If you’ve come this far, then the option to sell your business has aroused enough curiosity in you that you are taking the first step. You don’t have to make a commitment at this point; this is just you searching to be informed about the necessities of successfully selling your business. This article should answer a lot of your questions to help you through the maze of the process itself.
The first question that most readily comes to a seller’s mind is: “What is my business worth?”. Honestly, if we were sellin gour business that is the first thing we would want to know. However, there are things that need to be solved first to even get to this very important issue. Before asking this question, you have to be willing to sell your business for what the market is willing to pay. If you’re just only looking to make money, then you are not ready to sell.
It does not matter what you think your business is worth, or what you want for it. It also does not matter what your accountant, banker, attorney, or best friend thinks your business is worth. Just like home real-estate, only the marketplace can decide what your business’ value is.
“Do I really want to sell this business?” is the second question to be considered.If you’re actually serious and have a real, solid reason(s) of why you want to sel, then it will most likely happen. You really increase your chances of selling if your answer is ‘yes’ to this followup question: Do you have reasonable expectations? If you answered ‘yes’ to these two questions, then you are serious about selling.
Taking the First Steps
Alright, let’s assume that you already decided to at least take the first few step in actually selling your business. Before you even think about placing your business up for sale in the market, some steps are required before jumping in. The first and very important step you have to complete is gathering information about your business.
The following is a checklist of the items you should get together:
- Three years’ profit and loss statements
- Federal Income tax returns for the business
- List of fixtures and equipment
- The lease and lease-related documents
- A lost of the loans against the business (amounts and payment schedule)
- Copies of any equipment leases
- A copy of the franchise agreement, if applicable
- An approximate amount of the inventory on hand, if applicable
- The names of any outside advisors
Now if you’re like most other small business owners, you will have to search for most, if not all, of the items on this checklist. Once you gather ALL of the above items (all that are applicable, that is), you should spend some time updating the information and filling in the blanks. It’s pivotal that you take a long, hard look at all of this because you have most likely forgotten much of this information. You want to have all of your information in a neat and orderly format, just as if you were going to present it to a prospective purchaser. Everything starts with this information.
You need to make sure the financial statements of the business are current and as accurate as you can get them. If you’re half way through the current year, make sure you have last year’s figures, tax returns, and also year-to-date figures. Make all of your financial statements presentable. In the long run it will pay to get outside professional help, if necessary, to put the statements in order. You want to present the business well “on paper”. Later you will see pricing a small business is usually based on cash flow. This includes the profit of the business, but also, the owner’s salary and benefits, the depreciation, and other non-cash items. If the bottom line isn’t what you think it should be, don’t panic. By the time all of the appropriate figures are added to the bottom line, the cash flow may look pretty good.
Prospective buyers eventually wan tot review your financial figures. A Balance Sheet is not normally necessary unless the sale price of your business would be well over the $1 million figure. Buyers want to see your income and expenses. They want to know if they can make the payments of the business (more on this later), and still make a living. Let’s face it, if you business is not making a living wage for someone, it probably can’t be sold, and won’t be sold. You may be able to find a buyer who is willing to take the risk, or an experienced industry professionals who only looks for location, etc., and feels that he or she can increase business.
*Another Insider Tip:
How much you’re willing to sell your business for is not really the big question, but rather, how much of it can you keep? The Federal Tax Laws do determine how much money you will actually be able to put in the bank. How your business is legally formed can be important in determining your tax status when selling your business. For example: Is your business a corporation, partnership, or proprietorship? If you are incorporated, is the business a C corporation or a sub-chapter S corporation? There are some new tax rules, effective January 1, 2000, that impact certain businesses on seller financing. The point: before you consider price or even selling your business, it is important you discuss the tax implications of a sale of your business with a tax advisor. You do not want to be in the middle of a transaction with a solid buyer and discover that tax implications of the sale are going to net you much less than you had figured.