We often work with the owners of privately held companies.
Here are some of the questions we get when our clients are thinking of selling their business.
And some short answers to their questions.
What is the value of my business?
The best answer to this question is the price a buyer offers that you are ready to accept. A business valuation can result in different values depending on the purpose of the valuation. But for the sale of a business, it boils down to what someone is willing to pay and what you are willing to accept.
Every buyer has different expectations, circumstances, needs, resources and situations. All of these, and more, affect what they are willing to pay for your company. In valuation theory, this is called “investment value.” The investment value to one buyer will be different from another.
Knowing your buyer will give you great power when negotiating the sale of your business. Know their situation and what motivates them.
How can I increase the value of my business?
The most important thing you can do, as a business owner-operator, is to make your business not dependent on one person. Make sure the business can operate and grow without one person – you – running everything. Hire and retain good employees that produce high-quality work product and excellent customer service.
How long does it take to sell a business?
There is no standard answer to this question. It varies depending on the company being sold, the industry, the geographic location, economic conditions, and many other factors. If you had to pin me down on this one, I would say about a year. More or less. But really … no one knows.
What should I do when my business is being marketed?
Make sure that you continue to operate the business in the best possible manner. Stay focused and continue to achieve great results. Do not make any major changes during this time. Retain your best employees. Replace and maintain equipment as necessary. Keep the facilities clean and in top condition. Especially avoid declines in sales and profits as this will create red flags and scare the buyer.
What is “Due Diligence”?
This is the process where the buyer examines the records and analyzes other information about the company. It is where the seller answers a myriad of questions from the buyer about the accounting, operations, and customers of the business. Have everything in tip-top shape to get the best result and price for your company. Some buyers will use negative things they find in the due diligence phase to ask for price reductions from the original offer. Expect this process to be not the most pleasant part of the selling experience.
What else should I do to make my business more attractive to a buyer?
Have all of your administrative records be in great shape. Have a job description for each employee. Have a Policies & Procedures Manual (be careful it doesn’t rise to the level of a contract). Have all processes documented. Do your tax and entity planning. Clean up the facilities to make them look great. Most of all have your accounting and financial statements be pristine.
Should I Accept Owner Financing? How Safe Is It For Me?
For many smaller businesses, Owner Financing, or what is called an “Earn-out” is a common part of the way a business is sold. Expect it. Make sure your financial consultant and attorney review the terms to ensure there are adequate protections for you should the buyer default after the sale is made. This should allow you to take back the business in the worst situation or have discussions to correct the problem.
Is There Anything Else to Consider?
Especially be sensitive that the buyer will be good to the employees, customers, and suppliers that you leave behind in the business. They will be affected by the sale of your business and the integrity of the buyer too. Those people are dependent on your business for their livelihoods. If you are concerned the buyer may not live up to their end of the bargain in a business sale, they will possibly hurt those other constituencies too.
This is all a heavy responsibility on you, the business owner. But with the proper team backing you up the chances of success for everyone involved will be much greater.
