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Get Ready to Sell Your Business

Selling business opportunities can be tough work for both sellers and their agents. Statistics suggest that less than 1/4 of all businesses that get listed actually sell.  And, the statistics for closed transactions really are not much better.

A cynic might suggest that one of the main reasons for this is that most folks are not willing to sell a good, profitable business. I think that there may be some truth in that.  But, I don't think its as clear-cut as only bad businesses are for sale.  I think a good chunk of the problem has to do with how ready to owner is to sell and what they've done to get ready for sale.

Here are some tips and suggestions for how to raise the chances your business will sell successfully:

  1. Start early!  Your best bet is to plan for selling your business, or "Creating an Exit Strategy" around the time you start your business.  Now, its probably too late for that. But, start the process as soon as you can.  You should realistically start trying to sell your business at least a year before you really expect to sell. Why is it important to start early?  Here are just some of the reasons starting late is a problem...
    • It takes time!  You are not likely to find a buyer, negotiate an offer, and have them perform due diligence in just 3 months.
    • Don't wait until you are sick of your business!  If you are losing your motivation and passion for the business, there is a very good chance it is going to show in how the business runs and in its profitability.  Your business runs best when you are putting energy into it, and you want to sell when its running well... not when it and you are run-down.
    • You need time to implement other strategies (see below) that will maximize value.
    • Is your business suffering financially? The sooner you get out the more value your business retains. Its pretty darn hard to sell a business that is losing money, hasn't paid its taxes, and is in default on the lease.  Get out before the financial situation becomes unrecoverable.
  2. Maximize potential and profits! I don't know how many times I've seen a business opportunity with the comments "tons of potential" (and I've used that phrase myself, I admit).  The most obvious question a good buyer or agent will ask is... "If it has so much potential, why aren't you taking advantage of the opportunity?"  When you are getting ready to sell you should try and cut cost and maximize profits and sales... those are what leads to value, not 'potential'.   Here are some suggestions:
    • Advertise more, not less.  The one cost you don't want to skimp on is advertising. You want the most sales you can get and you want the most customers. If a potential buyer drives buy or stops in, you don't want them to see an empty store, restaurant, or whatever.
    • Think there is an opportunity for expanding your customer base or think a new product would be profitable?  Start the process, don't just tell a potential buyer about it. Even if its on a small scale, your concept of potential will be much more believable if its in progress vs. just a statement in or advertisement.
    • Cut unnecessary costs... don't make large capital expenditures like brand new equipment or major upgrades, unless they mean immediate improvements to sales or costs that outweigh the extra expense in the short run.  Get rid of unprofitable products... be they poorly selling shirts or unpopular menu items.
    • Cut benefits to at least one employee... yourself.  Most business owners can legitimately expense quite a few items as employee benefits for themselves or family... insurance, vehicles, working vacations, retirement savings, etc.  Talk to your accountant or financial adviser and see if it might make sense to pay those out of pocket for the last year or so before selling.
    • Make more money!  Have you ever seen a business or a rental property say that their prices are below market?  Why is that?  Is that insane or what?  Raise your prices to market rates. Its important to do this early enough that you can have those improved numbers on the books.
  3. Run the Best Business Possible! Make sure your business is operating as well as it can. Get rid of poor employees (yes, even your children if appropriate!).  Keep on top of things, now more than ever.  This relates closely to my point about selling before you are burned out on your business.  When selling, you should put MORE energy into your it, not less.
  4. Get Organized!  Start getting everything in order, especially financial paperwork.  Get sales and expense data organized and put into spreadsheets.  Document processes and procedures. Get the names and contact information for all your suppliers, your landlord, etc.  Oh, and REVIEW YOUR LEASE if you don't own your property.  Hopefully, you can assign the lease to a new buyer (most likely, with the permission of the landlord of the buyer's financials). If not, your landlord will become a major factor in your ability to successfully sell your business.

Hopefully, this gives you some tips on how best prepare for your eventual sale of your business.  One other tip here... if you take some of these actions, you may just find out you want to stay with the business as it becomes more profitable and runs more smoothly... and that is OK too!

 

This is an excerpt from an article on our company website. You can find more posts at http://tellusre.com/feed/

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Jason Hershey, Designated Broker
Tellus Real Estate Solutions, LLC
PO Box 1113
Duvall, WA 98019
Office: (877) 413-7325
Cell: 425-417-5389Fax: 425-223-3148

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Comment balloon 2 commentsJason Hershey • September 28 2008 08:27PM

Comments

Great post! Make sure the business broker is advertising local and national via websites. Out of state companies or individuals are most likely searching for business opportunities in your area. I found a new start up gaining momentum that helps business brokers & sellers find buyers. http://www.usabizhub.com/

Posted by Joan almost 10 years ago

A good Buisness Broker will go over everything while listing a business for sale.   The clients P&L statement should include all expenses, including the owners.   While going through the P&L highlight the owners personal expenses, which once removed will increase the net to a prospective buyer. 

It is the job of a Business Broker to look at a business objectively, letting the seller know what is wrong with their business right along with the good points.  If the ceiling tiles are stained from a leak 5 years ago that was repaired, have them replace the tiles.  If the walls need new paint, have the seller do that.  In a restaurant, if the menu has too many items, have them reduce it.  Look over food costs, inventory costs, leases, make sure that the sellers is buying at a fair price. 

Each buisness has a different language, know what it is.  Potential has no value.  FF&E has value only for insurance purposes, but has no value in selling a business, for without it, there would be no business to sell.   

But you are correct, businesses should be in business to grow with the idea to sell.

Posted by Kenneth Young (Uni International LLC) over 9 years ago

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