The Decision to Sell
The most common reasons why business owners decide to sell their businesses are the following:
- Dispute between partners.
- Boredom or tiredness with the routine of the business.
- Illness or death of the industrial partner.
- The growth of the company exceeds the managerial capacity of the owners.
- The owner wants to venture into different activities.
- The business is in its best moment and can be sold at a good price.
Few business owners spend any time planning for the time of sale. When the need arises to decide on this, it is likely that the owner will have to adjust a series of elements to make the company attractive in the eyes of an interested buyer.
The process of selling a company will take more or less time depending on the quality of its supporting documentation, the state of its fixed assets and the price and conditions of the sale.
How to Prepare the Business for Sale
When a potential Buyer is interested in the company, he will demand from the owner the presentation of a series of documents that support the statements and figures that the Seller argues.
Essentially, the Seller must submit financial statements and/or income tax returns for the last three years; the current lease contract and the proforma; permits and operating licenses; contracts with suppliers and customers; operating manuals and any other collection of interest.
It is common to observe that the owners reflect the greater volume of expenses to minimize their tax commitment, reflecting insignificant losses or profits in some cases. An experienced business broker will be able to “recast” the financial statements to determine the cash flow available to the Buyer and show the real – more optimistic – situation of the company in the eyes of the Buyer.
The furniture, the premises, the exterior signs, the equipment and the machinery must be in perfect working order and decorum. There are owners who, faced with the possibility of selling, neglect aesthetic and maintenance details and keep scarce inventories. The successful Seller must operate the company with absolute normality during the time that the sale process lasts.
When the available cash flow and the value of fixed assets are known, it will be possible to approximate the sale price of the company by one of the different valuation methods.
Along with the price, the Seller must formulate the other terms of the sale. For example, when the Seller agrees to finance part of the price and gives a credit to the Buyer, the sale is facilitated. To achieve a fair market price, the business broker advises the Seller and shows him sales statistics, comparative market analysis and the usual calculation rates or multiples for each business activity.
In cases where there are substantial discrepancies between the value that the Seller imputes to your business and the value estimated by the business broker, it is advisable to use the services of a specialized business appraiser. It is important to keep in mind that it is counterproductive to put an overpriced business on the market because, first of all, it denotes a lack of professional knowledge on the part of the Seller's advisors and, ultimately, it is very difficult for someone to acquire it.
A professionally prepared valuation should consider the following aspects:
- Company Background.
- Description of the operations.
- Description of the facilities.
- Supplier analysis.
- Review of marketing operations.
- Customer profile.
- Description of the competition.
- Personnel overview, including a business organization chart, and description of job responsibilities, compensation levels, and the willingness of key employees to stay after the sale.
- Owner's resume.
- Explanation about the coverage of insurance policies.
- Analysis of any pending legal situation, or contingent risk.