If there is one thing I’ve learned about the marketplace for small to mid-size business it is that it is both very opaque and inefficient. Because you take great pride in your business and feel you have a great operation, you might be tempted to believe anybody in their right mind would seize the opportunity to purchase it. Guess again. It is much more likely that finding a person, who agrees with your price, is financially qualified and who is ready to buy your business could be difficult. In short, the right buyer for your business could be a needle in the proverbial haystack.
When you sell a business, there are many steps involved and a multitude of considerations before the transaction can be fully completed. There are specific points to be aware of that can help the process go along as smoothly as possible. By narrowing your focus to these big rocks, you will be able to identify the constraints, set goals and streamline the process to achieve the end result selling your business.
How Much is it Really Worth?
Determining the value of the business is one of the most important aspects that need to be considered at the start of the selling process. The business owner should always have a solid understanding of the value of their business before attempting to sell it. The business valuation, also known as an “opinion of value,” can be performed by a business broker or third party valuation firm. The goal is to obtain a reasonable valuation estimate to serve as an objective and unbiased assessment of the most likely selling price. Often this is very different than the formal and expensive appraisal completed for estate planning, legal matters or other purposes. The valuation process begins with a one-on-one consultation with the business owner to understand the true “owner benefit” of operating this business. Once all the pertinent documents have been submitted to the evaluating company, the entire process should take 1 to 3 weeks. A good valuation report will consider comparable recently sold businesses and utilize three to four different valuation methods.
The primary outcome of the entire valuation process is the production of what is called the Opinion of Value. This detailed valuation report is a key document in the valuation process and shows a normalized assessment of the company’s financial performance over the past 3 to 5 years. Prospective buyers will be able to see how the business has performed in the past and make their own determination as to how well it is likely to perform in the future.
Once the business has been thoroughly assessed by a business broker, the owner should meet with their accountant to assess the impact of a sale from a tax perspective. Outlining specific goals that the seller would like to meet can make the process easier and more effective. The tax impact of the selling the business can greatly affect the amount of cash on hand after a sale. Your CPA can review the what if scenarios and assess how it will impact your tax planning. The seller will want to consider what they will want to accomplish financially with the sale of their business. For many business owners considering selling, retirement is an attractive option. Others may wish to simply put their children through college, pay off a mortgage and move across the country. Regardless of the specific financial goals, outlining these objectives before the sale and meeting with an accountant or financial planner will help to ensure that those goals are met. The accountant can help to structure the negotiated Asset Allocation in such a way as to help minimize tax consequences.
Using an Intermediary
When selling a business, it is logical and well advised to use a business broker/ intermediary. Working with a specialist to help you navigate one of if not the biggest financial event of your life is foundational to lowering your risk. A recent IBBA study has proven that on average, business brokers increase the sale price of a business by 20%! In addition, they increase the probability and speed of selling and help you avoid many pitfalls during the process. If you’ve spent 15 or 25 years building your business, it’s probably not wise to risk turning one of your most valuable assets into a “do-it-yourself project” unless you are prepared to start and build another business if the transaction doesn’t turn out as expected. Business brokers advise the business owner and use proven techniques to maximize value, organize deal structure, screen prospective buyers, facilitate negotiations and manage many details involved in the complex sale process. In addition, a business intermediary can offer a fresh and unique view of the business since they are viewing it from the outside and know what buyers are looking for in a business. They will be able to offer advice that is unbiased and to ensure that the accountant, attorney, lender and all other parties keep your interests front and center at all times. An expert business broker is like an experienced pilot that guides you through a treacherous mountain pass, saving you time and money while keeping you safe.
There are several common questions your business intermediary may pose. For example, has the business been expanding yearly or has it been stagnating or even declining? Is your business concentrated between a wide variety of clients or do you have 2 or 3 primary clients? Who is the primary manager of your business? Are they committed to continuing their position once the sale has taken place? What will add to or detract from the total value of your business? Thinking about these considerations early on will allow you to have a more positive experience. A strategizing session and comprehensive analysis with your business intermediary can help you to get a firm grasp of where you’re business stands and where it needs to be before considering a sale. Once you have had an analytical interview session with your business broker, you will have a more complete understanding of the selling process overall as well as how your business may be improved and when you should sell it.
Being diligent and methodical is critical throughout the selling process. The entire process, from choosing a team of professionals to closing the sale, may seem slow and tedious at times. It is imperative to take the time required to go through a methodical process and to not rush through it. Taking the time to complete each step of the process will guarantee that the sale goes smoothly, pitfalls are avoided, and all important aspects are covered. A well-qualified business intermediary will also be able to refer proven professionals such as a closing attorney, a CPA specializing in taxes, and other resources to ensure that the business owner receives the best advisement possible.
To locate a qualified business transaction professional, I recommend that you do your research and interview a few business brokers and check their credentials. Are they a CBI (Certified Business Intermediary)? The difference between a CBI and an uncertified business broker is comparable to the difference between working with a bookkeeper and working with a CPA. The key to success is diligence and a determination to take the necessary steps to ensure that everything is in place for a smooth and stress free sale.
By taking the time to identify and partner with skilled professionals to assist with a business sale, you as the business owner will be able to have more peace of mind throughout the transaction process. In addition, by taking these three points into account (business valuation, assessment of the tax implications, and consultation with a business intermediary), the seller can rest assured that the process of their business sales process will be optimized and most likely to achieve their financial and personal goals during this momentous turning point in their life.
Edward Valaitis, CBI – A Certified Business Intermediary “CBI” designation is your assurance of the highest level of training, expertise and integrity in the business intermediary profession. Mr. Valaitis has more than 25 years of experience building, managing, and leading commercial lending, CPA and consulting firms. Merger, Acquisition and business broker services provided throughout Florida. 800.975.3198 email@example.com www.marketchief.com Serving markets including Tampa, Sarasota, St. Petersburg, Clearwater, Orlando, Tallahassee, Pensacola, Panama City, Fort Walton Beach and Destin, Florida.