Ready To Sell Your Practice but its not ready
Ready to sell your practice?
But its not ready?
Last week I spoke to a business/practice owner about selling her business and it’s typical of many calls I am now getting from business owners. They are ready to sell their business but they don’t think the business is ready. Some still want to sell and some want the business to be doing better. So how do you decide?
Selling a business and indeed buying a business is difficult for both parties. This recession has been long and deep and as a result the recovery is slower than normal. In spite of this, life continues to happen. Business owners continue to have health issues that affect their enthusiasm to own and operate their business. In the example in my first paragraph above the business owner that I spoke with was the wife of the original business owner who had died about 18 months ago. The business was continuing to perform well but as she said, “I have zero interest in running and operating the business.”
So at its simplest level, many business owners are ready to sell their business because of what happens with life, that is, health issues, divorce, death and just plain burnout. What seems to characterize most of the calls I receive is the lack of enthusiasm the business owners have to run their business and equally, the lack of enthusiasm to make a decision and at least head in one direction as opposed to doing nothing and as a result, head in no direction at all or simply drift.
A business is a living and breathing entity. It requires sustenance, nurturing and hard work or it will wither and die. If you own a business and see yourself in this situation how do you decide next steps? Here are some suggestions.
In a normal market a seller expects:
- All Cash
- One Week of Transition
- One Day Due Diligence
- Quick Close of Escrow in 2 Weeks
- Buyer takes over liabilities and building
- Sells at 1X Gross Revenues
In a normal market a buyer expects:
- No Money Down
- 4 Months Transition, Free of Charge
- 8 Weeks of Due Diligence
- Interview the Clients and Employees before agreeing on the Terms
- Purchase based upon periodic payments
- A percentage of retained revenues
Where they end up meeting in the current economy:
- Some buyer cash (For example, 3 to 4% of Gross Revenue or $60,000 to $80,000)
- For smaller transactions it could be as little as $15,000
- Transition terms that both seller and buyer negotiate strongly but in the end allow a deal to get done.
- May include an employment agreement for the seller.
- The Fixtures, Furniture and Equipment may be optional depending on its age. (If the buyer comes from the same industry he may already have what they need.)
- Two weeks of Due Diligence for the buyer.
- Another 15 to 60 Days to navigate and close escrow.
- Seller finance payments to the owner based on a percentage of Gross Revenues
One of the biggest challenges I still see sellers creating for themselves is not clearly presenting their business for sale with the necessary documents and being clear what is for sale. Almost without exception, buyers are worried about making a mistake and being caught and losing their money. If a buyer does not feel comfortable with the transaction they can take the easiest option which is to simply do nothing and put their dream of business ownership on hold for the moment.
Selling a business involves many steps. Buying a business involves many steps. Having a professional business broker that just specializes in business transaction increases the chances of success. Sellers should be clear and comfortable about getting what’s important to them and buyers should do the same. If there is a willingness to create a win for the seller and a win for the buyer then the chances are high. I continue to close transactions because I help each party work out what’s important to them.
f you would like more immediate help with selling your business you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.