Important Issues to Resolve Before Selling a Business
Any reputable business broker will tell you that selling a business is a complicated process that requires a lot of preparation. And even under the best of circumstances, a seller should expect their business to be on the market for several weeks or even several months before the ideal buyer comes along. This, of course, depends on current market conditions, such as the industry you are in, the number of comparable businesses for sale, the economic climate, and other factors.
To ensure a successful business sale, there are a few essential steps that an owner needs to take:
Obtain a Proper Business Valuation: Perhaps the most important thing that an owner needs to do before putting their business on the market is to arrive at the right price. The business should be priced reasonably based on a professional valuation that considers all the relevant factors that serious buyers will look at.
There are three primary business valuation methods:
- Asset Valuation: The value of the equipment, inventory, real estate, and other assets that the business owns. Included in this should also be trademarks, patents, and more intangible assets such as goodwill.
- Earnings Valuation: The historical earnings and cash flow of the business as well as projected future earnings measured against fixed expenses such as the commercial lease, debts, and labor costs.
- Market Valuation: The value of similar businesses that are for sale and what they have sold for recently.
Determining the value of a specific business requires considering unique factors, and the valuation could be based on one of the above methods or a combination of them. The important thing is to obtain a reasonable valuation to work from.
Without a valuation, one of two things is likely to happen. Either the seller will overprice the business (which often happens because owners have a significant emotional investment in the business that they have built) and it will sit on the market for several months, or the seller will underprice their business and leave money on the table.
Plan for What’s Next: This is something that many owners overlook. When you put your business up for sale, you should have a compelling reason for doing so. In other words, you should have a plan for what you are going to do with your time once you are out of the business.
Maybe you need to sell because of health concerns or because a close loved one has health concerns. Or maybe you are looking to retire or move on to a different business venture.
Examine your motivation for selling and ensure that it is strong enough to make you go through with the sale. Because sometimes sellers get cold feet at the last minute and suddenly decide that they do not want to turn their business over to someone else. By working this out ahead of time, you will be ready to see the transaction through to the end.
Work With an Experienced Professional: Some owners are hesitant to put their business up for sale because they are afraid it will take up too much of their time. This is a valid concern if you are selling on your own and having to deal with prospective buyers while at the same time trying to operate your business. Therefore, it pays to work with a professional business broker.
Business brokers, also known as business intermediaries, are specialists who have in-depth expertise in the buying and selling of businesses. They know all the common pitfalls that sellers may face, and they are able to help business owners prepare for the sale and bring the transaction to a successful conclusion.