I grew up on Lake Lanier in Gainesville, Ga. We were always on the water skiing, fishing or just riding around with friends. It seemed like we’d always have boating troubles to which my dad would proclaim, “The two best days of having a boat is when you buy it and when you sell it.”
Owning a business can be thought of the same way, “I am happy when I started my business and when I decided to sell my business.” Owning a business is rewarding but it is also difficult.
7 Considerations To Selling My Business
· Reasons People Sell Their Business
· How Much Is My Business Worth
· The Process Of Selling A Business
· Confidential Marketing A Business
· Professionals Involved In Selling A Business
· Seller Financing vs. SBA Financing
· What Is Due Diligence?
Reasons People Sell Their Business
We meet daily with business owners that say, “I want to sell my business, can you help me?” We always reply with the same question, “Why have you decided to sell your business?”
1. Retirement – One business owner that we are currently working with has owned his pool installation business for 45 years. His business is the largest in the state of North Carolina and he has been wildly successful but now he is ready to retire.
2. Health – Unexpected health concerns impact every business owner in many different ways. An owner we are currently working with has had recent health issues arise and he told us that he doesn’t want to leave the weight of the business on his wife if something bad were to happen.
3. Burnout – Business owners make huge sacrifices of family, finances and time. We can always tell when we are working with a business owner that is struggling with burn out because they typically answer the “WHY?” question the same way, “I’m done!” They often follow this statement up with the question of, “How quick do you think that you can sell my business?”
4. Boredom – Entrepreneurs are starters by nature. They like to get things off the ground as pioneers and then many times they are off to the next project. The management of a business and implementing systems seems to choke their creativity and quest of chasing dreams.
5. Family – Families are the ones that sometimes suffer the most in small businesses. Recently a small business owner showed us a small cot their small children sometimes sleep on under the counter of their store. Sometimes the strain placed on the family is more than it should be. We are always happy to assist business owners that prioritize their families over their business.
6. Economics – When the economy is good, many business owners are wise to sell their business for maximum profit. When the economy is bad, like we are seeing now, business owners sell their businesses out of the fear of having to close their doors.
7. Leadership – Every leader has different leadership capacities. When a leader realizes that they have taken their business as far as they can effectively lead, it is time to sell their business. The hopes are that the next owner possesses the leadership skills to advance and grow the business into the future.
How Much Is My Business Worth?
A business’s worth is realized and eventually proven by its books. There are MANY factors that shape the valuation of a business and here are a few:
1. Industry Multiples
2. Net Profit
3. Owner’s Role
4. Train Staff
5. Growth Trajectory
6. Business Location
8. Motivation To Sell
9. The Economy
10. Industry Trends
If you want to know what your business’s value is on the open market you should contact a business broker in your area. A quick look at a business brokers Google Reviews can help you sort out the best ones in your local area.
After contacting a business broker, here are the documents that you will need to have prepared: The last three years of business tax records, current P&L, Inventory/Fleet List. After supplying these documents initially, your business broker will ask for further information if required.
The Process Of Selling A Business
Selling a business is typically a 12-step process. When a business owner wants to sell their business they need to understand the process involved. The graph below best illustrates each step of the business sales process.
A Business owner can’t place a sign on their front door that reads, “Business For Sale.” Business sales are extremely confidential and for good reason. Business owners do not want employees, competitors, vendors, landlords or others to know that they are selling their business.
Business brokers are accustomed to handling sensitive information and the way that they handle marketing is no different. If you go to a business sales website you will see that business descriptions are very general in nature. There is no mention of business names, owner's name or addresses to the business being sold.
Only when a business buyer signs the appropriate confidentiality forms and a buyer's profile are they given specific information concerning a business that is listed for sale.
Professionals Involved In Selling A Business
So who is involved in a business sale?
· Business Brokers
· Business Buyers
· Business Owners
These are the primary folks involved in a business sale. It is the sole responsibility of the business broker to keep everyone moving in the correct direction until the business actually sells.
It is commonly mentioned that more than 50% of business deals fall through due to things being mishandled. Choose your business broker wisely for this reason!
Seller Financing vs. SBA Financing
How is a business sale typically financed? Larger business deals almost always include some type of financing. A majority of business deals include some portion of seller financing.
Seller financing communicates to business buyers that the seller believes in their business. Offering seller-financing helps businesses get seen more and sold quicker.
SBA financing is a great option. We ask business buyers to set up a time to meet with an SBA lender early in the business buying process. This allows buyers to know the process and better look for businesses that might best fit their investment capabilities.
What Is Due Diligence?
If you have ever sold a house you are used to the “Inspection Period.” Due diligence allows buyers a certain time to inspect the business that they are considering buying. During due diligence, a buyer can walk away from the deal and receive their deposit back.
Finances, contracts, employment agreements, franchise arrangements, inventory, and many other items are researched by the buyer during due diligence. It is imperative to honestly represent everything upfront so that there are no surprises during due diligence. As grandmother always said, “Honesty is the best policy.”
Represent your business honestly upfront with the buyer and due diligence will be no issue.
My 10 Commandments of Selling a Business
- Selling a business is as much about emotions as it is numbers
- Selling a business requires truth-tellers, not hype
- Selling a business requires doing the hard work upfront
- Selling a business requires spotting hurdles early because no business is perfect
- Selling a business requires daily check-ins with buyers and seller
- Selling a business requires a seasoned professional
- Selling a business requires a Ph.d in problem-solving
- Selling a business requires confidential marketing
- Selling a business requires grit
- Selling a business requires a sweet southern accent to calm tensions that will always arise:)