How To Sell Your Business Quickly, Get Money And Move On With Your Life

It may be the most valuable piece of advice you’re getting in your entire life. Do yourself a favor, spend five minutes reading it through and learning what does and doesn’t work for selling a small business in today’s market.

Image by Stephen Poff via Flickr

First, you have to decide whether you’re going to do it on your own or get help from a business broker. You have to be aware that the process of selling a business takes a lot of time and requires specific knowledge. Knowing your business well doesn’t make you an expert in selling it.

Simply placing ad on Craigslist won’t do you any good. I know, it may generate a lot of response and you may get a false feeling that there are a lot of potential buyers interested in your business, however majority of them are tire kickers, about 80-90%. Free advertising media, like Craigslist, although working well for selling smaller items and services, doesn’t work for selling businesses. It’s very sad and frustrating to learn that you wasted a month or so of your valuable time on unqualified buyer. And you will have many such buyers unless you know how to screen and pre-qualify them.

If you, like most business owners, have pretty hectic schedule, it will be very hard to combine running a business with servicing buyers. Every buyer assumes that he or she is the only one and requires your undivided attention. With every buyer you have to do the following.

• assure confidentiality
• screen and pre-qualify financially and professionally
• provide your business’ profile and financial statements, answer questions and explain outstanding data. Additional information may be required
• follow-up, follow-up, follow-up…
• schedule business tour
• negotiate terms of the purchase agreement
• prepare documentation and submit it to escrow
• maintain a log of activities and current status for every single buyer

In today’s buyer’s market you have to be very prompt with your communication otherwise buyers lose interest, turn around and start looking at other opportunities. When they walked away, it’s practically impossible to win them back.

If it seems like too much work to combine with running your business, you have to seriously consider getting help from a business broker. Qualified business broker will take over all the above activities and considerably minimize your interaction with buyers, as well as offer help in business valuation, advise how to prepare your business for sale and maximize the purchase price.

Obviously, you have to pay commissions for business broker’s services, around 10-12% for businesses priced under $1 million, with declining percentage as price goes up. Is it a lot of money? It depends on how you look at it.

In most cases hiring a business broker makes difference between selling and not selling your business. It’s even more so if your business is in less than perfect condition.

If your business is declining, and most businesses are in the current economy, every week of a delay causes you to lose more and more money. If you have to sell urgently due to personal or business circumstances, you don’t have time to play around. You have to get it sold as soon as possible.

Beware of hiring a real estate broker who occasionally sells businesses. Although they may charge less, they don’t know specifics of selling businesses and will do more harm than good. Ask an agent if selling businesses is his or her full-time job.

Now, as you’ve read this far, lets see how business brokers from Global Business Group, leading California small business brokerage firm, can help you to sell your business.

1. We start with business valuation (appraisal) and analysis. It is very important to correctly determine the purchase price. You don’t want to overprice your business because it won’t sell. Do not try to “probe waters”, it never works. Only correctly priced business will sell. On the other hand, you don’t want leaving any money on the table either. Global Business Group offers business valuation services free of charge to clients who decided to list with the firm.

2. Our statistics reveals that it pays off to spend more time on preparing business for sale.  It increases chances of selling, and conditions of sale are much more favorable to the business owner. Our business brokers work very closely with business sellers gathering necessary information, preparing Business Profile and re-casting financial statements, to present your business in the most attractive way to prospective buyers.

3. Means of advertising vary greatly depending on business type, size and geographical coverage. Majority of businesses are advertised with internet business listing services, like bizbuysell.com and businessesforsale.com. However, sometimes it may require to advertise with trade magazines or contact potential buyers directly. Marketing team of Global Business Group creates discrete advertisement and determines the best advertising strategy for each client individually. It’s worth mentioning that advertising with one business listing service may easily run about $40-70 per month. Global Business Group publishes ads with 8-10 major business listing services at no additional cost to our clients. Beware of business brokers asking any money upfront – it’s a BIG RED FLAG!

4. Having intermediary involved is very important for preserving confidentiality of the transaction. You don’t want business buyers starting walking around and questioning your employees, vendors or customers about your business operation and performance. It starts a rumor mill, causing vendors to revoke credit terms, employees starting looking for new employment, etc. Global Business Group never reveals our client’s business name or location until proper confidentiality agreement is signed by the buyer.

5. It’s not a secret that around 50% of buyers inquiring about a business for sale are not qualified to buy it for one reason or another. Multiply it times 25-30+ buyers and you can see how much time can be wasted. It is very important to pre-qualify every buyer early and eliminate tire-kickers. Our business brokers do it diligently with every single buyer.

6. One may assume that once inquiring about your business for sale buyers will continue their communication until he or she makes final decision. One week later, still not hearing anything back from a buyer, you start wondering what’s going on: if she is still interested, did she get the information that you sent her via email, etc. You would probably call and ask, however, you may be afraid that your call may be considered as a sign of despair, and you’re feeling that buyer should be calling you, not the other way around. Besides, if you’re working concurrently with several buyers you have to keep a very clean record of each communication, current status and follow-up activities. Yes, follow-up is very important, and organized record keeping is very important too. Our business brokers use proprietary database for record keeping and scheduling follow-up activities. As a neutral third party we can communicate with both sides without weakening your position.

7. It’s not a secret that all business owners are trying to minimize their tax liability. Sometimes small business owners charge their personal or family expenses to the business. It may work to their benefit while they run the business, however it works against them when they decide to sell. When selling, you’d like to show more income, thus increasing the purchase price. Our agents do necessary adjustments to your financial statements, reflecting correct unbiased performance of your business. They will professionally prepare Confidential Business Profile, recast financial statements and compile all necessary information about your business that may be requested by buyers.

8. Properly orchestrated negotiation can make a difference between deal and no deal. There is a lot of electricity in the air when people discuss money. Simple misunderstanding may cause an argument and terminate the deal. Having business intermediary as a neutral third party mediating your negotiations will bring calm, business-like atmosphere and assure successful outcome.

9. After the Purchase Agreement is executed by both parties most business sale transactions are closed in escrow. Majority of escrow companies do not perform business sale transactions. There are only a few selected offices with no more than one escrow officer qualified to perform this duty. Having knowledgeable and responsive escrow officer is very important. She can not only save you money, but also help with drafting necessary documentation and keep informed about escrow progress. Experienced business broker can suggest you qualified escrow company near you. Finding knowledgeable and dedicated business broker isn’t easy. Don’t rely entirely on reputation of the firm because, after all, you’re working with one particular person and your success depends on that person alone. Ask the agent how many deals he or she closed within last year and ask for references. Ask if you have the right to terminate the agreement if you’re not satisfied with their services. Walk away if you don’t have such rights.

If you feel that getting help from a business broker is worth considering, please email to info@gbgusa.com or call (888)521-4440. Ask us questions. We encourage you to ask many questions. You have to feel comfortable working with us. We think that you deserve to be rewarded for sleepless nights and countless hours you spent on your business, and will do whatever it takes to make it a reality.

Business Owner Objectives – Running Business vs. Selling Business

You’re running a small business. The rule is simple: grow your sales and keep your expenses down, right? – Not so fast…

Growing your sales and keeping expenses down increases your taxable income. No business owner likes it. Higher taxable income means sharing bigger portion of your hard-earned money with Uncle Sam. Every business owner selects his or her comfort zone in tax management activities, …and who am I to judge them.

 

You probably heard well-known quote: “Small businesses don’t make money, but their owners do”. It explains very well objective of “tax management” employed by majority of business owners*. Your business can pay for many things that you, business owner, need, thus increasing expenses and reducing taxable net income. Thus, your tax management objective is reduction of taxable net income. It may work well and provide you with decent discretionary earnings for years.

 

Discretionary cash flow is a combination of the net income and all discretionary expenses that were charged to a business, and is the only true indication of your small business’ performance. For example, your net income is $100,000, plus payments for your personal car are $25,000, personal health insurance is $10,000, and personal phone is $2,000. Your total discretionary cash flow is $137,000.

 

Now, when you decided to sell the business, your objectives are quite opposite. You need to show as much discretionary cash flow as possible because your selling price is a direct function of it. One can raise discretionary cash flow by increasing net income, or discretionary expenses, or both. Net income from your income statements matters a lot because it influences your business’ bankability. When the buyer decides to go after acquisition loan, banks will be evaluating your income statements for ability to handle new debt, and stated net income will play a big role in their decision to service the loan.

 

So, what you have to do to get the best of both worlds? Start planning your exit in advance, preferrably three years prior to sale. Get into a selling mode and start showing as much income as possible, and, yes, start paying higher taxes. Don’t worry, higher taxes will be well-compensated by considerably higher purchase price for your business. Of course, your accountant may advise you about legal tax sheltering techniques, like contibutions to a retirement plan, that will still allow you to save on taxes, yet it’s a topic for the next article.

 

So long,

 

Jacob Berenfeld

* This article discusses small and medium size private companies. Public company performance is driven by earnings, thus their objective is quite opposite.

How To Select The Right Business Broker

You decided to sell your business and to hire a business broker to professionally assist you in this uneasy task. How to select the right business broker? There are so many around: individual brokers, small offices, national franchises – go figure…

A simple truth is your success depends on skills and dedication of a particular business broker who is your listing agent. It doesn’t really matter how big is the office and how many people are standing behind the agent. You have to establish rapport, and feel comfortable working with that particular person. It can be done via telephone or in-person interview. Telephone interview will save you a lot of time, so I suggest to start with it.
One very important piece of advice – don’t hire real estate agent who occasionally sells businesses. The very first question to ask – is the broker sells businesses full time? Hire only professional business broker who sells businesses full time.

Another important piece of advice – don’t make amount of commissions to be a deciding factor in hiring an agent. Common saying “you got what you paid for” works here exactly same way as everywhere else. Business brokers generally charge between 8 and 12 percent commission for businesses priced under one million, and you definitely don’t want to get the cheapest one. By the way, if an agent is asking 6% commission, most likely she is a real estate agent – red flag! Another red flag is when agent is asking for any money upfront – no, no, and no!

Ask candidate to describe step-by-step activities that he/she will be performing for you. Make sure that you understand everything, ask questions.

At Global Business Group we start with helping you to determine the purchase price. Agents shouldn’t ask you for the purchase price, they should help you to determine one based on multitude of factors related to the business. However agent may ask you if you have a particular price in mind, just to see how close or far your expectations are from calculated fair market value. This business valuation is generally done free of charge if you’re signing a listing agreement. However, expect to pay a fee for business valuation services in case the agreement hasn’t been signed.

Ask a broker where your business will be advertized. It should be advertized with at least 3-5 major business listing services. Make sure to confirm that your business will be advertized very discretely and that every potential buyer will be asked to sign confidentiality agreement prior to getting any information about your business.

Ask business broker if she will be cooperating with other brokers. Coop is obviously beneficial to you because it increases chances of selling.

And finally, be as opened with your agent as possible. It just doesn’t make sense to lie or hide anything from him or her. You are on the same side. I always tell my clients who come to Global Business Group to be as honest and opened about their business affairs as possible. If agent knows the truth he/she can package and present it to buyers in such way that is acceptable to them.

So long,

Jacob Berenfeld

How To Prepare Your Business For Sale

Do you know that only 10-20% of small businesses on the market are sold. The main reason for such poor results is that businesses come to the market unprepared. Objectives for running a business and selling one are quite different, sometimes opposite. Thus if you decided to sell, it’s time to make some changes and prepare it for sale.

The best way to prepare your business for sale is to start it early, preferrably 1-3 years in advance. At that time it’s good to find a good business broker, see my blog “How To Select The Right Business Broker”, and consult with them how to increase your business value within remaining preparation period.

California business brokers at Global Business Group most likely will advise you to bring your records in order: financial, legal, administrative. It’s quite common for small businesses to maintain very limited documentation, not always computerized. And even if it is computerized, it maybe hard to understand because it doesn’t follow common rules. Just remember, your records will be reviewed by prospective buyers and it should make sense. Work with your accountant, attorney, etc. If you don’t have one, start searching…

It’s not a secret that small business owners try to minimize taxes by boosting their expenses, mixing discretionary expenses with business-related. Although it gives them financial advantages and minimizes tax liability while running a business, it becomes disadvantage when you decide to sell. During preparation period try to maximize your bottom line, showing as much net income as possible. Trust me, it’s worth it. Money that you may loose in taxes will be well compensated by higher purchase price. Remember, business purchase price is a direct function of its net income.

Let me make it clear. Don’t waste anybody’s time trying to claim income that’s impossible to prove. Don’t make any assumptions. Experienced business broker can advise you what income can be proven and how.

Experienced business broker can also advise you about another aspect that elevates value of a business - ease of learning and transfering operation to a new owner. You want to avoid situation where “you are the business”. In this case, if you’re leaving the business, there’s nothing left; it’s very hard to sell such business. So what you have to do is to put some infrastructure in place. If you’re currently managing business on your own, hire a manager or promote one of employees, and train him or her to handle all day-to-day business operations. In a long run it will significantly increase value of your business and purchase price accordingly.

 Moving to the next step, lets check a status of all agreements that should be transfered to the buyer. Facility lease, equipment leases, service agreements, agreements with vendors and customers, etc… Create a list and mark all agreements that have your personal guaranties. Those guaranties should be released upon sale.

Don’t leave any room for surprises. You don’t want to get all the way to the end of sale transaction just to find out that your lease is non-transferable. If you’re in position to extend existing lease or sign a new one some time prior to sale, incorporate transferability clause and try to insert as many lease options as possible.

Put together a list of assets included in sale and make it as detailed as possible. Remember to include both tangible and intangible assets. Furniture, fixtures and equipment, machinery, office furniture and equipment, software, trademarks, copyrights, patents… try to include everything.

Consult with your accountant how handle accounts receivables and payables. Is it better to include them in sale and let the buyer collect receivables and pay payables, of you’d like to do it yourself. Your purchase price shall be adjusted accordingly. Experienced business broker can advise you regarding the price adjustment.

If your business requires a specialty license from any state or federal agency, make sure get their requirement for transferring a license and requirements to a new licensee. Present these requirements to a potential buyer to make sure that they’re qualified.

There are many other aspects of your business that need to be looked at prior to sale and California business brokers from Global Business Group can assist you to putting them in order.

So long,

Jacob Berenfeld

Business Broker – 9 Reasons To Hire One

So, you’re considering selling your business. If you haven’t done it before, most likely, you’re not aware of all options and possibilities of selling. Let me help you to organize your thoughts and make the right choice.

 

First, you have to decide whether you’re going to do it on your own or hire a broker. You have to be aware that the process of selling a business takes a lot of time and knowledge. Simply placing ad on Craigslist won’t do you any good. If you, like most business owners, have pretty hectic schedule, it will be very hard to combine running a business with servicing buyers. Every buyer assumes that she is the only one and requires your undivided attention. With every buyer you have to do the following.

 

• assure confidentiality
• pre-qualify financially and professionally
• provide your business’ profile and financial statements. Additional information may be requested
• follow-up, follow-up, follow-up…
• schedule business tour
• negotiate terms of the purchase agreement
• prepare documentation and submit to escrow
• maintain a log of activities and current status for every buyer

 

In the current buyer’s market you have to be very prompt with your communication otherwise buyers lose interest, turn around and start looking for other opportunities. When they turned away, it’s practically impossible to win them back.

 

If it seems like too much work to combine with running your business, you have to seriously consider hiring a business broker. Qualified business broker will take over all the above activities and considerably minimize your interaction with buyers, as well as helping you with their expertise. Obviously, you have to pay commissions for broker’s services, around 10-12% for businesses priced under $1 million, with declining percentage as price goes up.

 

BEWARE OF HIRING A REAL ESTATE AGENT WHO OCCASIONALLY SELLS BUSINESSES. THEY DON’T KNOW SPECIFICS OF SELLING BUSINESSES AND WON’T BE MUCH HELP TO YOU. ASK AGENTS IF SELLING BUSINESSES IS THEIR FULL TIME JOB.

 

Now, lets review services offered by business brokers based on example of Global Business Group, leading California business brokerage firm.

 

1. We start with business valuation (appraisal) and analysis. It is very important to correctly determine the purchase price. On one hand, you don’t want to overprice the business because it won’t sell. Do not try to “test waters”, it never works. Only correctly-priced business will sell. On the other hand, you don’t want leaving any money on the table either. Global Business Group offers business valuation services free of charge to the clients who decided to list with the firm.
2. Our statistics reveals that it pays off to spend more time on preparing business for sale.  It increases chances of selling and conditions of sale are much more favorable to the business owner. Our business brokers work very closely with business sellers gathering necessary information, preparing Business Profile and re-casting financial statements, thus presenting your business in the most attractive way.
3. Means of advertising vary greatly depending on business type, size and geographical coverage. Majority of businesses are advertised with internet business listing services, like bizbuysell.com and businessesforsale.com. However, sometimes it may require to advertise with trade magazines or contact potential buyers directly. Marketing team of Global Business Group creates descriptive advertisement and determines the best advertising strategy for each client individually. It’s worth mentioning that advertising with one business listing service can easily run about $40-70 per month. Global Business Group publishes ads with 8-10 business listing services at no additional cost to our clients.
4. Having intermediary involved is very important for preserving confidentiality of the transaction. You don’t want business buyers starting questioning your employees, vendors or customers for information about your business operation. It may start a rumor mill, cause vendors to revoke credit terms, employees starting looking for new employment, etc. Global Business Group never reveals our client’s business name or location until proper confidentiality agreement is signed by the buyer.
5. It’s not a secret that around 50% of buyers inquiring about a business for sale are not qualified to buy it, one way or the other. Multiply it times 25-30+ buyers and you can see how much time can be wasted. It is very important to pre-qualify every buyer early and eliminate tire-kickers.
6. One would assume that once inquiring about your business for sale buyer will continue their communication until he or she makes final decision. One week later, still not hearing anything back from a buyer, you start wondering what’s going on: if she is still interested, did she get the information that you sent her via email, etc. You would probably call and ask, however, you may be afraid that your call may be considered as a sign of despair, and you want to show that buyer should be calling you, not the other way around. Besides, if you’re working concurrently with several buyers you have to keep a very clean record of each communication, current status and follow-up activities. Yes, follow-up is very important, and organized record keeping is very important too. Our business brokers use proprietary database for record keeping and scheduling follow-up activities. As a neutral third party we can communicate with both sides without weakening your position.
7. It’s not a secret that all business owners are trying to minimize their tax liability. Sometimes small business owners charge their personal or family expenses to the business too. It may work to their benefit while they run the business, however works against them when they decide to sell. When selling, you’d like to maximize your income, thus increasing the purchase price. We do necessary adjustments to your financial statements, reflecting correct unbiased performance of your business. Our business intermediaries will professionally prepare Confidential Business Profile, recast financial statements and compile all necessary information about your business that may be requested by buyers.
8. Properly orchestrated negotiation can make a difference between deal and no deal. There is a lot of electricity in the air when people discuss money. Simple misunderstanding may cause an argument and terminate a deal. Having business intermediary as neutral third party mediating your negotiations will bring calm, business-like atmosphere and assure successful outcome.
9. After purchase agreement is executed by both parties most business sale transactions are finalized through escrow. Majority of escrow companies do not perform “bulk sale transfer” operations, under which business sale is listed. There are only a few selected ones with no more than one escrow officer qualified to perform this duty. Having knowledgeable and responsive escrow officer is very important. She can not only save you money, but also help with drafting necessary documentation and keep informed about escrow progress. Experienced business broker can suggest you well-tested escrow company.

Finding knowledgeable and dedicated business broker isn’t easy. Don’t rely entirely on reputation of the firm because, after all, you’re working with a particular person and your success depends on her and her alone. Ask the agent how many deals he or she closed within last year and ask for references. Ask if you have the right to terminate the agreement if you’re not satisfied with their service. Walk away if you don’t have such right. Ask to report to you every … “Hooold on, we’re getting to the next topic.” How To Select The Right Business Broker will be subject of my next article.

 

So long,

Jacob Berenfeld

Every Business Owner Should Plan Exit Strategy

Okay, you are a business owner, or maybe you’re just dreaming up your ownership. Possibly, you’re one of the lucky few and managed to grow your business. Or, possibly, you’re just daydreaming about it. Millions of important business issues occupy your mind. How to increase sales? How to manage expenses? How to make your marketing more effective? Etc., etc., etc… Yet, in most cases one thing is forgotten by most business owners – Business Exit Strategy.

“What!? Why should I plan my business strategy now? I am not planning on selling the business for another 5-10 years. When time comes, I’ll figure it out…”

Your business is most likely your most valuable asset. Shouldn’t you be rewarded at the end for countless hours and sleepless nights you spent on growing your business?..

Regardless how you started the business, at some point you have to leave it!

There are many ways to “exit” a business:

• pass it to your heirs,
• sell your share to a partner or employee,
• find an outside buyer,
• simply close the door and leave.

Most definitely the very last option is the least desirable one. However, not surprisingly, it’s the most common one. In most cases, business owners neglect planning their exit strategy assuming that at some point solution will come. Yet, nothing happens on its own. At some point business owners may loose their interest in the business, can get sick, old, incapable to manage any longer. It doesn’t happen overnight. Sometimes it takes years. Depending on its subjective factors, business start slowly or rapidly decline. You may think that situation isn’t that bad and you can fix it just by applying some effort… Wishful thinking! Unfortunately, it never happens! Business will keep declining to the point that it isn’t worth anything and the only option you have is to close the door and leave.

Quite frequently business owners assume that their children will take over the business. In majority of cases the assumption is wrong. Children have their own life and their own plans, and don’t want to take over  family operation.

Selling to a partner or employee is quite a good idea, especially if you have to carry a note for the part of the purchase price, primarily because you know well that your successor is experienced operator and most likely will succeed. Yet in most cases these transactions aren’t as financialy rewarding as selling to outsider; you may loose about 20% of the purchase price. If you decide to take this route, start training your successor in managing the business as early as possible.

Our California business brokers at Global Business Group face all these challenges every single day. We constantly suggest business owners to think about their business’ future and help them planning the exit. Have a question about your particular situation? Contact us for complimentary consultation. There is always an exit and experienced business brokers are probably the best advisors in these matters.