The sale of a business is a complex task. Select experienced and qualified advisers. Selecting the right adviser can not only impact the value of the sale, but whether the sale will occur at all. You need to focus on future cash flow. Past performance is important, however, if you can develop defensible financial projections, pro formas and strategic benefits, you will greatly increase the selling price of the business. Sit down and write a business plan so a potential buyer can see the state of the business, its growth since it started, and where it can potentially go. Maintaining a good accounting history of what your business has done is critical. The buyer needs to know what the return of the business is at this moment, before thinking about the future. It is imperative that you clean up those financial statements. You need to clearly show ‘typical years’ of business. Accurately value your company. If the price of the business is too high it won’t sell at all. If you price it too low you are leaving money on the table. A professional valuation is paramount to maximizing the selling price. When writing your business plan, focus on the future of the company. If there are plans to get the business growing, start to implement those changes now and include the details of them in your business summary. Prepare an excellent offer to sell package. Without an excellent offering package, the chances of selling for maximum value are very slim. It must fully explain the past performance while enthusiastically selling the future opportunity. Can the business run without the current owner? Will it perform under new management? Future company performance can’t be completely dependent on the current owner. Hire, train, delegate, and create systems that can work for others. Don’t neglect intangible value. Most buyers are willing to pay the base value for a business. However, inexperienced sellers do not capitalize on the intangible value of the business. Experienced brokers will substantiate, support, and quantify the intangibles to maximize value. Make sure your income statements are correct. If you try to diminish your income statement to pay less tax, you will receive less of a purchase offer at the time of sale. Obtaining top dollar means reporting all of your income. If you show a trend of increasing profitability, you can sell future profitability more easily. You will also need to reconstruct your income statement to reflect the true cash flow of the business—all personal expenses, travel and entertainment, donations, interest depreciation, salary, uncollectible debts, and promotional expenditures. Focus intently to increase your sales and minimize costs one year before the sale of your business. Maximize sales with maximum advertising that generates the greatest yield. Enhance your image with an interactive Web site showing off your business. The Web is the future of sales media and if your Web site is lacking you will have a lower appeal to potential buyers. Lower your costs, especially inflated family payroll and questionable family expense write-offs that could reduce your profitability and lower your sales price. Try to complete the following: renegotiate outstanding debt, renegotiate outstanding supplier contracts for more favorable terms, accelerate collections of outstanding accounts receivables, renegotiate insurance premiums, and reduce all expenses with a professional business consultant to maximize your profitability. One of the most common mistakes we see is business owners listing with their local real estate agent. They could be the best real estate agent in the world, but if they don’t understand business—cash flows, balance sheets, how values are derived—there’s little chance of selling for the full value of the business plus the real estate. Remember, it is a buyer’s market. So, when you are asking for FMV: fair market value, it might be apparent that you are in distress, and the buyer will offer no more than LV: liquidation value. Appearances are everything. FMV is the focal point and the buyer has to see everything to guide them to offer the FMV or you will only receive the LV in a distressed sale. Remember, valuation is a prophecy of the future performance value of the business in any economy. Assets- Liabilities= Owners Equity= Book Value The normal offering for businesses attempting to sell is as follows: Actual Cash Value for companies less than $250 K = 1 to 3 x ACV Actual Cash Value for companies greater than $250 to 500 K= 2 to 4 x ACV Determine Your Business Value 3 Ways:
1. By comparison to sales of similar businesses.
2. Based on the business’s earning power.
3. Based on the business’s assets.
AS professional business brokers/consultants we can help you:
1. Negotiate with multiple buyers. Buyers will seek an exclusive negotiating position to lock out other buyers. It is important to carefully manage the negotiations to allow multiple buyers to compete for your business which results in a higher selling price.
2. Create optimal deal structure. Deal structure is a very complex issue and can dramatically impact the amount of money you are left with after the sale. It impacts taxes, financing, down payments, purchase price allocation, non-competes, and much more. You need an expert to guide you in creating the optimal deal structure. If you are interested in receiving a free evaluation please call me: 518-583-1900.