A Step-by-Step Guide to Selling Online

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The decision to sell can be brought on by many factors, including a change in location, finances, or lifestyle. Whatever the reason, sellers should be aware of basic steps that can make the transaction more efficient and effective.

we are noticing a growing number of would be business buyers browsing our site. Unfortunately, we also see many business owners attempting to sell online using largely ineffective methods. These situations are usually the result of a lack of research and preparation before listing a business, and can greatly increase the amount of time a business is on the market, can make the selling process more frustrating than it should be, and can result in a much lower selling price.

The good news is that if business owners looking to sell can devote time to researching proper selling methods and follow simple steps, the process can be a breeze.

Step 1: Preparing to Sell Your Business

As with any type of business, selling is not something to rush. Ideally, many months (if not years) should come between making the decision to sell and putting your business on the market. This allows you to properly assess and document the financial situation of your business and to create reports detailing potential growth and revenue. It will also give you enough time to modernize any outdated systems that might deter buyers once the business hits the market.

Remember - just because you have started the selling process and know you will soon no longer be responsible for the business does not mean you don't have to keep it up to date while it is on the market. It is important to put yourself in potential buyers' shoes and consider the type of business you would like to purchase if you were currently in the market.

Step 2: Providing the Right Information

The key to selling a business while maintaining confidentiality is providing the most information possible without giving away the identity of the business. It is important to give viewers an idea of the general location of the business, but do not post the street address, phone number, or email address in the listing. Instead, create a separate email address and phone number for inquiries from potential buyers.

Do tell potential buyers why you are selling the business. If you are honest, people will tend to be less skeptical, and you will probably sell the business faster. If your listing makes it seem as though you are hiding something - even if you aren't - potential buyers will be quick to pick up on it and shy away.

Once you list your business for sale, you might find that certain questions come up repeatedly in inquiries. This can serve as a good guiding point for what you should change or add to your listing.

Step 3: Screening Buyers

Another potential issue to prepare for is receiving inquiries from people who are not serious about buying. Sellers often encounter people who have the dream, but no realistic intention of going through with a deal. After all, there are a lot more people who are interested in becoming a business owner than people who are actually capable of becoming one.

It is difficult for online marketplaces to screen potential buyers, so sellers have to determine whether prospective buyers are serious or just casually browsing. The best way to do this is by selling potential buyers direct questions about how long they have planned on buying, how they plan on financing the business and how much money they have for a down payment. This kind of informal interview will allow you to determine early on whether the prospect is worth pursuing.

Step 4: Negotiating and Closing the Deal

Once you have found a promising buyer who checks out, the issue of negotiation will undoubtedly come up. Consider this: In a typical business sale, the negotiating skills of the buyer and seller can result in dramatic swings in the final selling price - regardless of how diligently the seller has prepared the business for sale. If the seller isn't up to the task, all the work that has gone into the listing can be undone in a single negotiation session.

And unfortunately, that's just what is happening to many sellers who decide to sell on their own. The good news is that it doesn't have to be that way. Equipped with a basic understanding of the negotiation process, business sellers acting independently can learn how to stand their ground and get they deserve. Other business intermediaries, including business supervisors, and/or attorneys and accountants can be valuable resources during this phase of the process.

The overarching principle of successful negotiation is doing so from a position of strength. Business sellers should come to negotiation fully prepared with well researched, documented valuation information. This way, you will have a strong basis for sticking to or very near the price you are requesting.

Listing on an online marketplace also helps negotiation in that it stirs competitive interests from possible buyers. If buyers can see there is a lot of activity surrounding a listing it will only help to create more demand for your business.

Once all the specifics have been properly taken care of, you can rest assured your business will go on successfully while you pursue ownership of a new establishment or move onto other ventures.

http://www.2misi.com/article/2012/07/a-step-by-step-guide-to-selling-online

What Impacts the Selling Price of a Business for Sale

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http://www.2misi.com/article/2012/06/what-impacts-the-selling-price-of-a-business-for-sale

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.

Buying a Manufacturing Business

Despite the fact that the manufacturing base has been shifting offshore for the past several years, many prospective business buyers look to get into manufacturing. The challenge of course is that locating a solid manufacturing business with a bright future gets more difficult to find everyday. As a general rule, the only manufacturing businesses that are not vulnerable to having the competition move offshore are ones that either have a proprietary or patented product, or that provide "just in time" inventory to their customers thereby eliminating offshore production and the long lead times that go with it.

Determining what "drives" the business and making sure that specific component matches with your strengths is the key to success for a new owner of an existing business. Many businesses require general business skills and the intricacies of the business can be learned during a transitional period. However; this is not the case with a manufacturing business. The single most important attribute that you must have when buying a manufacturing business is prior experience in this sector. This is not the type of business that you can easily or quickly learn after you take over.

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http://www.2misi.com/article/2012/07/buying-a-manufacturing-business

 

What to Consider When Buying a Manufacturing Business

• What assurances are in place that the company can continue to manufacture domestically?
• Does the company compete on price, quality, or service or have a process/product exclusive to them?
• Any customer concentration issues?
• Do you have access to additional funds for future capital expenditures? On this note be sure to adjust the Owner's Benefit downwards to accommodate future capital expenditures.
• Is there any pending technology that could render your product or process obsolete?
• Can the client base be expanded? How?
• Can you add new products to your offering?
• What is the condition of the equipment? Is it the latest technology or antiquated?
• What does the owner do each day?
• Are the systems up to date to manage the manufacturing process?
• You will want to learn about the typical "Work in Progress" levels since this almost always becomes an issue in closing the deal.
• What sources does the company use for raw materials? Will they continue to sell to you and on what trade terms?

Many industrialists have made fortunes in the manufacturing business. Despite the fact that we are shifting to a serviced based economy, there will always be certain industries and products that will require domestic manufacturing. Naturally, you will want to be certain that is the case for any business you consider.

There is also a high degree of gratification in creating and producing a product and many owners of these types of businesses will identify this a key aspect to what they like about the manufacturing sector. Although opportunities remain in the manufacturing industry, it is critical that you conduct your research and properly educate yourself about buying a manufacturing business.

Five Questions Business Buyers Should Ask, but Usually Don't

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The average business for sale buyer goes into the buying process with an arsenal of boilerplate questions for the seller. But the questions buyers really need answered are the questions they usually don't think to ask.

To protect themselves, buyers have traditionally relied on a standard list of questions to shed light on the company's historical performance and current financial condition. Due diligence itself is designed to focus the buyer's attention on issues such as financial conditions, business operations, personnel, condition of assets, etc. - all of which need to be addressed before the buyer can made an informed buying decision.

But a growing trend in the business for sale marketplace is making it necessary for buyers to ask a new set of questions. Business supervisor continue to play a vital role in the business marketplace and participate in a substantial number of business for sale transactions.

For some buyers, the lack of business supervisor expertise can ultimately lead to a purchasing decision based more on gut feelings than facts. For those business buyers unsure of their ability to make a sound purchase decision on their own, professional business supervisor can play an important role.

While answers to the regular financial and operational questions are still crucial, there are five other questions buyers also need to ask.

Question #1: "When Did the Owner Decide to Sell the Business?"

The reason behind the owner's decision to sell is less important than when the owner decided to put the business on the market.

Ideally, the answer buyers should look for is that the listing didn't arise suddenly, but came as the result of a well thought out, multi year plan conceived by the owner as a means of achieving his personal and business goals. If that's true, the owner should be able to provide the buyer with a copy of the plan upon request.

But if the owner's decision to list the business happened quickly, that could be a red flag that the business is in trouble, that there are economic threats on the horizon, or that the owner hasn't taken the time to properly prepare due diligence materials.  

Question #2: "What Valuation Method Did the Owner Use to Determine the Selling price?"

In a typical business for sale transaction, the buyer and the seller each perform their own valuation of the business' worth. Many sellers assess their business' worth by way of an asset based valuation method simply because it is the easiest valuation method. Unfortunately, it is also the least accurate way to determine a value for small businesses. Income capitalization methods are equally unreliable for small company valuations.

Instead, savvy small business buyers utilize a multiplier valuation method based on the owner's benefit. If the seller also employs a multiplier valuation method, both parties enter the negotiation process on the same page. If not, the negotiation process will likely become an exercise in apples and oranges. The buyer and the seller will both experience frustration because they are unable to agree on a common basis for valuation. 

Question #3: "What Does the Owner Want to Walk Away With?"

Although it may seem unlikely that the seller will disclose his bottom line before the negotiation process has even started, it's important for the buyer to make an effort to discover what matters to the seller.

At the very least, buyers who are willing to ask this question will begin to get an idea about the seller's non cash motivations. The vast majority of small business owners are just as concerned about the business' future as they are about how much money they will make on the sale. The seller's non cash motivations can be a powerful negotiation tool for buyers. When the negotiation process hits a wall, knowing everything that is important to a seller can sometimes close the deal.

Question #4: "What Would the Seller Do to Increase Sales and Profits"

More than anything else, buyers need to create opportunities to inject a dose of reality into the buying decision. Presumably, the person who is most qualified to offer a realistic perspective about the business and its future growth prospects is its owner. Yet sellers often prefer to paint a rosy portrait of the company rather than simply telling it like it is.

One of the ways a buyer can break through a reluctant seller's defenses is to invite the owner to make suggestions about how to increase capacity, market share and profitability. With the right approach, a buyer's appeal to owner expertise can change the seller's posture from defensive to collaborative.

 

Question #5: "Is the Seller Willing to Sign a Non Compete Clause?"

An established customer or client base is one of the reasons existing businesses are so attractive to buyers. That incentive disappears if the owner's intention is to sell the business and take the company's customers with him.

There is no surer way to surface a seller's real motives than for the buyer to request a contractual non compete clause. If the seller refuses, the buyer should proceed with caution since the business' customer base may be soft. On the other hand, if the seller agrees without blinking an eye, the existing client base can probably be used as a reliable gauge for financial projections.

http://www.2misi.com/article/2012/06/five-questions-business-buyers-should-ask

Business Selection for Aspiring Entrepreneurs

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Small business ownership is more popular than ever, but the road to owning a business that fits your personality and goals can be fraught with pitfalls if you're not fully prepared.

It's crucial not to underestimate the importance of choosing the right business. Imagine trying to run a marathon wearing running shoes that are three sizes too small. That's what it's like to operate the wrong business. Your efforts will likely be doomed from the start simply because you chose a business that doesn't match your interests.

As long as you keep in mind some key points when choosing a business, there's no reason to be discouraged. Thousands of aspiring business owners turn their entrepreneurial dreams into a reality every year. There are a variety of factors that go into the business selection process and, believe it or not, most of them are unrelated to the amount of capital you are able to invest in the business.

Choosing the Right Type of Business

The intangibles involved in selecting an appropriate industry and type of business can have an impact that lasts far beyond your first day on the job. Personal interest and passion are non negotiable elements in a successful business venture.

When the initial excitement of becoming a business owner wears off, you'll be left with the task of actually doing the work, day in and day out, for as long as you own the business. If the kind of work your business does isn't very interesting to you, you're setting yourself up for disappointment and frustration down the road.

A lot of new business owners begin the process by conducting an honest assessment of their interests. In fact, the most successful businesses often begin as a hobby which eventually inspires the business buyer to transition into ownership.

Another intangible has to do with the owner's skill set. Theoretically, it's possible to buy into a business in which you have absolutely no skills or experience. The problem is that the business may not be able to endure a lengthy learning curve. For example, if someone with no previous skills in the salon industry buys an existing hair salon with the intention of getting trained and certified along the way, a major issue would be how the business would survive while the owner learns the ropes. Would other employees fill the gaps, or is it a better idea to work alongside someone else before jumping into business ownership?

As you assess your interests, be realistic about your skill level. If your chosen field or industry requires training, factor it into your business plan from the start and make allowances to compensate for your gradual integration into daily operations.

Identifying the Right Business Opportunity

After you have determined the type of business that appeals to you and that you would be truly happy owning, the next step is to look for specific businesses that fit the bill in your price range. Unless you have a large amount of cash at your disposal, you will need to finance a good share of the purchase price, so a visit to your banker or other financing professional is a prerequisite to beginning your search. The goal should be to understand how much you can afford to pay for a business, factoring in the amount you may be able to borrow from a bank, friends and family, or the business seller.

http://www.2misi.com/article/2012/06/business-selection-for-aspiring-entrepreneurs