4 Things Business Supervisor Know That Business Owner Don't

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Timing Is Everything

The timing of a business sale can be tricky. There really is no perfect way to predict how the broader market will change in the coming months and what effect that will have on your client's business. The first quarter of the year (January - March) is the busiest time for business transactions, as both buyers and sellers take advantage of the new year to pursue their goals. Thinking through the optimal timing to list, show, and close a business for sale transaction can help your client maximize his or her outcome.

Seller Financing is a Must

Obtaining financing for a business purchase from banks is still challenging for most, if not all buyers. As a result, most buyers still need help, as very few can pay all cash for a business purchase. Beyond increasing the likelihood of a sale and maximizing the sale price, by financing a part of the purchase your clients also have the benefit of locking in a fixed income stream. Go over this process with the seller and develop a financial plan to make sure the client understands the implications.

Callers Aren't Always Buyers

This is a very important issue as business sellers can often be overwhelmed by a high number of inquiring buyers. Be sure to warn your client that many of these callers may not be viable candidates and, in fact, could be competitors snooping for information on your client's business.

Often times, people will call because they are interested in buying a similar business soon, but may not have the financial resources to make a purchase now. By weeding these people out early, or by hiring a business supervisor to handle these details on your behalf, your client will have more time to concentrate on quality buyers.

A Done Deal isn't the End

In most small business sales, the signing of a contract isn't the end of an owner's obligations. Former owners often stay on for a negotiated period of time to help advise and guide the new owner. 

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How to Time the Sale of Your Business

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Timing the sale of a business can be a stressful process. In today's economy, it's nearly impossible to predict your business's financial future, let alone its value on the open market. But smart business owners also know that timing is everything. Selling either too early or too late can lead to a substantial amount of money being left on the table. So while you won't be able to control the economy, there are certain steps you can take to make sure the timing of your sale maximizes the selling price.

Being ready to sell when that time comes can lead to more interest from buyers, more offers and ultimately, a higher selling price. So whether you are looking to sell soon or farther down the line, here are some considerations on which you should focus.

Sell at Peak Value

Selling at "peak value" is, of course, easier said than done. Most business owners will find it hard to consider selling when things are going well, but that could be precisely the best time to get out. A growing, expanding, smoothly running business will be most likely to attract multiple buyers, creating an auction like atmosphere that will often lead to a high selling price. Too many owners wait until a major customer or key employee is already lost before trying to get out as well. Buyers will be aware of these types of situations and may use it against you in the negotiation process.

While that is the ideal situation, many business owners have been dealing with declining numbers for the past few years, giving them little leverage for a sale.

Even if you don't plan on selling for many years, the time to start building value is now. This includes everything from organizing your financials and improving the physical state of the building to training capable employees to manage the business in case of your departure. These preparations will prove especially important if an unforeseen personal or business crisis forces a quick sale.

Pick the Right Time

You should know better than anyone when your financial situation will look the best each year. A typical business sale takes 8-10 months. Plan that timeline into your strategy. As already mentioned, you want your business to appear as financially strong as possible. Make sure that you're hitting your busy season just as potential buyers will be checking details and beginning the negotiation process.

This may also fit with planning for transition to a new owner during a less busy or important time of year, when the new buyer will have time to learn the business without the potential to make costly mistakes at the outset.

Selling a business is something almost every owner will have to experience at some point. Whether you are planning to retire or to start another business venture, it's important not to rush into the sale process. Take your time to plan an exit and make sure your business is heading in the right direction come sale time. As they say, timing is everything.

The 7 Questions Every Buyer Wants Answered

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There are seven common concerns that almost every prospective buyer brings with them.

Is The Business Right for Me?

 

This is probably the only one of the seven that you cannot influence greatly. That is something the buyer must decide however; you can clearly assist them in reaching their decision either way. You must decide before you bring the business to market what the ideal buyer profile will be. This is not just someone who has a bag of cash. Even if they do, if they determine the business is not suited to them, there's no deal.

If you have a good idea of the skill set the new owner should possess then you should remain committed to your convictions and let any prospects know when they first contact you. If they don't possess the key skills to operate the business, you'll avoid wasting a lot of time meeting with the wrong prospects. Your supervisor will likely be conducting the same skill pre qualification as they too do not wish to waste time.

Similarly, don't over engineer the criteria or allow your ego to stand in the way. Unless there are specific professional licenses required to operate the business, most often solid business skills, with perhaps a specialty in one area (i.e. sales, marketing, operations, product design, etc.) will be the dominant skill necessary for a new owner to be successful.

Are The Numbers Provable?

One of the most frequent comments I get from buyer clients is that they have seen too many businesses where the seller cannot prove the numbers. So your strategy here is simple: If you cannot prove it, they won't pay for it, so only represent what you can back up.

If you have unreported income in the business, don't expect to get paid for it. You already received the benefit from the tax department.

Provide buyers with detailed proof to validate the financials you've represented and you will clear a massive hurdle. Further, as we discuss in other articles on this website, if your books and records are in disarray, don't put your business on the market. Take the time to organize them properly and you will reap the benefits.

Is It Priced Right?

While a smart buyer may be willing to pay a premium for a good business, nobody will overpay. Buyers need to be certain that the revenue and profits can be sustained, they can service any debt, pay themselves a reasonable salary, and ideally, have enough left to grow the business. No matter how good your business may be, the price and terms must fit within the prescribed borders for this to be a good investment.

What Does The Future Hold?

A business will almost always be sold valued based upon past financials, but the decision to buy will be based upon the future potential of the business. While some buyers consider growth to be their main criteria, at the very least the majority of buyers want to know that history will repeat itself. In other words, the business is sustainable, that there are no looming threats that could drastically alter the business or impact it negatively after they buy.

By presenting a realistic picture to the buyer about the future, and being open about possible challenges, it will go a long way in soothing their concerns. In today's information age, chances are that any potential hazards will be identified and so it is always best to inform them of these matters early on if they are material to the transaction. By the same token, you want to present the business in a compelling fashion that demonstrates that all the parts are in place for them to takeover and continue to be successful after your departure.

Will Customers and Employees Remain

This is especially important in businesses that may have a limited number of active customers or where there is one or a couple of key employees. The last thing a buyer wants is to experience losing a key customer or employee and find themselves out of business shortly after they get into business. Due to confidentiality, it may be difficult to provide them with the complete assurances they need but at the very least, you'll want to have mechanisms in place to provide some reasonable protections for them.

In the case of key employees, the buyer will more than likely want to meet them prior to closing and so too with any major customers. You may not be fully comfortable with this idea which is understandable but you may need to put yourself in the buyer's position for a moment to understand. As such, you need to structure the milestones of the deal to allow for this event. For example, they may only meet a key employee after all other deal contingencies are satisfied. 

After all, if you are going to be participating in the financing, you want them to be successful.

If The Business Relies on Location, Will the Lease be Assigned?

Landlords can sometimes derail your sale. I have witnessed and experienced it personally. You would think that every landlord's agenda is strictly to have their premises filled with timely paying tenants and to a large extent this is precisely the case. However; there are times when a landlord may want to alter the premises, or wants personal guarantees from a new owner, or may just be a pain when it comes to assigning the lease.

Before putting your business on the market, check your lease assignment clause to see if there is verbiage that reads that an assignment "will not be unreasonably withheld". Also, you may want to consider meeting with the landlord to see if they will add some option terms to the lease (even a three to five year option) but you must couple this with raising concerns about the sale. If you have less than two years on your lease, and the business needs to be where it is, you will want to get a lease extension before taking it to market.

Are There Any Hidden Problems?

Every business has secrets. Problems are common, even if you don't perceive them as an "issue", a buyer may. These will be uncovered by any diligent buyer. The best strategy is to be upfront with prospects about these potential issues so you can deal with them early on. Usually a work around can be figured out. If you wait too long, or try to hide them and they do surface (and they will) you will have a very difficult time resolving them and will likely lose all of the credibility that you have established with any prospective buyer.

This comes back to what I believe it takes to get deals done: when the seller wants to sell and the buyer wants to buy, and the parties trust each other, it's almost impossible to stop them from getting a deal done.

 

How Well You Run Your Business

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Whether you're planning to sell your business in the near future or many years down the road, one of the most important rules to remember is the better care you have taken of the business, the more easily you'll be able to sell it.

This rule might seem like a no brainer, but it's very common for owners to focus so much on certain areas of the business that they neglect others, ultimately complicating the selling process when it comes time to leave the business. When someone is looking to purchase a business, they want to know that it has been properly run by its previous owner and will allow them the greatest chance for success.

There are a few key considerations business owners should keep top of mind at all times in order to help ensure the process will go as smoothly as possible when it's necessary to leave. Whether an owner plans to sell the business in one year or doesn't plan to sell it for a long time, addressing the following questions and actively making improvements where needed can pay off in spades when the time comes to put the business on the market.

Are Your Financials in Order?

 

Poor internal bookkeeping has been the downfall of many potential business sales. There is perhaps no bigger deal killer than when a potential buyer realizes that the owner has been disorganized keeping up the books and has no concrete way to prove the business's profitability. It's crucial to remember that if you can't accurately measure the financial strengths of your business, there's no way for a buyer to value it.

If you've neglected keeping proper track of financials, you can't start soon enough - even if you don't plan to sell your business for many years. It might seem like too big of a money or time investment to obtain the proper financial staff and systems to keep the books in order, but it's absolutely essential to your future and the future of your business.

Have You Laid Out Future Goals in a Business Plan?

Believe it or not, many businesses operate for years without a clear business plan, which makes it very difficult to sell when the time comes. Simply doing more of what you have been doing all along might have worked for you during your time as the business's owner, but that "strategy" will be of little help to a buyer who would take over the business with little knowledge of what you've done in the past. This is why it's important to develop a clear strategic plan that outlines the future goals of the business before you enter into the selling process.

This plan should include financial projections that prove to the buyer you are confident about the business's potential for growth and aren't attempting to hide anything. It's also important to communicate this plan throughout your business so that your employees can help transform these goals into reality and have a solid direction to follow after you're gone.

Have You Kept Your Business Up to Date?

In a business for sale transaction, physical appearance and condition can mean the world.
Oftentimes, owners are so busy and focused on other areas of their business that they neglect making important upgrades. They might not notice any detrimental effects from this while they're in charge, but once they try to sell the and realize that most buyers aren't eager to take over a business that is out of date, they'll regret not making these improvements along the way. For this reason, it's imperative to make any necessary upgrades or physical improvements to your business before putting it on the market.

Is Your Business Enabled to Run Without You?

It's important for a business owner to be actively in charge and to be invested in its success, but if you've run your business in a way that means it can't survive without you, problems are bound to arise when it's time to sell.

Buyers are typically wary of purchasing businesses in which the owners are indispensable and will have to maintain long term attachment. Owners who are committed to staying with the business can easily change their minds after the sale, leaving their buyers in a precarious situation.

To avoid this problem, make sure to hire and train qualified managers who are equipped to run the business even when you're not around. If necessary, seek the guidance of other business owners who have succeeded in making their businesses self sufficient and are willing to offer advice. This can be challenging, but you'll thank yourself for having done it when the time comes to sell.

Is Your Business Attractive to Business Supervisor?

Most business owners choose to work with a business supervisor when selling, as supervisors can often increase the chances of a successful sale as well as the net proceeds to the seller. To reap the benefits of these services, though, your business must be properly prepared.

The world of business supervisors is comparable to any other service profession in that there are a few select companies whose calls are always answered by potential business buyers because they can pick and choose among the best companies to sell. These business supervisors can be selective, so unless you have an attractive business without major "impairments" (which essentially means your business will be flagged as a risky investment), you might have a tough time attracting reputable assistance when you're ready to sell.

Selling your business might be a once in a lifetime experience for you, but supervisors do it for a living and are able to assess your business and determine whether or not they can find qualified buyers. The best business supervisors probably won't want to waste their time on businesses they know will be a headache to sell, so businesses that are in solid financial and operational shape will have the greatest success.

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Valuation Rules of Thumb

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If we are going to use a rule of thumb to value a business, some type of earnings multiplier makes the most sense to prospective buyers. It directly addresses the buyer's motive to make money - to achieve a return on investment.

Two areas of confusion are inappropriate comparisons to investment real estate and/or to stock market earnings multiples. Real estate is often priced at 8 to 10 times its net operating income. Stock market prices are often as much as, or even more than, 20 times earnings.

These two comparisons do not work for small businesses primarily because the risk of owning a small closely held, privately owned business is thought to be much higher than owning either real estate or publicly held stock. Running a small business is also a lot tougher than managing an office building or a stock portfolio.

But, even if we settle on an earnings multiplier, we are not even able to start the valuation process until we decide which earnings figure we are going to multiply. Is it last year's earnings? This year's? Next year's? Is it the last five year's earnings averaged? Is it the next five year's projected?

The next issue is our precise calculation of 'earnings.' Should it include or exclude the owner's pay and perks, interest expenses, depreciation and taxes? What about those one time expenses that may be on the books?

But, What's the Right Earnings Multiplier?

After we define which 'earnings' we should use, we still have to choose the right multiplier. How many times are we going to multiply earnings to get to a value of the business? Is it 1, 3, 5, 8, 10 or 20? Based upon what? Figured how? Most people can agree that this multiplier will vary based upon the risk of the business, but how can that be measured?

What about the various tangible and intangible asset values? Do we include the real estate, equipment, vehicles, inventory? Is there a separate value for a seller's agreement to consult with the new owner after the sale? What about non compete agreements? What about patents, franchises and other extraordinary intangibles? 

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How to Boost the Value of Your Business

There's no arguing that banks, potential investors and creditors look heavily to a company's financial statements to determine its value. However, past financials often aren't the whole story. Here are some additional factors to consider as you seek to maximize your company's value - whether you plan to sell soon or simply want to be ready when that day comes:

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Proven Potential for Increased Profitability

 

Perhaps the most important aspect of making a business attractive to a potential buyer is building their confidence that the business has the potential for increased profitability. Of course, step one is to produce documentation showing steady, reliable revenues and cash flow, but other steps can help paint a picture of untapped potential. For instance, highlighting (and proving) key advantages inherent in your businesses industry such as a history of the sector outperforming the economy at large or examples of recession resistance will demonstrate that your business carries less risk.

Regardless of your business' financial track record and your sector's inherent advantages (or disadvantages), a key way to build value into you business is to create a plan that will drive future growth. If you plan on continuing to operate the business, such a plan will help you think strategically and advance the business despite day to day operating demands.

If you plan to sell your business, experience has shown that owners who offer a clear, focused plan for growth have an easier time generating buyer interest and closing the sale. Your plan might detail strategies such as acquiring competitors, expanding to a complementary product or service, or implementing operational efficiencies. 

Be Organized

It sounds simple, but it's hard to do. Good organization will help you run your business more efficiently and reduce employee (and customer) confusion. When it comes time to sell, potential buyers will find the business and the operations easier to understand. At such a point it will be especially critical to have your books in order to provide credibility and to instantly make your business more attractive to potential buyers. No buyer wants to take over a disorganized business.

Focus on Physical Assets for Debt Financing

Buyers of businesses with tangible assets - capital equipment or owned real estate for example - are having greater success securing purchase loans. Though intangible assets, like intellectual property, knowledge and relationships, are all important parts of your business, they often don't come through in a financial statement.

Tangible assets, on the other hand, can be used as collateral to secure lending from banks. Focus on highlighting the tangible assets within your business, and supply potential buyers with a comprehensive list to give them a leg up when applying for loans.

Highlight the Positive

Finally, when the time comes to meet with potential buyers, concentrate on the strong points of your business. You know the business better than anyone else and there are bound to be some areas where your business excels, so make sure you highlight those. For example, perhaps your business is established within its trade sector and known throughout the community or maybe your customer base is widely diversified, providing security against any one customer having too much leverage. Highlighting what makes your business special will make you stand out to buyers and illustrate why your business is a good investment.

Whether you are ready to take steps to sell your business today or just wanting to build value for a future sale, following the tips above will help ensure success.

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What Impacts the Selling Price of a Business for Sale

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There is a lot to consider when you sell a business. The final purchase price and deal terms are impacted by many different factors that a buyer, and ultimately the "market", will consider.

Recent Performance

Over the past 2-3 years is the business growing, flat, or declining?

Ease of Transition

Interestingly enough, most small business buyers will purchase a business outside of their area of expertise or experience. As such, it is important that the transitional period after the sale is something that the buyer sees as being reasonable.

A buyer must feel confident they'll be able to have a good grasp of things within a short time after they take over. This can only be accomplished if the business is well managed with policies, procedures and systems in place.

The Buyer Pool

ust like the transition period, there is a direct correlation between the purchase price of a business and the ease in which someone new can operate it. In the market, there are tons of people always looking to acquire a business.

The greater the amount of those people who can see themselves running the business, the more demand there will be for the business, and therefore the higher the price and the better the terms a seller can get. If a business simply requires good all around business/management skills, then the buyer pool will be quite large.

Conversely, if highly specialized or certified skills/licenses are required to operate the business, the number of potential individual buyers shrinks drastically. In extreme cases, a seller may have to think about a strategic sale to someone in the industry.

Books and Records

I cannot emphasize enough the importance of having good, clean and accurate books and records. It may very well be the single most important influencing factor of the price and terms when a business is for sale. There is no quicker way to "kill a deal" than having the buyer learn that the actual company records are not in line with what was originally represented. It is terribly upsetting when a deal falls apart, and though some may be salvaged, when it's due to poor financial records.

Another aspect is unreported income. If you are taking in cash sales and not reporting it, then you cannot expect to be paid for it when the time comes to sell the business. If you had the benefit of not paying taxes for years on this money, and you have no quantifiable means to prove the number, then surely you cannot expect anyone to pay you anything, let alone a premium for this "alleged" revenue.

Customer Concentration

Business A has one hundred clients, none of which represent more than five percent of the revenues. Business B has the same hundred clients, but two of them contribute forty percent of the revenue. Which company is worth more? Business A of course! If one or two of Business B's clients stop buying, the business could decline by almost half.

Exclusive Products or Services

If there is an element of exclusivity to the business, whether in product or territory, this can be a huge selling factor. Naturally, the buyer will want to see this transition to them and so you need to consider this situation. For example, in a distribution business that has an exclusive territory, it will be paramount (and definitely a deal contingency) that the relationship with a particular supplier for example will continue.

Conversely, if the entire business relies on this relationship, it can hurt you. It's the supplier version of customer concentration. However, if the relationship is solid and a new contract will be granted to a buyer, it can be worth a premium in the sales price.

Recurring Revenue

Any business with a strong recurring revenue base is both highly sought after and will almost always command a premium. The lure is that a new buyer is almost assured of continuity and can count on revenue from day one. If any part of your business has a recurring revenue component, then play it up. If not, think about ways that you can possibly generate some; it will be well worth the effort and expense to do so.

Preparing to Sell Your Small Business During Challenging Times

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Business owners looking to sell their businesses often make some common errors when communicating with potential buyers, which can be a significant hindrance in successfully closing a deal. If you're ready to put your business on the market, knowing what buyers want and need will help you to make the most of your business sale and attract the best offers. In these trying economic times, this knowledge is essential. Many seller difficulties result from not being sufficiently aware of the following tricks of the trade:

Get Your Business in Shape

Potential buyers want to know that your business has good characteristics, such as location, a pleasing office space, high revenue stream, strong management, loyal client base, and a growing market base. If you can likewise convince your potential buyer that there are few risks incurred by buying your business, you're on the right track. That said, make sure your accounting books and financial statements are in order. If you're organized enough to present them with all the required information upfront, your potential buyer will feel more secure in knowing the business is well kept and offers great potential.

Make sure that you run your business in a steady manner well before considering a sale, without making any drastic changes that could result in revenue surprises. Nothing will make a buyer more hesitant than seeing an unexpected earnings reversal or irregular profitability that aligns with your for sale listing date.

Be Forthcoming

Knowledgeable buyers will conduct due diligence before making a business purchase, so don't hide any problems that your business has had, or currently faces. The buyer will eventually find out, I guarantee you. And when they uncover problems that you did not reveal upfront, they'll likely think you're hiding other things from them. And don't assume that you're in the clear if the sale has already been secured. If such problems are discovered after the purchase, you can be sued for fraud. So, be honest about the businesses risks and liabilities, as well as the real reason you're selling.

Establish a Business Transition Plan

Make sure the potential buyer can clearly visualize owning the business. If they think clients, day to day functions and even the business location prove unstable, they'll assume it's too much of a risk.

Make sure that transferable agreements commit clients to the business, and non compete agreements are recognized for key managers. It also doesn't hurt to present your business and marketing plan, were you to continue the business. While you should never promise the buyer a certain level of prospective sales or profit, presenting a plan can assure them you have the interests of the business in mind and are willing to offer your best prediction.

It is important, especially for those who own a retail business, that you have a lease that extends for a minimum of five years. If not, buyers will be hesitant to buy and financial institutions will think twice before giving out loans. A short lease signals that the business may prove unstable, so it is essential that you try to secure a transferable lease and lengthen the term, if possible.

Also, at the appropriate time, it's important to notify key management and employees that you will be selling the business. Being honest with them upfront will help to encourage them to stick around with a new owner. In turn, you can ensure the buyer that they will continue to have strong and experienced leadership on board right from the start.

Communicate With Buyers Early & Often

In an age where instant gratification is widespread - in everything from email to fast food - buyers expect immediate replies to their questions. In fact, 90% of initial sales inquiries are derived from online searches. If they can send a quick inquiry, they expect a quick response. Make sure you don't disappoint, as delaying will often kill deals, even if it's just a quick note to say: "I'll get back to you with that information next Tuesday."

Postponing your response often gives buyers the impression that you're stalling to come up with a satisfactory answer to hide a business inadequacy, even though that may not be the case. They want assurance that you can answer any of their questions honestly and succinctly.

Make sure to give buyers what they need to fully assess their purchase decision. If the potential buyer becomes frustrated with you, they'll likely think it's an early indication of how they'll become frustrated with the business itself. Individuals new to buying a business often do not know how/when to buy, what the business is worth, and have fear over making a mistake. Open communication and honesty will help put them at ease. Answer any questions, and build a relationship of trust.

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Four Traits of Businesses Sold Successfully

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There seems to be a light at the end of the tunnel for business sellers during this economic recovery period. Companies should prepare to sell with the presumption that the economy will continue to improve. With that in mind, there are four considerations to be aware of while preparing your company for the big sell. The more of them that apply to a business for sale scenario, the more luck the owner is bound to have in achieving a quick and successful transaction. 

Pattern of Profitability - Anyone looking to purchase a business wants to feel confident in the ability to continue making money. If business sellers don't make their companies' potential for profitability crystal clear, they'll likely have a hard time keeping potential buyers interested long enough to get a deal off the ground. For this reason, any seller with evidence of steady, reliable cash flow and revenues has an automatic leg up.

That could mean the difference between selling and not selling in today's volatile market. If buyers can see that a business has managed to maintain its profitability during these tough times, they'll know that there's stronger potential for when the market improves and that there is less risk in moving forward with a transaction.

Where are We Going? - Not only is it important for business sellers to show potential buyers that they've maintained profitability during difficult economic times, but also to provide evidence that the business has the potential to grow and thrive down the line. Sellers who can offer buyers a focused growth plan - which might detail strategies such as acquiring competitors or expanding to a complementary product or service - are having an easier time closing deals.

Seller Financing - There continues to be a lot of emphasis placed on a business seller's willingness to finance at least part of any business for sale deal, and for good reason. Transactions that require buyers to come up with the entire purchase price of a business simply don't close. Not only have buyers faced major drops in savings and retirement accounts as a result of stock market declines, they've also been hit with increasingly limited access to backed commercial loans. As a result, the sellers that are willing to finance part of the sale price and allow buyers to pay them back with interest later are having the greatest level of success.

Physical Assets for Debt Financing - It's no secret that banks are more cautious than ever before about lending. As a result, businesses with greater amounts of tangible assets - such as cash, durable equipment or owned real estate - are having much more success securing purchase loans.

While we expect the small business market to slowly improve, for now business owners considering going to market should think carefully about whether their businesses are fit to sell during these uncertain times. If they're not, owners would be wise to take steps to make their companies more marketable before going ahead with a plan to sell. If the business can appeal to buyers with these attributes, though, sellers can have great success overcoming current economic roadblocks.

How to Make Your Business Marketable

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It's not uncommon that two business owners simultaneously looking to sell in the same area will undergo completely different experiences. One might find the selling process to go quickly and smoothly, with the business commanding a respectable price. At the same time, the other might struggle as the business sits on the market for many months, eventually selling for much less than they had hoped. What accounts for these two very different experiences? The first seller most likely had a much better understanding of how to make their business marketable to prospective buyers.

In many ways, selling a business isn't too different from selling a house. In both cases there are certain factors that can have a significant impact on whether or not the property is marketable to buyers, such as physical condition, the quality of a for sale listing and financial details. Ultimately, though, selling a business is a unique situation that presents unique challenges. If business owners enter into the selling process without sufficient knowledge and preparation, they could find that their businesses sell for less and stay on the market much longer than they'd like.

To make a business as marketable as possible, business sellers should pay close attention to the following considerations:

Create a Strong Listing

While the physical condition of a business is a critical element in its marketability, how a seller presents the establishment in a for sale listing can be just as important. Sellers who create strong, carefully thought out listings almost always have the most success selling their businesses. The top goal should be to provide as many details as possible without revealing the exact identity of the business (assuming you'd like to keep that confidential, as most sellers do). Sellers who take this approach are usually leaps and bounds ahead of the competition from the start, and are likely to pull in higher prices and sell their business in much less time.

The first step is to determine where you will list your business for sale. Traditional local newspaper listings can target a niche audience, but online listings typically offer much wider exposure. The marketing strategies and overall functionality of business for sale websites differ greatly from site to site, so it's crucial to do your homework before deciding where to list.

When it comes to the content of the listing, the key is to know which details to include and which to leave out. Buyers gravitate most toward detailed listings, but there's a fine line between being forthcoming with useful information and breaching confidentiality. It's important not to include information that could let competitors and employees know the business is on the market.

If possible, it's typically beneficial to include financial information such as revenue and cash flow, as this is the most common criteria potential buyers use to search for businesses. By including these numbers in a listing, a seller is likely to get many more views and find that buyers are much more willing to transition from casually interested to seriously interested. The willingness to offer this information signals to potential buyers that the existing owner is confident in the business and that the purchase would be a good investment.

In addition, business sellers can make their listings more appealing to prospective buyers by including geographic information such as state and county. Most buyers search at the city level, so including that information in your listing will likely result in a large number of views. However, it's generally not a good idea to reveal the exact identity or location of the business to avoid confidentiality issues.

Other elements of great listings include creative headlines that emphasize the top selling points of a business, attractive photos of areas in the establishment that don't reveal its specific identity, clear contact information (it's best to set up a nondescript phone number and e-mail address specifically for buyer inquiries), and careful attention to spelling and grammar.

Get the Books in Order

Business sellers who fail to accurately account for all business revenue before going to market can face major problems once they begin dealing with potential buyers. Still, in an effort to save on taxes many business owners don't report all their income and then tell prospects they have a greater amount of annual revenue than what's in the books. Not only does this make buyers question the seller's integrity, it puts them in the difficult position of having to decide whether or not to believe the supposed revenue number is accurate.

To help make their businesses more marketable, owners thinking of selling should begin keeping complete, detailed financial books at least three years prior to a sale so that all income is accounted for and can be properly evaluated by the buyer. This includes removing all unnecessary expenses from the books, such as a "company car" that isn't actually used for business purposes. A higher tax bill might follow, but it will also result in a higher sale price once a transaction takes place.

Renovate and Upgrade Well in Advance

A great for sale listing will get solid buyers interested, but a well kept, well run and physically appealing business will seal the deal. Once a prospective business buyer has communicated extensively with a seller and wants to go forward toward a transaction, he or she will want to view the business in person. This isn't the time for the seller to scramble and make sure the business is presentable. Instead, sellers should work to get their businesses looking and running as great as possible well before listing the business for sale.

It can be tempting to put off essential renovations until the last minute. Business for sale transactions typically take time, so there might not seem to be any rush. The truth is, though, that it's impossible to predict exactly when a sale might happen or exactly how major a renovation can prove to be. As such, not only should a seller complete renovations to make their business marketable, they should also complete them well in advance to avoid complications down the line.

Don't Underestimate Curb Appeal

Business sellers often go to great lengths to perform necessary upgrades to the insides of their establishments, but completely neglect how the business looks on the outside. Sellers should remember that the outside of the business is the first part of the business a potential buyer will see, and first impressions can mean everything.

For this reason, it's important to make sure the business exterior looks as good as the inside. Does the property look clean and welcoming, or is it poorly landscaped and in need of renovation? As with inside upgrades, outside renovations should never be put off to the last minute, but preferably taken care of prior to putting the business on the market. Once a potential buyer is scheduled to view the property in person, sellers should then do another inspection and complete any necessary last minute fixes.

Offer Seller Financing

Recent economic hardships have left many potential business buyers without the financial means to purchase a business. Thus, a business seller's willingness to finance at least part of a sale has become a major factor in marketability. With most independent buyers unable to access necessary funds from lending institutions or afford a down payment on their own, seller financing has become an essential ingredient in closing business for sale deals.

When sellers offer financing in a transaction, they allow buyers to pay some of the purchase price of the business in the form of a promissory note. It means the buyer agrees to pay back the remainder of the sale price, with interest, at a later date. This scenario does obligate the seller to have a continued stake in the business, but if a buyer is a good investment risk, a seller could reap great benefits by "being the bank." Seller financed businesses typically sell for 15 percent more than businesses in all cash sales, and interest accrued down the line could add greatly to the principal value of a business.

To attract more prospective buyers, business sellers willing to provide financing should be sure to advertise it as they put their businesses on the market. Because seller financing has become so important in marketing and selling a business today, we launched a feature on 2misi.com that allows sellers to clearly advertise their willingness to offer it. Buyers then have the ability to search only for businesses that are at least partly seller financed. The feature has led to increased listing views for sellers offering financing, significantly boosting the marketability of their businesses.

Step into a Buyer's Shoes

When selling any type of business, it can be easy to forget what it's like to be in a buyer's position. There's so much responsibility involved in putting a business on the market that many sellers lose track of the "big picture" as well as their grasp on what makes a business appealing in the business for sale market in the first place. They might feel so pressured to sell quickly and for a certain price that they neglect steps that can be essential for a smooth sale.

To make sure their businesses are as marketable as possible, sellers need to take a step back and remember what they looked for when they went through the process of buying their business. Were there specific details they looked for in business for sale listings? How much of an impact did their first look at the outside of a business have in their decision to pursue or abandon a purchase? The potential buyers will be going through the exact same process, so those who have taken the time to properly prepare, and have the ability to think like a buyer, will be the ones most likely to experience smooth, successful sales.

http://www.2misi.com/article/2012/06/how-to-make-your-business-marketable

Plan Ahead and Avoid These Four Common Mistakes of Selling Business

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If you are looking to sell your business, chances are you are not alone. Now a latent supply of owners who were waiting for their business to become profitable again are beginning to emerge and are looking to sell. This influx of sellers can result in a crowded marketplace, which means sellers have to be on top of their game to get the best price for their business.

As a rule of thumb, the best businesses command the best valuations, no matter how crowded the marketplace. But with competitive pressure from other sellers, there is little room for mistakes. This guide will help you avoid common mistakes that can derail a business sale.

Mistake 1: Not Properly Preparing Your Business for Sale

 

Before buyers sign on the dotted line, they will research your business as they would any other big purchase. Sellers need to be prepared to demonstrate that the worth of their business matches the selling price. This means keeping your financial records in order. Good record keeping is a simple way to establish buyer trust.

Be sure to resolve any outstanding issues that could derail a sale, like legal issues or unfilled key management positions. If your business is struggling, focus your efforts on restoring it to profitability and constructing a plan for continued success. A detailed strategy can give you a much higher chance of attracting the right buyer and making a sale happen.

Just as important as the paperwork, don't forget the physical elements of your business as well. Consider upgrading technology, establishing and documenting key processes and even sprucing up your interior - the physical appearance of your business is often the first impression the buyer gets, so make sure it's a positive one.

Mistake 2: Not Understanding the Market

Selling at the right time and for the right price is much easier said than done. It is important to work with your business supervisor to grasp the current state of the market and what that means for the sale of your business. It is important to price it appropriately. The goal is to set a price that will attract a number of serious buyers and yet allow you to close the deal at the highest possible sales price.

To properly price your business, you will need to know where it stands in the market as compared to others. So, work with your business supervisor and conduct some research to determine where your business stands in the current marketplace, and then price accordingly. Business owners who plan ahead and take the time to research the market will stand out from competition, thus resulting in more offers and a heftier sale price in the end.

Mistake 3: Not Getting the Word Out

With more businesses coming on the market this year, it's important to get the word out and market the sale broadly to attract the greatest number of potential buyers. Listing online can help in this endeavor, allowing more potential buyers to see your listing and generating greater demand from potential buyers. The more buyers that know about your business, the more offers you are likely to get.

Higher demand for your business translates to a higher sales price, so the goal is to create a multiple buyer situation. Don't limit your focus to just one or two potential buyers or the first buyer to make an offer. Instead talk to multiple qualified prospects at the same time to continue generating a sense of urgency and demand for your business. Also, speaking with multiple buyers can help generate a backup plan in the event that the primary buyer is forced to withdraw from the sale.

Mistake 4: Not Offering Seller Financing

To close a sale in this economy, business buyers and/or their lenders are almost certainly going to require some form of financing to purchase a business. While lending from local and national banks continues to loosen, the progress is still slow, and most banks require seller financing as part of any deal they fund. This means you will be required to take a minimum of 30 percent of the sale price in the form of a note that the buyer will pay back over time, with interest. Essentially, you still have an investment in the business even after the sale, meaning you are expected to participate in a successful transition to the new owner.

This confidence and willingness to invest in your business even after a sale will encourage potential buyers, and their lenders. Furthermore, it will help you close your sale and ensure the new owner's success, maximizing the chance they will be able to complete their long term payments.

Selling a Business is All About Timing

There's a fine line between fetching the best price for your business in a market uptick, and being slightly early or a bit late. To get the best price for your business, it's imperative to prepare, so that when market conditions are ideal, you can strike.

When it comes time to exit a business, the goal of every seller is simply to get the best price. But with the economy still in flux, the question owners must be selling themselves is: When is the right time to get the best price? The fact is that while the economy has been slowing improving recently, businesses might not be able to fetch their peak price just yet.

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But things can change quickly in the business for sale marketplace. We've been seeing an uptick in sales recently as business owners grow more confident in the economy. For those who have been considering a sale, the time to earn that top selling price may be coming soon. That means now is the time to start preparing your business to impress prospective buyers.

Preparing to sell means building upon your strengths and fixing weaknesses so you can secure the best possible purchase price. Above all, make the transaction process easy for the buyer. This means being honest about your motives, expectations and business difficulties. Also, identify common buyer desires and concerns, while maintaining an open minded attitude. This will ultimately put potential buyers at ease with the critical purchasing decision.

Presently, buyers are encouraged to buy because many eager sellers are willing to negotiate the selling price, but it's essential to make sure that the willing buyer is the right fit for your company. Therefore, business owners must decide whether or not they are willing to potentially take a much lower price for their business. Although there is a smaller supply of businesses for sale, this is not to say that all business owners can't command good prices.

It turns out many of the essential business practices you've used to grow your business are also essential to selling your company. This often involves many aspects, including outlining the financial history and outlook for your business; improving the bottom line; overcoming any financial problems and preparing financial records for review by prospective buyers.

This also includes making sure to outline all of your assets (both tangible and intangible), lease conditions and debts both owed by and to you. If you haven't been diligent about keeping the books in a condition that will be easy for a buyer to understand, start doing that now.

Business buyers also want to know that they will have support from an existing workforce that is familiar with the business, its primary needs and existing customers. The employees you leave behind will ultimately help you sell the business. If possible, find an appropriate time to make sure all customers and employees know of the impending sale, but be careful about relaying the information too soon.

The last thing you want is a lack of motivation or loyalty because they know you will be leaving. Maintain the relationships to ensure their transition will be as smooth as the new owner's.

Other pitfalls to avoid include not showing the potential buyer a loyal client base; Exposing the buyer to customers who expects special treatment; and clients who have verbal agreements and contracts with you. It's important to provide the owner with this information and to examine contracts with suppliers to ensure the terms will not expire or need to be revisited when the new owner takes over.

Potential buyers won't be interested in a business that lacks a loyal client base or forces them to recover from damaging press. Happy customers are your best advertising. Conversely, one extremely unhappy customer will likely make ten other individuals turn against you, so combat criticism by being honest and communicative with clients.

One of the cheapest ways to get some loyal followers is by word of mouth. Besides one on one interaction, extend yourself online; correspond with customers via online social networks like Twitter to answer questions and talk about new business initiatives or products. It will show that your business is ahead of the curve in recognizing the importance of the digital channel.

Businesses with well known names, strong marketing and a well executed online presence will ensure a buyer that your business is staying current with the market trends. Because, in some business categories, 90 percent of initial buyer interest stems from the Internet, how well your web site functions, its content quality and the appearance will all give a buyer a first impression of your business.

Also, make sure your web platform is simple to navigate so the new owner can update it accordingly. Speaking at the local Chamber of Commerce and continuing to explore new avenues of advertising are still things you can do to build your brand offline.

A final component in the selling process to consider is whether or not to use business supervisor to ensure that your sale goes smoothly. Attorneys can assist you during the selling process by providing critical services such as preparing detailed contracts to finalize the sale or creating confidentiality agreements which safeguard against potential buyers revealing what they uncover through the due diligence process.

Why Now is the Time to Prepare the Sale of Your Business

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According to many experts, the time to begin preparing to sell your business is now. The sheer volume of businesses that will appear on the market over the next several years means that buyers will be presented with more options and more purchasing opportunities. The owners who will receive top dollar for their companies are the ones who have invested the time and energy to make their business stand out in the crowd.

Sellers must intensely focus on building value by optimizing the key drivers of the business. It is critical to continue to grow the business even after the decision has been made to sell the business.

What Needs to be in Place to Sell a Business

To sell a business, owners need to see their company through the eyes of a prospective buyer. It is impossible to begin the process of preparing your business for sale and positioning it in the marketplace until you understand what buyers want in a business.

Like most investors, buyers of businesses are risk averse. They are looking for a sure thing – or at least a business that appears to be closer to a sure thing than the other businesses on the market. In addition to a fair price, business buyers are interested in companies that have proven track records, are easy to operate, and can be relied upon for profitability and future growth.

Keep in mind that (just like you); buyers want to earn enough profit to make a living from your company – immediately. If buyers are told that they will need to increase sales, reduce expenses or completely restructure the company to do so, their interest in your business will quickly wane.

At the same time, buyers are on the alert for red flags that could translate into problems after the sale. Much of the preparation process involves systematically removing these red flags in order to make your company as appealing as possible to the marketplace.

Starting right now, you can begin to address several obstacles that often present a challenge to a smooth selling experience – regardless of when you plan to put your business on the market.

Inadequate Financial Documentation

Financial records are one of the primary tools buyers rely on to assess the health and viability of a business. In many cases, they can also be a crucial part of the valuation process. In today's business market, computer based accounting systems are the norm. If you haven't done so already, start transitioning your books to an electronic recordkeeping system and contract for an outside review of your company's financials with an established accounting firm.

Lack of Adequate Cash Flow

Not surprisingly, cash flow is another key factor for buyers. For most small business owners, cash flow is the number one measure that determines if a business can meet their lifestyle needs. A company that is incapable of demonstrating a plan for continuing profitability and cash flow quickly loses its luster in the eyes of the marketplace – even if your business has a history of healthy bottom lines.

Be prepared to offer buyers a trend of profitability and cash flow improvement as well as solid reasons why you expect that trend to continue for the next several years. If your company is currently not performing in the black, make hard decisions and do what needs to be done in order to return the business to profitability as soon as possible. 

Staffing Problems

Many business owners enjoy a special relationship with their employees. Buyers, however, are less concerned about your relationship with your employees and more concerned about your staff's ability to function at the highest levels, especially after you've moved on. Like it or not, concerns for your employees will ultimately need to take a back seat to the selling process itself.

If your workforce needs to be resized or reallocated, do it now and create a professional staff that will be a selling point for buyers. In addition, make sure you have a continuity plan in place that will ensure that key employees can be retained to help run the business for the new owner.

Lease Issues

Time and time again, I have seen lease issues bring an otherwise smooth sale to a grinding halt. With some exceptions, buyers envision themselves operating your business at its current location well into the foreseeable future. If the lease is scheduled to expire in a year or two, the new owner could renegotiate a longer lease with the landlord after the sale.

But without any guarantees, a lot of buyers will hesitate or focus their attention on businesses with more secure space. To prevent this scenario from unraveling, proactively address lease issues now by negotiating with your landlord to secure an option to extend the lease with favorable terms for the buyer.

Although the process of preparing your business for sale may seem overwhelming, the preparation process can improve your company. The bottom line is simple. Regardless of when you plan to sell your business, now is the time to start preparing your business for sale. Your business' current performance will improve and you will position yourself to achieve your sale goals when your business ultimately hits the market.

Are You Ready to Sell Your Business?

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If you've gone this far, then selling your business has aroused enough curiosity that you are taking the first step.

Question 1

The first question almost every seller asks is: "What is my business worth?" Quite frankly, if we were selling our business that is the first thing we would want to know.

Question 2

The second question you have to consider is: Do you really want to sell this business? If you're really serious and have a solid reason why you want to sell, it will most likely happen.

You can increase your chances of selling if you can answer yes to the second question: Do you have reasonable expectations? The yes answer to these two questions means you are serious about selling.

Prospective buyers eventually want to review your financial figures. Buyers want to see income and expenses. They want to know if they can make the payments on the business.

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Is Your Business Worth Buying?

One of the toughest questions we face as small business owners is whether or not we are building a business worth buying. It is a fundamental question. We understand why its value is an important issue. We realize that the price paid will reflect, in some way, the benefits received. Buyers will trade their cash for perceived future benefits.

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We invest our most valuable resources of our time, our energy and our talent. We also invest our money, if not in the price paid, the down payment, the monthly payments or in the working capital, then in the money we lose from other missed opportunities. We are also investing today in anticipation of future benefits.

So, the tough question is: are we building something worth buying? The question is one that makes most of us uncomfortable. If we do have our business on the market, we are usually uncertain of its value. If it is not on the market, we are usually reluctant to face the issue at all.

Facing the Issue

 

The problem is that we invest our time and money in our business without enough thought. The result is well known. It is estimated that 80% of all small businesses fail within the first five years! For those of us who try to sell before we burn out, we can't believe the low offers we receive! It is less well known that most businesses offered for sale do not sell for anywhere near the listed price or within the anticipated time frame.

Our business is valuable only if it is truly profitable, creating a good life for its owner. This is as true for us as it is for any stranger who might buy our business. If our business isn't profitable, why should we come to work every day? Obviously, we shouldn't! How can we expect someone else to take our place? The answer, of course, is that we can't.

What we need to create is a business that functions exactly like a franchise prototype. A franchise prototype is a small business (a franchise) run like a big business (the franchisor). It is a 'turnkey' operation. Systems exist for each aspect of its operation. It runs independently of its owner. The key is the system. Just turn the key, and it runs by itself!

To accomplish this, we need to first ask ourselves, "What do we want to do better than anyone else so that customers will choose us over our competitors?" Bigger profits and the benefits that follow are the result of better systems: marketing systems, operating systems, administrative systems. In order to know what systems are needed to make our business more successful, we first have to know what we want to achieve.

We must have a vision of what we want and of what we need to do in our business in order to achieve it. This is a vision of what our business could be. Then, like big business, we have to design better systems to take us in the right direction to implement our vision.

We must spend our time designing and redesigning 'the way we do it' until we are profitable at it. Our employees will enjoy the satisfaction of high productivity. Our customers will delight in our effectiveness and efficiency of delivering what they want. We will make money, get some time off, and build a valuable business.

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