SELLING A BUSINESS

Choosing the right business broker, and agency, to sell your business is important.  Your business is probably your most valuable financial asset.  Selling it for the best price may have a big impact on your future.  If you are like most business owners, you may only sell a business once in your lifetime.  This means that you are not experienced at doing so and hiring the right business broker is important.  Here are some characteristics to look for when choosing a business broker.

First, on a personal level, be sure you are comfortable working with the broker.  Selling a business takes time, is stressful, and there are likely to be issues to be worked out between the buyer and you.  Be sure the business broker is someone you are comfortable working with and has the temperament to handle people and resolve differences.

In Nebraska, there are no licenses required to sell a business.  A business broker does need a license to sell a business but does need a license to sell real estate. This means that anyone can become a business broker.  You need to look at their qualifications.  What higher education do they have?  What professional credentials have they earned?  What business experience do they have?  What experience selling businesses do they have?  What are the sizes and types of businesses they have sold? 

The primary way to sell your business faster for the best price is to introduce it to the most buyers.  Look at how effectively the agency markets businesses.  Most business broker agencies will have a website and advertise on Internet websites.  Do they do so?  On what Internet websites?   Are they paying extra to have their businesses shown first?  How many buyers visit their website daily?   Do they have a buyer database?  How do they communicate with the database?  Do they identify and do mailings to potential industry buyers?

How professional and productive are they?  Do they have an office or is the closest Dunkin Donuts their office?  Do they have an administrative assistant to handle the administrative tasks which allows them to spend more time selling businesses?  Will they prepare a professional presentation about your business?

How will the business broker achieve your other goals in selling your business?  For example, what percent of their sales are financed by lenders vs. sellers?  How do they screen buyers and maintain confidentiality?  How disruptive to you will the process be?  How often will they communicate with you?  What does the business broker do to manage the process to a successful closing when the business is under agreement?

Experience selling your type of business is helpful.  After selling the same type of business, the broker should know more about your type of business, any special steps in completing the sale, and, perhaps, potential buyers.  Depending on the type of business, this can be more or less important.  Don’t make this your only criteria.

How much does the business broker charge for their services?  If they charge an upfront fee, how much is it?  Although the fee is important, keep in mind that a superior business broker may get you a much higher price for your business than the amount of their fee.

Finally, check references and ask the reference questions related to your concerns and how the business broker handled them.

Putting a price tag on your business, or deciding how much to sell your business, can bring you into unknown territory.  No one wants to sell their business for below value, and of course no one wants to overpay. So what are some standard considerations which come into play?
 

Asset Valuation: This method can be used for retail or manufacturing firms, especially those for which income has fallen flat or have closed. It involves calculating the fair market value or replacement cost of the business’ assets.
 

Sale Price of Similar Businesses: Comparing how much others have paid for similarly businesses can be very useful in the valuation process. However, the value of this information is correlated to just how similarly the businesses are: are they in similar locales, with a similar market base, with similar assets and a similar outlook?
 

Income Approach (Cash Value): This approach is usually applied to businesses with several years of profitable activity. It involves calculating the amount of income the owner can expect to enjoy based on past performance of the business. This amount (discretionary earnings) is arrived at after adding back all owner benefits, such as return on investment, a living wage, personal expenses, depreciation, debt service expenses, and others. An appropriate multiple is then selected (based on market and financial factors) and applied to arrive at the valuation.
 

Valuing a business is a critical and complex process. Seeking the advice of an expert is often advisable. 

CONTAC US TO TAKE THE FIRST STEP

For most of the sellers we represent, maintaining confidentiality about the sale of their business is their top priority.  If vendors, customers, or employees knew the business was for sale, it could damage the business.  In addition, sellers don’t want confidential information about the business falling into the hands of a competitor or potential competitor.  Because of this concern, we make maintaining confidentiality our top priority. 

There is more to protecting the confidentiality of your business and the sale than just saying we take it seriously.  We have procedures in place that allow us to maintain confidentiality.  These procedures control how we market the business, how and when we give out the identity of the business and any additional information about it, and how we work with buyers. 

The first step we take in maintaining the confidentiality about the sale of your business is to prepare the blind profile about the business.  The blind profile – so named because it does not identify the business – is intended to give buyers basic information about the business so they can determine if they have further interest.  However, this report should not give enough information for the buyer to identify the business.  The business owner reviews and approves this report before it is used in marketing the business. 

If a prospective buyer is interested in more information about the company after reviewing the blind profile, the buyer is first required to sign our confidentiality agreement.  In addition to agreeing to maintain confidentiality, the buyer provides us with information about his background and financial situation. This information allows us to determine how likely it is that the buyer will be able to get the financing to buy the business if they chose to do so. 

It should be noted by business owners that may be thinking of selling their own business that it is very difficult to maintain confidentiality if you are dealing directly with buyers.  By using an intermediary, there is a third party to maintain a barrier between the business identity and the buyer until the buyer is qualified and signs a confidentiality agreement. 

This system works well.  For the business owner, the alternative - not putting their business on the market - has a risk also -- a lower selling price or no sale at all.

We sell many businesses with real estate.  When we meet with the owners for the first time, they usually have these questions about the process.

• What should I sell first -- the business or the real estate?  You need to wait to sell the real estate until the business is sold.  This is true when the business success is dependent on the location, such as with a retail business.  Another example is if there is special licensing that is location dependent.  One such example is an auto body shop.  In heavily residential areas, it might be very difficult to get a permit for an auto body shop in a new location.  You want to offer the business buyer the opportunity to buy the real estate; it may increase the value of the business.
• Should I hire a real estate broker or a business broker with a real estate license? The answer is hire a business broker with a real estate license to sell a business with real estate.  The reason is two-fold.  The first buying decision is based on the business and then a buyer decides if they want to buy the real estate with it.  Business brokers have the expertise to sell the business and the real estate.  Most commercial and residential real estate agents do not have that expertise, nor do they have buyers looking for a business to buy, or do marketing to reach business buyers.
• How do you value, or price, a business with real estate?  The answer is that you value the business and real estate separately in most cases.  In many cases, the owner bought the property many years ago and the value, and what the property will sell for, is much higher than what the business owner paid.  For business valuation purposes, appraisers use the rent or mortgage expense, and updated additional expenses (possibly higher property taxes based on an updated sale price) and recast the property related expenses on the business’ income statement.  Using the recast income statement, a valuation is determined.
• What income and selling price do you advertise?  When we market a business with real estate, we usually advertise the business income and business selling price.  In our advertisement, we add that the real estate is also for sale.  The reason for this is that the multiple that real estate sells for as a multiple of net income is much higher than the multiple the typical business sells for.  Business buyers first see the income and asking price and will regard the business as very over-priced if the real estate income and price are included in the income and asking price advertised.
• Do I need an appraisal for the real estate?  When selling a business with real estate, it is wise to get an appraisal and have an asking price that is based on it.  If the real estate is priced too high, it could reduce buyer interest.  In addition, a buyer will need to get a mortgage and the lender will require an appraisal.  If the price for the real estate is too high, it will have to be re-negotiated, or the deal with fall through.  Another reason to get an appraisal is to be sure the real estate is not priced too low – leaving money on the table for the seller.

We sell many businesses with, or without, the real estate.  Contact us to discuss your situation.  There is no cost or obligation.

If you are thinking about selling your business, you probably have a lot of questions about the process.  You've spent a lot of time, and money, building your business and want to be sure you get the best price and don't make mistakes when you sell it.  Here are some questions that we will answer when we meet with you:

• What are the steps in the process of selling a business?
• How can I get the best price for my business?
• How can a buyer finance the purchase without a loan from me?
• What do businesses like mine sell for?
• How is the sale kept confidential?

You can get the answers to these and other questions about how to sell a business answered when we meet with you. There is no cost or obligation to this meeting.  Contact us to schedule a meeting with a business broker.