If you have a small business that you plan on selling, then no doubt you've been wondering about the process. As a business broker who assists owners through this transition, I've found there are several questions posed to me on a regular basis. Here's a few of the most important ones:
1. "What is the value of my business?"
This is the first and most crucial question to answer throughout the process. Therefore it's important to have a certified valuation completed that can inform and justify the fair market value of your business to a buyer, their accountant and their lender. You don't want to be asking too much and thus fail to sell, nor do you want to underestimate the value of your business and leave hard-earned money on the table. Ultimately the market decides, and regardless of your industry or the uniqueness of your business, a purchaser is primarily buying the cash flow. The package it comes in becomes less important than the payback period, risk and ROI. A buyer won't pay for your location, client base or name recognition if it's not translating into profit. Buyers have options and the law of substitution will always see them move on to the most cost effective alternative.
2. "How long will it take to sell my business?"
It takes on average 6 to 9 months to sell a business through a brokerage. However, the length of time will often depend upon the type of business you have, how much financing you're willing to extend, whether or not your price is market friendly and who you're using to represent your business for sale. Business owners who attempt to sell themselves find the process confusing & very time consuming and only 10% are even able to sell their business at all. Enlisting a professional business broker with a successful process and pool of qualified buyers can significantly reduce the time-frame and exponentially increase your chance of success.
3. "Why is confidentiality important?"
Business owners cannot actively canvas potential buyers or approach their industry without compromising their confidentiality and letting the world know they are for sale. When people hear a business is for sale they usually assume the worst; staff feel their jobs are at risk and may move on, customers often look elsewhere to spend their money and competitors are then free to use that knowledge to their advantage. Therefore, in order to maintain stability & saleability in the eyes of a buyer, we always ask our clients to refrain from discussing the potential sale with their staff and customers. Any issue that compromises existing operations will affect the asking price or interfere with the ability to sell your business at all. Because of this, the marketing and sale process should be firmly centered in confidentiality from start to finish.
4. "What information do I need to disclose in order to sell my business?"
In addition to a copy of the lease, current inventory status, itemized list of furniture, fixtures & equipment, you will also require accountant prepared financials for the past 3 to 5 years. Not only does a serious buyer need to understand the revenues and expenses of a business, so does their accountant and lender. By ensuring these have been properly examined by your broker and normalized to show the true cash flow, you will attract more qualified offers and increase the price a buyer is willing to offer. Not having accountant prepared financials will unnecessarily introduce a level of risk to the buyer that makes it impossible for a business to sell. You should also be prepared to disclose your tax return, client list and existing business contracts during due diligence after an accepted offer is in place.
5. "Is now the right time to sell?"
If you're ready to move on, then it's certainly the right time to be thinking about it. But that doesn't mean it's the right time to sell. You need to carefully plan for this day to ensure that your business has been prepared to maximize value. Your entire operation needs to withstand the scrutiny of a buyer and their lawyer, accountant and lender. You may have inventory or staffing issues to sort out, processes to improve, outdated systems to modernize, equipment to fix or replace, issues affecting profitability that need your attention, shareholder debt to deal with, a bad lease to get out of, renovations to undergo, unrelated assets in your corporation that would complicate or prevent the option of a share sale or any number of other issues that will decrease your value and increase the potential risk for a buyer. And depending on the size of your business, you may want to employ the consulting services of a CFO or professional succession planner who will work with you for a number of months or years to get your business to a point of optimization.
6. "Who should I use to sell my business?"
We strongly believe that using a professional business broker to sell your business will ensure the best exchange of value for all parties involved. We manage the entire process, from the certified valuation through to a successful sale, while maintaining confidentiality and maximizing value. In fact, our proven process enables us to sell your business for more than doing it yourself and with far less of a headache. We help prepare your business for sale, create a professional marketing package, screen and qualify all buyers, facilitate the offer and negotiations, manage due diligence, deal with the landlord, make referrals for lawyers & accountants and ensure the lender has all the information they require.
If you're thinking of selling your business, we would be pleased to answer your questions and assist you with this process. Let us put our expertise to work for you!
Ryan Jorden is the Managing Partner with VR Business Brokers in Calgary, Alberta, where he specializes in valuating and facilitating the sale of privately held businesses. You can reach him confidentially at firstname.lastname@example.org or visit our website to learn more. We can also connect on Twitter and Google+.