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.

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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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