Featured Carousel Features February 2019

How to Sell a Business

Written By: Mike Loizzo

The first thing to know about selling your business is it will take time, according to the experts, well before the “For Sale” sign goes up. Listing it tomorrow will not work in most cases, if you want to fetch a good price. Like all things in business, you need to be strategic and make a plan.

“Before they put it on the market, they need to be looking at their business as if they were the buyer,” advised Louise Anderson, a CPA and tax partner with CRI in Gainesville. “They want to start looking at their business two to three years ahead of time to see what they can do to make it more attractive to a buyer.”

Getting Ready to Sell

“When somebody starts a business, they ought to be asking themselves how do I get out of this business,” Anderson said, noting that few owners do this.

Anderson and Roger Swanger, CPA with James Moore in Gainesville, agree that the start of an exit plan begins with what you want after the sale.

“What are your plans, and what, financially, do you need?” Swanger said.

Some of his clients, he noted, would survive if their business “vaporized” tomorrow, while others need a $1 million sale to retire.

You may need one to three years of building up your business, so it looks appealing on paper to potential buyers.

“You want to strengthen your assets,” Anderson said. “Make sure your accounts receivable are collectable, and if not, get them off your books. Make sure things are properly coded as expenses and they are true business expenses.”

Business broker Ron Langman with the Ronald Lawrence Group sees this issue when he meets with owners who want to sell.

“We’ve seen businesses put a new sound system in their family room as part of the cost of goods,” Langman said. “That comes out, because it’s not a normal business expense.”

He adds personal vehicles and children’s tuition to the list of expenses some owners incorrectly claim as business-related.

Setting a Price

Once the books are in order, an owner can think about a sale price. The largest factor is cash flow.

“If your business has $100 million in revenue, but doesn’t make any profit, nobody is going to pay you for it,” Swanger said.

He added that who the buyer is could make a difference in the price. Does the owner have children or another relative who can step up? Is there a manager or another employee interested? If so, the owner may accept less than top dollar or offer a friendlier transition arrangement.

Swanger said selling to a third party is the most difficult transaction, even though it usually gets you the highest price.

“If you don’t fit certain parameters, you’re not really a candidate for somebody on the outside to buy your business,” he explained.

Evaluating a business to determine a sales price can take two forms, Anderson said.

“You can do a business valuation, but that’s typically a relatively large fee, and many small business owners don’t want to do that,” she said.

The other way is looking at similar businesses.

“Depending on the business, there are industry statistics you can use as benchmarking numbers,” Anderson said. Most national trade associations can share those statistics.

Keith Hazouri, a real estate agent and business advisor with Bosshardt Realty Services, said this is similar to a market analysis done when selling a house.

“It’s based on a review of the books,” he explained. “In addition to finding a value of the business, I can determine the salability of the business by looking at the books.”

Listing the Business for Sale

When looking to sell a business to a third party, a business broker is the likely route to take. A broker can offer a network of business connections and marketing tools. Another important characteristic is discretion.

“Most of the sellers want you to put your hand on the Bible and swear that their employees, vendors and creditors won’t find out the company is for sale,” Langman said.

“You don’t disclose anything about the business beyond a vague description until you have a nondisclosure agreement signed,” Hazouri added. “At that time, you can start revealing the financial information and more details.”

Other services offered by a broker allow the owner to continue focusing on the business.

“Before one of my clients speaks to anybody who claims to be interested in the business for sale, I will have qualified them,” Hazouri said. “I make sure they have money to put down or they’ve spoken with a banker.”

Once the business is listed, the experts said owners should be patient, because it can take a year or more before a serious offer is made and a contract is signed.

Don’t Get Emotional

Swanger with James Moore joked that he should have taken some psychology courses to better deal with his clients’ emotions.

“The financial part is often not the most important thing; it’s the emotional aspect,” he said. “Is the owner ready, willing and able to start turning things over? If he wants to turn it over to his kids, are they capable of running it and does he recognize that?”

Anderson agreed that setting emotions aside is best when selling a business. However, she said an owner must be at peace with their final decision.

“I’ve dealt with a lot of owners who didn’t want to sell to particular companies because they didn’t want that corporate culture in the potential buyer’s office,” she said. “Even though the seller wasn’t going to be there anymore, they didn’t want ‘their employees’ in that type of culture.” 

Expert Tips & Advice on Selling

  •  Have an exit plan from the beginning of your business.
  •  Bring in an attorney, CPA and other advisors as soon as possible.
  •  Plan ahead for tax liabilities after the sale.
  •  The stronger the company is without the owner, the more value it has.
  •  A company’s value is only what somebody will pay you for it.
  •  Liquidation is a quicker, less profitable alternative to selling.

Selecting the Right Advisor

     “Hire advisors with experience, patience and compatible temperament to help you through a transition plan that can take place over a period of months or years. Your current advisors may not have these attributes, which are necessary to keep you on track, help you accomplish your goals and overcome the challenges of your particular business and situation.

     “It is not just about the sales price, taxes you pay or the legal documents, though those are all important components. You want a holistic advisor who understands and can assist with the entire transaction.”

Roger Swanger, CPA, James Moore

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