The key points a potential buyer will zero in on when browsing for a business are:
- Geography – is the business in the general area they are interested in? You know the saying about “location, location, location”!
- Is the business a type or industry the buyer can see themselves doing and having fun with?
- What is the amount of owner benefit, called different things, but all meaning the same – how much cash flow is the business producing without taxes, depreciation, amortization, interest, and expenses that will not inure to the new owner?
- What is the asking price, not just in dollars but also related to the owner benefit?
It is important to consider these factors when packaging and marketing a business.
For most buyers, the business has to be able to pay the new owner a salary as well as allow the new owner to repay the business loan, repay their investment, and then some over time. Various sources, including BizBuySell.com – the largest online market place to advertise a business for sale, say that 80% of businesses are over-priced and don’t sell for that reason.
It is smart to price a business on the high side to allow room for negotiation, but you don’t want the business grossly over-priced because there will be no phone calls with interest in buying. There are various ways a trained, experienced intermediary can help you establish an asking price, including research into what similar businesses have recently sold for in your general market.
Having no price is a tactic, but the business has to have an owner benefit over $1 million for this to be effective. Businesses below this threshold have to have a price to get phone calls – to get you to first base.
You do not want a business broker or intermediary who agrees with whatever price you figure your business is worth. You need to know what your business is worth in the real world. It is common for an inexperienced, hungry business broker or intermediary to tell you what you want to hear to get the engagement. As the seller, you want the best price possible, but you also want to sell the business.
Understand the difference between a licensed real estate agent and licensed real estate broker. The cost should be about the same; the difference is experience and training.
A few additional tips:
- Think about a good reason for why you are selling. Most buyers focus on this issue. They ask themselves, why would a person want to sell a good business that is making money? They think you must know something the potential buyer does not.
- Clean up your financial statements and get rid of any non-business expenses being run through the business. Show as much net operating profit as possible, with minimal “add-backs.” In today’s market, many add-backs once acceptable to banks are longer acceptable. The increased net operating profit will be worth more to the seller than the personal income taxes saved when it comes time to sell.
- Give full disclosure of all known issues a buyer would want to know that could affect the value of the business. Surprises kill transactions, because they bring integrity into question. Trusting the seller is a really important part of consummating a transaction.
As a seller or a buyer, if you would like a confidential conversation about how to prepare, please contact me on my cell, 954-579-4687, or by e-mail at firstname.lastname@example.org. My LinkedIn profile is: http://www.linkedin.com/in/dolansales.