It takes time, planning and money to start and run a business. And it takes the same to sell a business. So why do most small business owners attempt to sell without a plan? The primary reason is because they don’t know how or where to begin. Owners often turn to “trusted advisors” like their accountant or lawyer… only to find they have limited knowledge in the field of selling business (their real job is to practice accounting, tax and/or law) or they turn to brokers who are typically a “list and see” services (like selling a house). No matter how large or small the business is, if the owner wants the best possible price under the most favorable terms, a comprehensive selling or exit plan is paramount. The plan should include; how to identify the universe of buyers, how to keep confidentiality, maintain or grow the business while in the same time work with buyers, due diligence, financing, selling memorandum and of course financial documentations and support necessary to demonstrate the viability of the business.
2. MOST SMALL BUSINESS OWNERS DON’T KNOW HOW OR WHERE TO FIND “REAL AND TRUE” QUALIFIED BUYERS.
It takes continuous advertising (and lots of it) to find potential business buyers. Most small businesses (and brokers) turn to local newspapers or online advertising to find buyers. Newspapers and online advertising are ineffective because they allow for very limited information, are short term, (thrown away) and most serious buyers are not looking in the newspapers or online to buy businesses. Sure, there are “bargain raiders” looking in the paper who want to steal the business. But real qualified buyers turn to experts for assistance in business acquisitions. Marketing for business buyers must be a 24-hour a day 365 day per year process in order to bring multiple qualified buyers with the ability (money and/or credit) and true desire to buy the offered business. Buyers could be across the street or across the globe but will never know you exist unless you let them know you’re there.
3.MOST SMALL BUSINESS OWNER HAVE AN “IDEA: OF WHAT THEY BUSINESS IS WORTH BUT CANNOT DEFEND, PROVE, JUSTIFY AND DOCUMENT THE ASKING PRICE.
Demonstrating the true value of the business is one of…if not the most difficult and important task in the selling process. If the owner cannot prove the asking price or show the true viability of the business, the buyer simply will not or cannot pay the asking price. In the selling process, the seller will always be asked to provide tax returns and financial statements. Because all small businesses attempt to minimize tax, the returns are not a good basis for determining the real value. If the owner sells the business based on “book value” and taxable income and cannot demonstrate the true underlying value to the buyer, the business seller could be leaving thousands of dollars on the closing table, force the buyer and the buyers’ banker to make those determinations and/or may not be able to find interested parties at all. The solution to this dilemma is to properly document the business using industry norms/standards and “recasting” business valuations techniques.