The buzz is that if you are a Baby Boomer and you want to sell your business in the next few years, then you are in the majority. You are not the only Baby Boomer and will possibly have your business compete against many more similar businesses in both model and industry. In order to be well-prepared, you will need a proper valuation. Establishing a baseline value of your business will help you overcome weak areas that keep you up at night. Why would a buyer want to buy your problems? Some savvy entrepreneurs will want your problems, but most will not.
Check out our short video on the different types of Valuations.
Roger Murphy, our CEO, explains the different types of valuations we provide.
When you’re hoping to sell your business there are a number of things to be concerned about. There are a few ways you can get a step-up on your buyer and anticipate their moves before they have thought them up themselves. If you want to swim with the piranhas you’re going to have to nip a few toes; if you want to sell your business, you’re going to need to think like your buyer.
Understand what the buyer is after – One of human beings greatest faults and one of the things which every business seller can be at fault of is being too rooted in your own self-interest. If you would take yourself out of the equation for a moment, you’ll likely find that your deal is skewed towards your own interests; at least in your own mind. Think about what the buyer is after; what could make this deal impossible for them to say no to? If all business sellers would simply take a minute and put themselves in their buyer’s shoes they may find that the work is done for them. The schematics of the deal will fall into place effortlessly if you let them.
Be Upfront when selling your business – You would hate to be trying to hide something negative about your business; be it the structure of the building, last year’s receipts, inflated accounting or anything else; only for this to be revealed later on and to be bitten by it down the road. Rather than fight that fight, be upfront. Not only does this tactic save time on the vetting; then the buyer is a lot more likely to be straight with you. You can know sooner if this deal is a good fit or if the time has come to part ways.
If you’re able to be flexible with financing, be flexible! – Financing is another bugaboo. If you’re the outright owner and are able to be flexible with financing you may as well offer that up as an option. This may allow you to keep your hand in the kitty just a little longer and enjoy continued fruits of your labor. Be wary of the hostile takeover – Don’t be too nice. If you feel as though you’re being stepped on, best to revert to a defensive pose.
It’s also a good idea to have a trusted partner on your side to help broker the deal.
An established business has much to offer a prospective buyer. A proven product or service exists, as well as a customer base. Typically, there are experienced employees and managers in place (and many choose to remain with the company after the sale is complete). There is a cash flow from the first day the buyer takes over the business. The company is already accustomed to paying its debt service in addition to a reasonable salary for the owner. The following are some of the things that will make your business stand out and be attractive to buyers:
Proven verifiable books and records, tax returns
Leverage and terms, They want to use bank financing, owner financing and as little of their own money as possible
Solid, verifiable cash flow
Furniture Fixtures and Equipment properly valued and in good condition
Positive appearance of facility, good reputation
Favorable lease and lease options
Training, transition period with the seller
Covenant not to compete, non-solicitation agreement
Prospective business buyers often make the terrible mistake of being overzealous when talking with a seller for the first time. I get it; you’re excited. Perhaps you have spent a ton of time looking at listings and do not want to waste any time on potential businesses that fail to meet your criteria. However, what you say and how you come across when you first engage a seller is critically important and sets the tone for continued discussions.
Can’t We Just Get Along
Your initial goal is to introduce yourself to the seller/business and get a general idea of how it operates. Your first conversation should be to outline what you are looking for in a business, as well as to convey that you are a serious buyer. It is also the time to get a first impression of the other party. Before a seller will divulge any material information, you will be required to execute a non-disclosure agreement and moreover, it is something you should immediately offer to do for the seller. It will put them at ease that you are: a) familiar with the process, and; b) sincere about your intentions.
Don’t be A Bully
There is no bigger turn off than a buyer who comes across as overbearing or a know-it-all, or who acts rudely and immediately requests detailed financial or other confidential information. The process to buy a business is just that a process with specific steps along the way, including the dissemination of information pertinent to making a decision. It all comes in due time and each seller may have a different agenda for giving you that information. Be patient and sensitive to the fact that this may be new to them as well.
Key Questions To Ask The Seller
There are numerous key questions to ask every seller, including:
What is the history of the business?
What are their day-to-day responsibilities?
What challenges do they face?
What have they done to grow the business?
Why are they selling the business?
Are there any key customers, suppliers, or employees?
Can the lease be easily transferred to another party?
What special licenses (if any) are needed to run the business?
How did they arrive at their asking price?
Are they willing to finance part of the deal?
What training will they provide?
Who are their main competitors?
Do Your Research
Parallel to the seller questions is learning about the industry. The Internet is the greatest tool to come along for buyers. There is a wealth of detailed information on every industry but keep in mind that you are probably looking at a local business so do not go overboard with global trends or using billion dollar companies as a comparison that will have zero impact on the business you are evaluating.
The Goal Early On
In the early stages of evaluating the business, there are three key questions you should ask yourself:
Do I like the business?
Can I see myself running it?
Do I trust the seller?
Buying a business is a huge responsibility and it will change your life. Its important to do your due diligence, get to know the seller, as well as gain a very clear understanding as to what you’re getting yourself into. Buying a business is also an exciting opportunity. This is your chance to be your own boss, grow a company and make it your own.
About The Author
Richard Parker is the author of How To Buy A Good Business At A Great Price, the most widely used reference resource and strategy guide for buying a business. He has purchased ten businesses in his career and has helped thousands of prospective buyers worldwide learn how to buy the right business for sale. He is also founder and President of Diomo Corporation – The Business Buyer Resource Center.