Selling Tutorial

Clearly, selling your business is a critical decision, and it is necessary to get the best professional guidance.  When you work with Provest, it makes all the difference when it comes to getting the best price and terms.

Over the years, our sellers have brought up a variety of topics and questions.  We’ve outlined some of them below.  Please contact us at 1-866-865-2983 if you have questions.  We’re happy to answer any questions you might have.  Selling your business is a very personal process and one that should not be taken lightly.

For Business Sellers

Question 1 – What is my business worth?

This is by far the most asked question and one of the most difficult questions to answer.  It is not as simple as taking your income multiplied by some factor.   There are many facets that must be considered when valuing a business.  Your industry, organizational structure, key personnel, economic conditions, client concentration risk and much more need to be reviewed to determine the real value of your company.  Contact Provest today for your free, no commitment valuation.

Question 2 – Do I really want to sell my business?

Business owners must ask themselves whether or not they really want to sell.  It goes without saying that your answer to this question should be yes.  When you ask yourself “Do I have reasonable expectations?” is the answer also “yes?”  If so, you are indeed serious about selling.

Question 3 – Is my business ready to sell?

Even when a seller is ready to sell, his or her company may not be.  This is especially true if the seller wants to maximize the value.  There are many factors to consider here.   What happens when the seller exits the business?  Do key client and/or supplier relationships suffer?  Can the management team carry on seamlessly after the close?  Have the books been kept up to date and accurately?  These are just a few of the questions Provest will deal with to ensure your value is maximized.  These issues are exemplify why sellers should think about their exit strategy years before they are ready to sell.

Question 4 – I am ready, the business is ready, what are the First Steps?

There are a variety of preparations you will have to make before you place your business for sale.

We’ve included a checklist of the items you should get together:

  • Three years profit and loss statements
  • Three years balance sheets
  • Three years Federal Income Tax returns for the business
  • Last twelve months profit and loss statements and balance sheets
  • Detailed list of fixtures and equipment
  • The property lease and lease-related documents
  • If the real estate is owned by a separate, but related entity, the last 3 years taxes needed
  • A list of the loans against the business (amounts and payment schedule)
  • Copies of any equipment leases
  • A copy of the franchise agreement, if applicable
  • Breakdown of the current inventory on hand, if applicable
  • Current Summary Account Receivable and Account Payable reports
  • Organizational Chart
  • Review of key client and vendor relationships
  • The names of any outside advisors

Everything starts with the information we’ve outlined above.  Take your time and get all of this information together in a neat and orderly fashion.

All financial statements should be accurate, up-to-date and presentable.  Our job is to work with you to present the best case for an investor buying your business.  The partners at Provest will walk you through the process step by step to ensure we have accurately captured the true economic benefit an investor can expect.  How the purchase price is allocated can be equally important as the price.  Hence, it is critical we work with your CPA to determine the best structure.

Of course, it goes without saying that prospective buyers will want to see your financial figures including income and expenses.  Buyers will want to know that they can make a living wage from your business.  While some buyers will be willing to take a risk or may be interested in strictly issues like locations, most will want to plainly see that they can make a profit.

Who  buys small businesses?

What should you expect from a buyer?  There are a few main situations that push buyers to purchase small businesses including the following:

  • Lay-offs
  • Being fired
  • Early retirement (forced or not)
  • Dissatisfaction with a job
  • Desire for more control
  • Wanting to be in charge

A Buyer Profile

Investors buying a small business should have a minimum of 15 – 20% of the purchase price in liquid assets. Often this will be from personal savings with some additional support from family members.  Most likely, your buyer will never have owned a business before.

Believe it or not, money is usually not the top driving factor when someone decides to buy a business.  A buyer knows that purchasing and operating a business involves some risk.  A buyer is willing to deal with this risk factor to fulfill his or her dream.

If you run a small business, the type of buyers who will be interested in purchasing your company will have interests that go beyond just making money.  For example, they will truly want to buy a business and will have reasonable expectations of what business ownership can do for him or herself.  Of course, a willing buyer must also have the financial resources necessary to make it happen.

What questions should I be prepared to answer from an investor?

If you do decide to sell your business, some of the questions you must be prepared to answer include the following:

  • Why are you choosing to sell the company?
  • What makes the business unique?
  • What further defines the product or service?
  • Will repeat business be a factor?
  • How often do you service key equipment?  Do you maintain service logs?
  • What can be done to grow the business?
  • What can the buyer do to add value?
  • What is the profit picture in bad times as well as good?

What Can You Do?

Consider Appearances

When it comes to selling a house, it’s all about curb appeal.  This also applies to selling a business, so be sure to work on the appearance of your facility, inside and out.  You’ll have to clean up your financials, and document all policies and procedures, just to name a few key tasks.  Handle these items before you decide to sell.  Of course, making these changes will more than likely boost your current profits, and this factor will also help you when it comes time to sell.

Everything Has Value

You may have overlooked some of the things that add value to your business, for example, customer lists, proprietary products and/or techniques, well-maintained equipment, and customized software programs.  Even good employees are a major asset.  These elements are termed “off-balance sheet items.”  While they are not used in most pricing models, they add to value.  Don’t overlook those items that make your business more attractive overall.

Get Rid of Any Surprises

Surprises  will interfere with your ability to sell, so be sure to get rid of them.  If there is anything that could get in the way of the sales process, fix it now.

We look forward to assisting you to find a buyer that is the right fit for your business.  Provest Properties welcomes any questions you might have.  Feel free to contact us today at 1-866-865-2983.

One final word- take a look at your business from an outside perspective.  Consider what you might make of your business if you were a prospective buyer.  Now with that in mind, what can you do to make your business more attractive?  As the old saying goes, “You only get one chance to make a first impression.”

Also feel free to check out our Selling FAQ page for more information.  We look forward to hearing from you!