Helpful Tips to Sell a Business
If you are considering selling a business there are some things you can do to make the process (much) easier and smoother. In preparation, you can certainly make your business more marketable and appealing in the eyes of business buyers.
1. Resolve any legal or environmental issues before you list your business for sale.
Selling a business is a financial transaction as much as it is n emotional one. Buyers are skeptical and need to feel reassured when they look for a business to buy. Talk to your lawyer or other professional advisers to see what can be done about resolving any problems before selling a business.
2. Work with a professional business intermediary.
You will certainly be glad that you did. When you work with a business broker (or sales representative) they will help navigate you through the business sale. Deal with a professional that focuses on businesses. Selling a business is a very different transaction than a real estate deal. Work with someone that knows the intricacies of the business sale.
3. Try to determine the actual market value of the business assets
Many financial institutions will look at the market value of the business assets to use them as loan collateral for the business buyer’s financing. Try to get a sense of what the actual market value of the assets are in advance – so you have that information at hand. The bank will typically get the assets appraised by a professional but if you have a rough idea of the value in advance then that could help you during the negotiations.
4. Be realistic about the selling price
If you are selling a business with declining sales and margins and a shrinking customer base then you cannot expect a hefty price for your business. If you are selling a business that relies on a few key customers for the majority of the revenue and if the expertise of the owner/operator is critical to the business success then you can’t expect the same valuation as a similar business with a diversified customer base and broad-based management. Geography counts too. Example – a small manufacturer located in Hamilton, Ontario will likely have a high a higher valuation than one in Cayuga, Ontario (all other things being equal). Alternatively, selling a business in Toronto in the retail sector on Queen Street will likely have a different valuation dynamic than one in St. Thomas, Ontario.
5. Claim your “cash” earnings
Contrary to the opinion of several business owners, not all businesses keep the “cash sales” off the books. In fact, it is very difficult to sell a business that does not “claim” their cash sales. Too often, business owners decide to keep cash sales off the books and boldly declare that they in fact represent 50% of the business revenue. These types of businesses are very difficult to find a buyer for.
6. Keep business and personal expenses separate
Try not to run ‘personal’ expenses through a business. Businesses are valued based on cash flow and when the results are skewed by personal items it makes the book that much more suspect. Besides, Canada Customs & Revenue Agency would not approve!
7. Maximize business cash flow in the months leading up to listing the business for sale
If possible, try to ramp up the business cash flow in the months prior to selling a business. By this we do not mean to ‘fabricate’ the paper earnings. We mean, that if you think that the business has not running at its fullest capability then work extra hard to demonstrate the true potential of what it is capable of earning in the months prior to listing it for sale. It is one thing to say to a buyer that a business “has potential” but it means so much more if you can demonstrate it yourself.