Five Key Steps To Take Before Selling Your Business

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Step 1 – Decide why you want to sell.
Have you had a bad day?  Are sales and profits declining?  Are sales and profits increasing?  Are you tired and think you need a change?  Are you having health issues?  Do you want to retire?  Do you think more lately about sitting on the beach, fishing, relaxing in the mountains, or seeing the world?  Have you lost interest in the business?  Do you feel overwhelmed with all of the new technology?  Are government regulations and taxes making it difficult to have a successful business?  These are common reasons given by business owners, but you may want to sell because of something else.  The first step to take before selling your business is to decide why you want to sell.

Step 2 – Get your financials in order. 
Having valued many businesses, I have seen many creative bookkeeping styles.  The value of a business is primarily based on its adjusted cash flow.  There are expenses shown on a financial statement that are not necessary for the operation of the business, that are owner’s personal expenses, or that are not real expenses, like depreciation.  In determining the true value of a business, these are added back to the cash flow to determine the adjusted cash flow.  These expenses are legal and are shown on the income tax returns, causing the amount of income tax paid to be less.  However, these added-back expenses must be provable.   While the above is all legal, a problem arises when owners do not show all of the income.  I could give you a long list of excuses I have heard owners give to justify pocketing part of their income.  This seems to be especially tempting in “cash” businesses.  If you have not been showing all of your income, your selling price will be higher if you keep the business another year or two and show all of your income.  There is no way to show or explain income that is not recorded, although most sellers tell serious buyers.  If it is not part of your financials, you have no proof  that extra cash was real; and your business broker will not want to be present when you admit this to a buyer.

Step 3 – Take yourself out of the picture.
Try to imagine the business without you in it.  How will it function without you and do customers come to the business to see you or expect you to personally do the work they require?  If you have a small business in which you are one of the workers, the selling price of the business will probably be less, as some business may be lost after the sale.  You may want to work at getting yourself out of the spotlight. If the work is done by employees and you are the manager, the purchaser is less likely to lose customers.  When thinking of selling, you probably want someone with skills and abilities similar to yours.  If a couple owns a business in which both work, an amount will be subtracted from the profit to pay someone to replace one of the owners.

Step 4 - Choose a Business Broker.
You want the best professional guidance you can get, so you choose a professional business broker to work with you.  This can make the difference between just getting rid of the business and selling it for the very best price and terms.  A business broker represents the seller with fiduciary responsibility to the seller in all transactions but works also with buyers to find the perfect fit.  The objective is to match the “right” buyer with the “right” seller.  The business broker will evaluate your business to help you determine a selling price that will sell in the current market, prepare a marketing package, and confidentially market your business to qualified buyers.  The broker will take charge of the negotiation process to get the highest possible price for your business on the terms acceptable to you, will assist you in the due diligence phase of the sale and will work with you through closing to handle any problems that may arise. 

Step 5 -  Decide if the time is right.
You have devoted your time, money and energy to building, running, and operating your business; and it may well represent your life’s work.  You have found ways to overcome its weaknesses.

  • Author: Pat Jones
  • Title: President/Owner - Business Broker
  • Company: Pat Jones Business Brokers
  • Company Website: http://www.patjones.biz/
  • Date: April 20, 2017
  • Category: Buying a Franchise or Business
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