Know The Buyer
One of the top commandments for anyone looking to sell a small business is to recognize where your prospective buyers will come from, and what will motivate them to acquire your company.  Among all the things you can do to sweeten the deal and attract a wider selection of prospects, one of the best involves seller financing.  Many buyers will express an interest in your company and possess the skills to run it properly, but they may be financially constrained in doing so.  By understanding what motivates a buyer and showing the willingness to accommodate him or her, you will sell your business more quickly and for the price you want to achieve.

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Selling Your Business?
Once you decide to sell your small business, the next step involves finding someone to buy it.  When advertising a business for sale, the first inclination may be to broadcast the opportunity far and wide.  Some owners even go so far as to put a sign in their window that reads, “This business for sale.”  While you will probably generate quite a bit of interest, it may not be the sort of “buzz” you’d like.

Business Confidentiality
One of the greatest challenges facing a small-business owner is how to advertise a business for sale while maintaining business confidentiality.  On the surface this may not seem like much of a big deal, but consider some of the unintended consequences.  What about your existing relationships with vendors and suppliers?  Many have learned from past experience that business owners who plan to move on may not be as quick to pay their bills, and they have probably been involved in situations where the owner stiffed them entirely.  Then there are your employees.  One of the greatest selling points you can make to a prospective buyer is the fact that he or she is buying a business with a fully trained staff.  Workers get nervous when they discover that the place where they’re employed is on the block, as the new owner(s) may not want to retain them.  A final concern involves your competition.  Competitors can use the knowledge of your impending sale as a wedge against existing clients.  Imagine the following conversation:

“Pssst, Mr.

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Short Answer…
Yes.

The Concept of Business Valuation
Whether you own a business and want to sell it, or else you’re an entrepreneur who desires to buy an existing small business, somehow or other you need to know what the company is worth.  On the selling side, the plan is to make the price low enough to attract a bevy of buyers, while making sure you’re not giving away potential profits.  From the buyer’s standpoint, you want to assess the value of a business in comparison to its posted cost.  The price you pay for a small business can seriously affect months or years of down-the-road profits, so this factor is not to be taken lightly.  In many cases, a seller will engage the services of an expert to determine a reasonable market value.  Buyers oftentimes hire their own experts to assess the price of a business they wish to acquire.  These dueling experts may arrive at vastly different figures.  Their ability to compromise can result in a mutually satisfactory transaction for both buyer and seller, but much of that process may be based upon what method each side uses to arrive at a price.

Determining the Value of a Business
There are three reasons why an owner of a small business will hire someone to determine its value—a pending sale, some sort of lawsuit, or else tax and estate-planning issues.  For the purposes of this article we are concerned only with the first, but the process is the same no matter why a valuation is required.  There are three basic methods experts use to value a business:

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Why Business Valuation Is Important
The process of arriving at an accurate assessment when valuing a business is perhaps the most challenging aspect of any prospective small business purchase.  A seller has arrived at a specific price he or she wants for the company, and one must determine if that business value is accurate.  Pay too much, and you will struggle to make a profit.  Pay too little—well, there’s hardly a down side there, but the scenario is unlikely at best.  There are several ways to value a business; choosing the most appropriate one for your situation—and ensuring that it’s accurate—can make the difference between success and failure.

Three Basic Approaches
Small business valuation generally falls into one of three categories:

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Five Magic Steps
At some point in any entrepreneurial career a business owner will be compelled to say, “I want to sell my business.”  Whether he or she is a sole proprietor or the head of an ownership group, selling a business does not need to be a complicated affair.  There are a few simple rules to follow and a minimum of steps to take, so read on and sell your business with confidence.

1. Decide on a Valuation
Putting a price tag on the value of the company is the first and most important step you will take to sell a business.  There are various ways to figure that value, most of which involve looking at previous net earnings, the replacement value of existing equipment and inventory, real estate values (if property is part of the equation), the price at which similar businesses in your industry have changed hands (i.e., comparables, as they are known in the home real estate market), and formulas that calculate earnings factors based on capitalization rates and bank discount rates.  A number of professionals can help you put an asking price on your business for sale, including business brokers, accountants, or even real estate attorneys who specialize in handling the sale of small companies.

2. Tips on Preparing Your Business For Sale
Before actually putting your company on the market, it will pay serious dividends to get your business into optimal shape.

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Multiple Owners Could Mean Multiple Headaches
Some business owners have the privilege of controlling 100 percent of their enterprise.  These companies are sole-owner entities.  You have no one to answer to but yourself in the event of business challenges, but all the success you achieve is yours and yours alone.  For everyone else - caution and a good “prenuptial” agreement is vital.  With companies that have more than one owner, no matter how small some of those ownership shares might be, a great deal of angst and potential bitterness - not to mention litigation - can be avoided by starting the business with a buy-sell agreement already in place.

What is a Buy-Sell Agreement?
In basic terms, a buy-sell agreement is a document that describes a prearranged plan to account for the disposition of ownership shares under a variety of circumstances.  The agreement should be written to cover a wide range of contingencies, including death, divorce, incapacitation, personal bankruptcy, retirement, or just plain got-tired-and-want-to-sell syndrome.  The agreement will also include limits on the sale of ownership shares under non-catastrophic conditions, as well as who gets first crack at the seller’s portion and how a price is determined.

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Keeping Things In the Family
After toiling for years to build a successful business, you are proud of your accomplishments but ready to take some time off, or perhaps retire altogether.  Because you have so much invested in your company - both financially and emotionally - you hate the idea of seeing strangers behind the counter, or in your favorite office chair, or chatting up your suppliers.  Perhaps it has been your dream to create a business your children could enjoy, and maybe even hand down to their children.  Some of the greatest private wealth ever created has come about through the multi-generational ownership of business enterprises.

Benefits to Family Ownership
There are many challenges a business owner faces when it’s finally time to move on.  By selling to a relative, some of these problems disappear or are greatly lessened.  If a buyer comes from your own family, there is no need to actively market the business for sale.  Little due diligence is necessary, because you already know everything about that person’s financial situation and business acumen.  Financing the sale is easier, and there are tax advantages to transferring ownership to a relative, such as via a private annuity or an installment deal.  One might assume the buyer has been intentionally groomed to take over the business, so there is an expectation that the success the company has enjoyed down through the years would continue uninterrupted.  Customers and suppliers alike would see a familiar face and feel comfortable that the business has remained in satisfactory hands.  Finally, if your personal relationship with the buyer is a good one, they will likely welcome your continued involvement with the business, especially during the critical transition period.

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Be a Smart Business Seller

Congratulations!  You have built your small business into a very successful enterprise over the years, and now it’s time to sell it and enjoy the fruits of your labor.  Perhaps you are dreaming of retiring next to a mountain stream with a fishing pole in your hand, or you may have other business ventures in your blood that you plan to finance with the proceeds from the sale of your current venture.  No matter what the reason, you can’t move forward until a buyer is found and a check is burning a hole in your pocket.  You probably sought out professional help when it came time to start your business - using the knowledge of your attorney, accountant, banker, and so on - so why not engage the services of a professional to help on the other end of the transaction?

The Business Broker

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