Preparing to Sell a Business – A Quick To Do List

Are you getting ready to sell a business?  For most people, selling a business is a once-in-a-lifetime event.  It can be an emotional and stressful time for the owner.  To maximize your success potential when selling your business, it is important that you plan ahead. Here are a few important topics to consider when preparing your self (and your business!) for the sales process.

1.      Be ready to sell. There is no sense going through the motions if you are not mentally and financially committed to selling the business.  Discuss the sale with your spouse or partner in advance. Evaluate your financial needs so there is less hesitation once an attractive offer comes your way.

2.      Discuss your goals with your advisors before you have an offer. To avoid delays and misunderstandings, do not wait until you have an offer in hand to consult your advisors.  If your attorney is not well-versed in small business transactions, interview others. You are unlikely to reach the closing table if your advisors do not clearly understand your ambitions.

3.      Understand the true value of your business.  Most owners have no idea of the value of their company since small business valuations can be an art AND a science.  Consult a business sales professional (who is typically NOT a tax accountant or business attorney) for an explanation of how small businesses are valued as a multiple of seller’s earnings.

4.      Update your company’s financial statements and understand the nature of you firm’s revenues and expenses.

  • Buyers will typically require 2 to 3 years of financial statements (profit-and-loss statements, balance sheets and/or tax returns) for their evaluation.
  • Make sure you have supporting documentation for nonoperational expenses (fringe benefits such as your personal health insurance).
  • Prepare a simple list of the business’s important furniture, fixtures and equipment.
  • Document your inventory.  If it is stale or obsolete, put it on sale or donate it.  Your inventory should be lean and moving.
  • Clean-up the accounts payable and any pending legal, employee or environmental issues.

5.      Organize your legal paperwork such as operating licenses, property leases, customer agreements and insurance documents.

6.      Consider your employees.  Decide how and when you will communicate the sale with your employees.  Because of the uncertainty involved, most business owners wait until the sale is imminent (or done) before sharing the news with their employees.   A buyer is likely to keep your employees after the sale is completed, so treat employees with respect during the sales process to avoid any last-minute issues.

7.      Improve your curb appeal.  Tidy your working space – first impressions make a big difference!

8.      Brainstorm on ways to grow the business.  All buyers are looking for ways to add to the work you have done by improving sales or cutting out unnecessary expenses.  If you have ideas, be prepared to discuss them with the potential buyer.

9.      Know why you are selling and be prepared to tell the prospective buyer your reasons.  Most buyers are curious to why you are selling and will ask for an explanation.

10.     Run your business as you normally would – now is not the time to take long vacations or let sales slip!

Florida Realtor vs. Business Broker

Very few Realtors are business brokers.  It’s important to know the difference.

While both business brokers and Realtors are marketing specialists, a Florida Realtor generally specializes in selling residential and vacant or tenant-occupied commercial property while a business broker specializes in – you guessed it – selling businesses. Selling businesses is like most things in life, if you want to be good at it, you need to be focused and work hard.

What are the things that really differentiate a business broker from a Realtor when it comes to selling an ongoing business?

  1. CONFIDENTIALITY – Realtors are accustomed to putting up For Sale signs and the posting the property’s name and address in their MLS.  A business broker knows better.  Business brokers understand that you can’t leak a possible sale to teachers, parents, competitors or landlords.  The risk of disrupting your business far exceeds the reward of finding a buyer through a Realtor’s typical marketing strategy.
  2. PRICING – There’s a lot to pricing a business for sale.  It’s more than looking at what’s sold in the neighborhood and how many bathrooms you have.  A business has a lot of moving parts and a business broker is best suited to arrange those parts into a presentation that makes sense for a buyer.
  3. BUYER CONTACTS – Experienced business brokers typically have a database of buyers who are actively looking to buy businesses. They also have an existing process for marketing their business-for-sale listings just likeRealtors do for their residential and commercial properties.
  4. BUYING PROCESS – The process of buying an existing business is far different than buying a piece of real estate.  Business brokers need to be pros at maintaining confidentiality, negotiating offers, managing the buyer’s due diligence, navigating the licensing process, etc.
  5. FINANCING – As many business owners have experienced first hand, financing the purchase of a house and an ongoing business (with or without real estate) are two different animals.

Business brokerage is a profession. There is a lot more to it than most people understand.  If you are interested in selling your school and not sure if you need a business broker, we recommend that you interview an experienced Realtor, business broker and perhaps a CPA.  Ask them a lot of questions about how to price your business, how they would market, how many companies they sell each year, etc.

You will quickly understand the difference.

How to Choose a Business Broker

Not all business brokers are created equally – there are some experts who represent their field with professionalism and many others who are less than competent. It is important to get to know your broker and his/her experience, communication style and strengths. In short, you and your broker should ‘fit’ as a team working toward the goal of selling your business at acceptable price and terms.

How to choose a business broker? Here are some steps you can take to make sure you are working with someone that will effectively guide you through the process of selling your business.

  1. Check the broker’s experience and ask specific questions about their last few successful transactions. Does the broker tend to work with the buyer or seller? What went right and what went wrong during their last similar-sized transaction? Can you talk to his/her last business owner customer as a reference? How long has your broker been selling businesses in the local area on a full-time basis? And don’t just look at the name of the brokerage company – many larger firms are successful based on the work of just a few agents. The rest of the agents tend to wash through an organization in less than a year.
  2. Check the broker’s website and marketing collateral. How does the broker present businesses for sale?  Is there a formal offering package?  How are their brochures and website?  If the broker does not have a website, they are far behind the times. The internet has become the broker’s primary method of finding prospective buyers for your business. Is the site well written, attractive and easy to navigate? If a brokerage hasn’t invested in a decent website and professional brochures, they will not invest in ongoing education or the advertising necessary to attract a buyer for your company.
  3. Ask about the broker’s membership in professional business sales organizations and his/her state licenses as needed to market businesses for sale. A membership an appropriate local or national professional association means the broker is committed enough to this profession that he/she spent the time and money to maintain his membership. Having a real estate license is required in many states for business brokerage, and although important legally, it does not mean the broker’s focus is the sale of businesses. Do your homework to be sure the broker specializes in business sales and not residential or commercial real estate.
  4. Agree on the listing price before you sign the marketing agreement. Your broker should be able to explain the most customary valuation techniques for your industry and have data on comparative sales for your review. A good broker will give you an opinion of value before asking for a marketing agreement.
  5. Don’t fall for the ‘broker tricks of the trade’. If a broker tells you he/she has a buyer for your business without first really getting to know your firm, be wary.  And if a broker tells you he/she can get your asking price or more on after a brief meeting, be very skeptical.