Selling Tutorial

Is it time to sell? Selling your business is a major decision!

We understand that selling your business is a major decision and that you might have a lot of questions about it. Below, we have included common questions that sellers typically first have when engaging with us. If you find that this applies to you or if you would like to continue this conversation so we can see how to best help you, please don’t hesitate to contact us.

Table of Contents

For Business Sellers

What is my business worth?

This is almost always the first question that a seller asks. Quite frankly, it would be ours too. However, before you ask that question, you have to be ready to sell for what the market is willing to pay. There are a wide variety of factors that go into a business valuation. We always perform different forms of business valuations, from multiple different methods intended to fully understand the value of a potential sale. Our brokers will work closely with you and our internal valuation team of financial professionals to determine the optimal market price.

How do I know it’s the right time to sell my business?

This is another good question that again, to be frank, is just as important. It doesn’t matter what your CPA, attorney, or banker thinks your business is worth, the market will decide the value. It’s ultimately all about timing. We will work with you to prepare your business for sale, then take your business to the market at the right time with intent to bring the highest value. We view our relationship as a professional partnership with our motto being: win together. We intend to make this process as interactive as possible so we can highlight the business’s strengths to get the highest value of sale.

What makes BBA stand out from their competitors?

Our deep industry expertise and experience (over 100 years!) have allowed us to take a new approach to business brokerage. Our methods of sale are more labor intensive and thorough internally – usually only seen in up-market, lower-to-middle market M&A firms – which is intended to get your business in front of more serious buyers and to provide choices for who will take your business into the next phase of ownership.
Finally, we align our work with our values and founding principles. BBA was founded as a direct result of our own experience, a lack of personal touch and professionalism within the small business space. Throughout everything we do for our clients we intend to bring professionalism and integrity into the business brokerage space. For us, this is a passion, and we would love the opportunity to work with you and assist you in one of the biggest decisions of your life.
Insider Tip It doesn’t make any difference what you think your business is worth, or what you want for it. It also doesn’t make any difference what your accountant, banker, attorney, or best friend thinks your business is worth. Ultimately, only the marketplace will determine the true value of your business.

Who are the Buyers?

There are a lot of different situations as to why a buyer would be interested in entering into a transaction. For some it could be to strategically improve their current business because your business is a direct competitor or because your business operations offer synergies to their current operations.

For others, it could be an opportunity for them to have a fresh start. Maybe they are exiting the corporate world and would rather spend their next period of their career managing and owning a local business. And for some, it could be an investment. We have experienced a number of individuals who decide to invest in business and place one of their operators within the business to avoid managing day-to-day operations but maintain business ownership.

Buyers buy businesses for many different reasons, not one sale is exactly the same and every experience is at least slightly unique. It is important that any potential buyer is fully vetted and screened because if a buyer is not serious, the sale will never close. Smaller business brokerage is unique and can provide a variety of different types of buyers . Here are just a few examples of buyers we could experience in the sale of a business:

  • Individual buyers - an entrepreneurial spirit and/or wants to be their own boss
  • Strategic buyers - these are your competitors and/or strategic business partners
  • Financial buyers - we have experienced some smaller buying groups that intend to act like a small PE firm within our space
  • Corporate buyers - we have experienced interest in some of our sales from some of the largest companies in the US - while this can be scary it is also a testament to the outstanding business you built.

What Can You Do to Prepare?

There are various activities you can begin to prepare for selling your business. For example, creating an operations manual will help the new owner understand the inner workings of the business. Creating such a manual will be time well-spent.

The time to replace that old worn-out piece of equipment is before you decide to sell. Don’t assume that a new owner will want to do it or that the price will just be slightly lower because you haven’t replaced it. Fix the sign, replace the carpet, paint the place – make it look good. Keep in mind that anything that increases sales also increases profits and the all-important cash flow! You truly never know when the perfect time is to sell, so always make sure your business is “Prepped for Sale.”

There are other things that add value to your business. Don’t discount the value of customer lists, proprietary products and/or techniques, well-maintained equipment, secret recipes, customized software programs, or good employees. These are termed “off-balance sheet items,” and although not used in most pricing models, they add to value. Look at your business very carefully so you don’t overlook those items that make your business more attractive to the buyer.
Long before you put your business on the market, eliminate the surprises! Review every facet of the business and remedy any problems that could appear during the sale process. No one likes surprises – most of all potential buyers. Whether legal, accounting, environmental, or anything else – solve it now.
When preparing a business for sale you must ask yourself – would i be interested in this business? From the financials to the appearance, would you find interest in this business? Here are a few recommendations that will help sell the business when you decide to sell:
  • Tidy-up the insides and outside of the business. Everything should be well kept, labeled, and presentable to a potential buyer. You never know when you are interacting with a potential buyer - they could have been a former customer, a vendor or current client or yours!
  • Repair non-operating equipment or remove it if you are not using it. If there’s items that are not involved in the sale or would provide no use to a new owner, remove them. It will result in a cleaner and leaner business presence.
  • Maintain inventory at a constant level. If you let your inventory slide, your business will look neglected.
  • Keep normal operating hours and remain focused on the growth of your business. There may be a tendency to “let up” near the end but quite the opposite is needed, you need to sprint to the finish line. It’s important that potential buyers see the business thriving and growing.

The First Steps

How do I know it’s the right time to sell my business?

Preparation is key! Before you place your business for sale, there are some important steps to follow.
Let’s assume you’ve decided that you would like to sell your business, the first step is to start gathering information about the business. Here’s a checklist of items you should get together.
  • Three (to five) year’s income statements (P&L) and balance sheets.
  • Federal income tax returns
  • Loans against the business (amounts of payment schedule)
  • An approximate amount of inventory on hand, if applicable
  • List of fixtures and equipment, leases if applicable
  • Lease-related documents or property details, if owned
  • A copy of the franchise agreement, if applicable
  • Total owner compensation breakout for past 3 years (or 5)
  • Name of any outside advisors (CPA, attorney, landlord, etc.)
  • If you’re halfway through the current year, please ensure you have last year’s figures and tax returns as well as the current year’s year-to-date figures. Make sure all financial statements are presentable to present the business well “on paper” to give prospective buyers insight into your cash flow. This includes the profit of the business as well as the owner’s salary and benefits (and any owner’s perks expensed through the business), the depreciation of assets and other non-cash items.
  • Not everything is dependent on your bottom line. This is an area that we can heavily assist with, as it will pay off in the long run to get outside professional help to make sure these documents are thorough and accurate.

Note
If you’re like many other business owners, you’ll have to search for some of these items. After you gather all of the above items, you should spend some time updating the information and filling in the blanks. Have all of the above put in a neat, orderly format as if you were going to present it to a prospective purchaser. Everything starts with this information.

Insider Tips
The big question is not really how much your business will sell for, but how much of it can you keep? The Federal Tax Laws determine how much money you will actually be able to put in the bank. How your business is legally formed can be important in determining your tax status when selling your business.

For example: Is your business a corporation, partnership or proprietorship? If you are incorporated, is the business a C corporation or a sub-chapter S corporation? There are also tax rules that impact certain businesses on seller financing. The point of all of this is that before you consider price or even selling your business, it is important that you discuss the tax implications of a sale of your business with a tax advisor. You don’t want to be in the middle of a transaction with a solid buyer and discover that the tax implications of the sale are going to net you much less than you had figured.

Inquire Now To Sell My Business

Do you have other questions?

Be sure to visit Seller FAQ for answers to the following questions.
  • How long does it take to sell my business?
  • What can business brokers do – and, what can’t they do?
  • What can I do to help sell my business?
  • What happens when there is a buyer for my business?
  • Why is seller financing so important to the sale of my business?