to each business and how they operate.

Before sharing any information about your company, it is essential to have the appropriate confidentiality and non-disclosure agreements in place with all parties involved. A typical transaction can involve sharing the following details of your business:

• Operational procedures
• Current and historical financial data
• Updated customer and vendor lists
• Inventory and equipment lists
• Sales and marketing methods
• Copies of current contracts and agreements

Who can help you sell?

A team of experts can help you sell your business faster and for more money.

Selling a business is much more complex than selling a product, service, or a piece of property. No matter what its size or type, you must take into account the latest federal, state and local regulations, legal contracts, financial concerns, employee considerations and much more. Randomly estimating a selling price and running a for sale ad rarely leads to a successful transaction.

Here are the experts you will need:

1. Business broker
A business broker will assist in marketing your business and help align the right resources for a successful transaction. A business broker can not only perform his or her own duties effectively, but can also assist in putting together the right team to get you the best deal.

A business broker can help you:
• Establish a selling price
• Prepare a selling memorandum — a marketing piece promoting your company
• Find, select and screen potential buyers while maintaining confidentiality
• Structure the sale, terms and financing
• Define your future involvement if any
• Negotiate terms, type of financing, sale or transfer of assets, leasing, etc.
• Create, renew or transfer contracts and other agreements relevant to the business
• Prepare an employment or consulting contract if you'll be involved after the sale
• Prepare a non-compete agreement if you will not be involved after the sale

2. Accountant
Whether or not your current accountant is qualified and willing to help you sell your business, he or she will be called upon to: prepare audited and projected financial statements, collect and present data needed to place a proper value on your business and suggest ways for you to increase its actual or perceived value.

3. Attorney
An attorney will be needed to review and create the legal documents required for a successful transaction. If you have a business attorney, it is possible that he or she specializes in mergers and acquisitions. If not, it would be wise to hire an expert with adequate experience to ensure proper deal structure for your protection. In some cases, you will be expected to sign a retainer agreement and pay some fees up-front.

4. Certified business appraiser
Although a business broker can usually give you a fairly accurate range of values for your business, you may want to hire an experienced business appraiser who can provide an accurate third party valuation that can be presented to buyers and banks. This will justify your asking price, and help buyers obtain financing.

5. Tax expert
An essential part of your team, a tax expert knows the latest IRS rules and regulations and can help structure the deal to minimize or (perhaps) even avoid taxes. To take maximum advantage of tax-saving strategies that may require several years to achieve, you may want to hire a tax expert first.