Many factors come into play that affect the selling of a business. Though every business is unique, whether in manufacturing, service, distribution or retail, each shares the same opportunities and the same problems that must be evaluated carefully when selling it.
As one of the most successful business brokers in Florida, we believes that outsourcing expertise in the selling of a business is a wise investment.
Many entrepreneurs build a successful business through vision, excellent management skills and sheer hard work. But most do not have a thorough understanding of the complexities and factors that are present in the deal structuring and business selling process.
Factors, such as:
- Maintaining confidentiality.
- Receiving the highest value for your business.
- Knowing how to project the company’s future.
- Maximizing its potential.
- Applying alternate deal structuring must be considered when selling.
- This document presents 12 of the most vital concerns that will have a direct effect on the selling of your business. The omission or even wrong interpretation of just one can greatly affect the value of the business or future success of the potential sale. Some of these must be implemented immediately, such as maintaining confidentiality of the future sale, while others can be addressed during the selling process.
These are guidelines you will need to know when selling your business to achieve a faster transaction and the best possible price.
1) Lack of deal structure expertise
When the seller has limited knowledge about the available alternatives for structuring the deal, he is at a definite disadvantage! And probably a costly one. Items such as leverage buy-outs, leases, royalties, earn-outs, consulting agreements, non-compete contracts can add immeasurable value and security to both buyer and seller alike.
2) Failure to adjust the net owner benefit
If you are to determine a proper value, the balance sheet and income statements must be recast. Items such as owner’s salary, depreciation, interest and fringe benefits may be added or subtracted depending on the circumstances. The adjusted income statement will reflect the actual owner benefit in order to help determine the market value.
3) Failure to maintain confidentiality
Confidentiality is vital to the selling of a business. If employees know that you are selling and changes are coming, they may seek other opportunities. Competitors may use this information as a selling tool. Vendors may not continue to extend favorable terms. Profitability and market value may be reduced.
4) Failure to secure qualified buyers
Knowing how to qualify a buyer is critical. We pre-qualifies each buyer to avoid a negotiation that is doomed to fail. This saves you time and money. It can eliminate hundreds of wasted hours and misdirected efforts.
5) Failure to continue to run your business
It is important to maintain your business at peak operating capacity. The performance and productivity of your business is what you are really selling. The time taken from your business to sell it will have a toll on the business and as a direct result lower its market value.
6) Failure to properly adjust for economic conditions and owner’s ability
Generally speaking, the higher the skill level required to operate the business, the more difficult it will be to sell it. The value tends to increase when the owner can be replaced easily. The value also may increase when an industry is in a growth stage. For many industries there are specific valuation methods that are highly subject to the owner’s duties in the company as well as outside economic conditions.
7) Failure to provide credible information
A potential buyer will want information about your customer base, competition, financial history and industry characteristics, such as size, growth potential and areas of opportunity. This information must be provided in a salable format and in a way to ensure your confidentiality.
8) Poor negotiating techniques
In many deals, poor negotiating techniques can cost the seller considerably in terms of selling price, terms and other opportunities. Many times a deal will fail to close because of poor negotiation or communication between parties.
9) Failure to place the proper value on your business
A business has value to a buyer because of its anticipated earnings from its established resources and a demonstrated successful track record. Proper evaluation is crucial, enhancing the chances of selling your business.
10) Failure to consider alternative investments
All buyers have alternative investment options. To make your business attractive, you must show a return on investment greater than stocks, bonds, real estate or other similar business opportunities. You should be prepared to offer seller financing.
11) Failure to prepare for proper due diligence
Due diligence issues are very important to the selling process. These issues can have a major impact on the closing of a business sale. It is imperative to be prepared and organized. You must be able to defend and substantiate representations made during the selling process.
12) Failure to seek professional assistance and consultation
There are legal, financial. marketing and other vital considerations that must be addressed in the selling process. Many decisions in the selling process should not be made without the advice of the right professionals. A wrong decision could lead to a fatal mistake!
These are just 12 areas of concern. There are many more just as important, depending on your particular situation.
Some of these are:
- How to sell when partners disagree.
- How to sell when a company is marginal or close to bankruptcy.
- What to do if the buyer wants you to continue managing the company.
- How to compile the necessary paperwork to finalize the sale.
- You simply cannot afford to sell your business without the necessary skills and selling expertise. You run the risk of not getting the full value for your business. Worst yet, you may turn off legitimate buyers who may have purchased had your business been properly packaged and represented.
- Almost all business owners who sell on their own do not receive the full value for their businesses!