Prepare your Business for Sale
We get asked by many Business Owners “how do I prepare my Business for Sale”? It is a very valid question since there are a number of things you need to consider as you get closer to that critical point of showing your business to anyone who might be interested in purchasing it.
Get Financials Ready
To prepare for the business sale, first and foremost you need to know what your financials look like and how they have changed over time. The trend, fiscal health, and recent performance of your business, as it relates to the general economy, will tell the potential buyer whether or not the asking price is valid and/or if there is opportunity within. It is the Profit & Loss (P&L) of the operations and the value of the Assets, Liabilities, & Balance Sheets (B/S) of the business that every buyer will want to understand.
The P&L shows the health of the business over a particular time. This is usually a one year period, but it is important to capture the current year operation as well. You should have your interim year financials along with the last two full years, or more depending on the size and complexity of the business.
The other financial instrument is the Balance Sheet (B/S) which shows a snap-shot of the Assets and Liabilities for the business at a particular time, usually the last day of the month or year you are showing for your Profit & Loss. Every buyer is going to want to look at the Profit & Loss for the business and since it usually will take a month or more to work out the details of a purchase transaction and they will want to make certain the value is holding up.
In determining the business value, keeping as much profit as you can in the business is a plus. However, you shouldn’t be put off by the amount of profit you report because the true measure of the Business Value is in the cash flow or discretionary earnings. This amount will be based on the amount of cash the business generates that is not required to run the Business, not just its net profit. A qualified business broker can quickly pull these numbers together and identify the discretionary earnings for the business and help project the marketable price range for the business.
Who should you use to sell your Business?
While there are many choices that might answer this question, the two most prominent answers are either a Realtor or a Business Broker. We would like to point out a couple of the major differences to help you make a solid decision.
First, a realtor sells physical property, like a building potentially on a piece of property. A business broker sells a living entity, because a business is a moving and changing entity. It has inventory, accounts receivable, employees, cash flow and sales. These things constantly change and if you want to sell your business you should consider working with someone who understands what these are, how they change, and how they can benefit you.
A realtor typically works with an appraiser and a mortgage broker. Once the appraiser states the value of the property/building, the value doesn’t change, except very slowly over a long period of time. The Business Broker will estimate the market value of the business, market the business “confidentially” and prepare projections of where the business is going. They will also keep this value updated along with any changes in the business value. The Business Broker will bring bankers to the table to assist in the sale and they will help the buyer work out conditions that are favorable to you, the seller.
Realtors will want to keep the buyer and seller apart and many times only work with one of these parties to the detriment of the other. Business Brokers work to build relations with the buyer and seller and to build trust. After all, the buyer will be taking over the business that you have worked hard to develop over the years and carry on your legacy while making it grow into something more.
Realtors advertise the property/building on public forums and put a “For Sale” sign on the property. Business Brokers market businesses to keep the potential sale out of the public eye and away from your competitors and employees and focus on the prospective buyers while confining the sale to serious buyers on a “Confidential” basis.
Lastly, we know, are friends with, work with, and respect many realtors, however, we have found the successful ones are concerned about what they do best and let the Business Brokers help by doing what we do best. There are many other aspects to selling a business and if you have questions, please feel free to contact us for a confidential conversation.
We pride ourselves in being able to accomplish all of these items for our sellers and work to make the selling process as stress free as possible. Are you interested in learning more or finding out what your Business could be worth? Let us help you! Contact Us!
Market Range Estimate™
The ultimate starting point is to find out where your business sits in the market. We've put together a handy Market Range Estimate™ calculator, that will give you a starting point so you can prepare to increase the value for the ultimate day of selling your business.
We Give you:
- A Market Range Estimate™ based off a number of different business types.
- Also, a free phone or email consultation if you need, to clarify any questions you may have about your estimate.
Get your free MRE™ now! Market Range Estimate™
Interested in selling your business? Read our eBook guide to learn how.
