Five lessons from selling businesses.

A business that is for sale is often thought to be handled like selling a house or residential property. However, they are very different. In some states in the United States, a professional third party or a broker may represent the Seller of the house, and to do this, they need a real estate license issued by the state. There are similarities, but there are significant differences. When selling a house, both the Seller and their broker want everyone to know the house is for sale.

In contrast, with a business, the sale is kept confidential. This is to protect the business, its employees, and other parties that contribute to its success. This is why a business is privately held. Its ways of conducting its business are the property of the owners.

Five tips to help a seller

1. Most businesses rent their facility. However, if the business includes commercial real estate, it should have a separate value and not be part of the purchase price of the business. It doesn’t mean the same Buyer cannot buy both. It means there should be separate values for the real estate and the business. Each value needs to be the Fair Market Value of renting or leasing the real estate. The business and real estate values will be inaccurate if the fair market rent is not part of any defensible value.
2. Assemble a team of advisers or, at the very least, identify them in case they can help address an issue or set of issues. The team should include at least an accountant and an attorney, with room for a personal financial planner.
3. The most critical components to a Buyer are cash flow and potential. If the business doesn’t have a positive cash flow, the Buyer may as well start the business from scratch and do things their way. The exception would be where the business assets are already in place, such as a restaurant, manufacturing site, or other asset-dependent business.
4. An extension of the above point is to ensure that, whatever the Asking Price, the research has been done correctly. The Asking Price of most businesses for sale by the owners is too high. A business owner becomes attached to the business and what it took to get it where it is. They, therefore, think it’s worth more than it is. The best approach is to have the business or its assets valued by a professional, independent third party. There are different professional appraisers for various types of valuation. For example, different appraisers specialize in valuing businesses, as opposed to valuing hard assets such as machinery and equipment, versus those who appraise intellectual property or commercial real estate.
5. Finally, ensure it’s clear who the Buyer is and what down payment they are bringing. If the Buyer claims to be purchasing the business and has an investor, the first step is to request a meeting with the investor. As a matter of course, it should be the investor inquiring as they have the money and will, therefore, make any final decision. Be cautious about how much you share until it’s clear that the Buyer has the potential to actually buy the business, not just dream about it.

Selling a business comes with complications.

It is rarely a simple process. One of the most important things for the Seller to do is to put themselves in the Buyer’s shoes. Being able to do this will significantly improve the chances of successfully selling the business.

Are you thinking about selling your business? Would you like to know the value of your business? For more information, please visit my website, Business Valuation.

For more immediate help, please send an email to Andrew Rogerson or give me a call at (Toll-Free): (844) 414-9700