Many business owners that we meet with have somewhere between 80-90% of their personal net worth tied up in one asset: the company they own.
Have you ever been to an amusement park or shopping mall and looked for the big sign that says, “You Are Here?” It is amazing that once you know where you are, how easily you can move on to your next destination.
Selling your Raleigh business is similar. Your context helps answer the why, the how, the when, the what and the who questions. Why are you selling your business? How much is my business worth? When can I expect my business to sell? What are the hurdles to overcome and who is going to help me sell my business?
Your business context includes:
The aforementioned contextualization provides foundational information for the seller, buyer and lenders alike. Without an accurate valuation, it is difficult for a seller to know if they are ready to sell their business. The six questions above are essential for anyone considering the sale of their business.
Selling a business is often the single largest financial decision that an individual will make during their lifetime. A lifetime of sweat equity, sacrifice, personal investment, strife, competition, and down-turns in the market have all taken their toll. Regardless of the reason(s), the business owner knows best when the right time is to sell their business.
This article is written to business owners so that they might garner insight and practical steps into how to sell your business.
If you take a moment to view our current business listings you will find that we work with Raleigh’s largest and most profitable business owners. We take this responsibility very seriously! Our counsel to these business owners is consistent and foundational because there is a right way and a wrong way to sell a business.
Most business owners that we serve share these things in common:
Recently, the RDU business sales market has seen $15.5 billion in business mergers and acquisitions. Across the country, business sales are up 15% according to Bizbuy.com. This trend will continue to grow in the coming years.One leading contributor to Raleigh's business sales is connected to the aging of America’s business owners.
It is estimated that baby boomers own more than 60% of the privately-owned business in the US. In real numbers, this represents more than 12 million businesses owned by baby boomers that are entering retirement years.Collectively, these businesses are valued by some at more than 10 trillion dollars in total assets that boomers will be transferring to new owners over the next 10-15 years.
As Raleigh business owners age they will consider their options regarding the sale and exit of their business. Business owners approaching retirement age is just one of many reasons given as a motivation for selling a business.
Motivations To Selling A Business:
~ Family Issues
~ Economic Considerations
~ New Opportunities
Regardless of someone's motivation for selling their business having a thorough understanding of the business sale process is essential.
Business owners are clearly experts in their industry but few have ever sold a business. Wise business owners build a team of advisors including attorneys, business brokers and accountants.
Business sales require legal expertise. Build your team with a trusted legal advisor with experience.
Business deals require daily deal guidance. Build your team with a seasoned Transworld Business Advisor.
Business deals are heavily influenced by financials. Build your team with a trust financial advisors.
The largest financial transaction of one's life is often the sale of their business. When someone you love is having surgery, you do not ask for the cheapest, you want to know who is the best. Assemble the very best team so that you can rest assured that your business acquisition is in good hands.
Knowing the value of your business is the first and best step to take when considering the sale of your business. Many business owners that we meet with have somewhere between 80-90% of their personal net worth tied up in one asset: the company they own.
At some point, the idea of selling turns into the decision of actually selling your business.
Many factors lead to business owners wanting to sell their business. Retirement, health, burn out, new competition, family issues, the economy, and many other factors are given when we meet with business owners.
Read online Google Reviews and look at the current number of listings of your potential business brokers.
At some point, the business value will be tested by the buyer or a lender. Remember that in the real estate market home must be valued on comps and ultimately the banks required an independent appraisal of the property. Businesses have a higher requirement for valuations.
The number one reason that listed businesses do not sell is that of business valuation. There are many factors that influence the valuation of your business. If the wrong price is placed on your business it simply will not sell.
Transworld’s business database will compare your business to thousands of sold businesses that have actually closed to help determine the best price for your business. Imagine the advantage of bringing your business to the market with the correct valuation. With hundreds of businesses on the market, you will have a significant competitive advantage when selling your Raleigh business.
A business owner can't hang a "For Sale Sign" on their front door. An executive summary is built to showcase a business and help potential buyers get general information regarding a business.
Confidential marketing by a business broker helps business owners to attract more buyers and receive the highest amount for their business.
Business buyers are extremely savvy in today's online world. They will ask how you came to your valuation and they will ask for your business's EBITDA, SDE, and other multiple justifications.
Every business is laid bare in the crucible that is called due diligence. This is where the majority of business deals die.
Buyers want transparency when purchasing a business and that is understandable. There is nothing that ends a business deal quicker than shoddy financial records. The prep work and money spent on preparing your business's financial records are worth every penny.
Nothing is more deflating than having a nearly completed contract get side railed by messy, inaccurate financial statements. Your accountant and business broker will be invaluable in making this closing process run as smoothly as possible.
After the song and dance and initial negotiations, the buyer and his team will do a deep dive into your business's financial reports. At this point, you are going to want to make sure that everything is clear, complete and truthful. An honest and clear report accompanied by a willing owner that is willing to answer questions gives the buyer great confidence and trust.
Lease assignments and real estate deals need to be coordinated with closing dates.
Business assets, keys, and cash need to be legally transferred.
During negotiations, the training of the new buyer has to be agreed upon and placed into the signed contract.
As a small business owner, you might be thinking about selling your business. Whether the reason is early retirement or the desire to invest in a new endeavor, there are definite steps you can take to prepare your business for sale.
Consider this pre-sale checklist for selling your business:
~ Tax Documents
~ Financial and Banking Documents
~ Licenses, Inspections, and Permits
~ Property/Lease Documents
~ Employee list with job titles and length of service
~ Employee hiring, training, non-compete or anti-solicitation records if applicable
~ Telecommunications (Internet and Website Management)
~ Equipment, furniture, fixture lists with an approximate age
~ Equipment Lease or Warranty Documents
~ Inventory counts/audits
~ Auto/Truck leases, loans or titles
~ Customer list and percentages of sales
~ Vendor list
~ Franchise agreements when appropriate
~ Price lists, menus, brochures
~ Other contractual agreements
The one component all of these have in common is getting documents in order. Documents are considered essential as they represent your business – from the value to the size and even the staff.
A potential buyer will want to know where your profits come from, how you train your employees, and what you own or owe. Being ready to answer any of these questions will make your business that much more attractive to the kind of buyer you will want to negotiate with.
It is estimated that 50% of negotiated business contracts with signed Letters Of Intent unravel prior to closing during the time of Due Diligence. WHY? Business owners that want to sell their businesses are not prepared for the information that attorneys, accountants, and the potential buyer need to review.
Business sellers need to remember that the majority of individuals desiring to buy a business have never been through the business purchase process. When first-time business buyers can’t get the numbers they were promised it might appear that the business owner is trying to hide something.
Many first-time business sellers assume wrongly that after they have a Letter Of Intent and are in the Due Diligence process that their business is sold. It is NOT sold until details in the LOI are confirmed, financing is secured and the closing documents are signed.
Before the Listing
This checklist will also help you determine where you need the most help. No business owner is expected to have it all organized and figured out right away. Hiring a business broker before you begin the selling process can help you immensely.
Not only will an experienced business broker have expertise in your market and industry, but they will also be able to guide you through the process of getting these documents in order and translating what it all means.
A professional business broker will be able to tell where your strengths and weaknesses lie, getting you one step closer to making the necessary improvements to make your business highly coveted by the right potential buyers.
The goal isn't to list your business, the goal is to sell it. The number one factor impacting interest in your business is the price that you set.
This is very easy. If you price your business wrong, your business will NOT sell. Most business owners have never sold a business before, so they have no professional experience with selling their business.
Many will reach out to trusted advisors, friends and family members to get a misinformed opinion. Unfortunately, the advice given is so often not reflective of reality.
Business owners demand a higher listing price, and qualified buyers pass over the business with ease
Lack of supporting documents kills business sales deals. Every business sale will go into due diligence.
Inventory, clean work environment, generously trained staff, and continued growth. The individual considering the purchase of your business is intelligent and they have business savvy.
Buyers and their accountants will look under the hood, kick the tires and find out everything a scrupulous business owner might be trying to hide. If your business is in decline, losing employees and is losing customers it is going to be a difficult sell. It isn’t impossible to sell but the price must reflect the current reality and condition of your business.
The best concern for the business owner is that of continuing to run and grow their business. Selling a business is a full-time job that requires professional guidance and assistance.
A business sale is negotiated on many factors beyond the selling price. These negotiations many times requires guidance from several professionals.
The process of selling a business requires attorneys, accountants, landlords, bank/SBA financing and buyer/seller negotiations. The process of selling a business is a full-time job for someone and it is best left to the professionals.
The business selling process requires an accurate and honest valuation, confidential marketing, signed confidentiality agreements, buyer/seller meetings, offers/counteroffers, due diligence, and a legal closing.
Lenders are looking at a potential buyer's resume as much as their financials. What is the work and industry experience that the SBA will allow?
There are aspects of an individual's net worth that the SBA will not apply to the business lending process. You need to be well verse to adequately vet potential buyers.
When you need a surgeon for a loved one you typically ask for the best available. Professions are required to handle a business owner's largest financial decision of their life.
Navigating relationships with attorneys, buyers, and accountants while continuing to run a profitable business makes it next to impossible for a business owner to sell their own business.
The sale of a business needs to be kept quiet and the business needs to show positive growth numbers and a wise business owner understands this.
You will get frustrated during your business sale and there will be many times that you will want to draw hard lines in the sand while negotiating. You need a team that guides your through this entire process so that in the end your business closes.
There are many things to consider post-closing like tax implications, training, ongoing consultation, and personal ambitions.
Confidentiality needs to be protected for the sake of the seller and buyer throughout the entire business sales process. A mistake that some make is beginning to openly share information before the close of the business and then the deal falls apart.
Let’s make this simple – How do I sell my business and put more money in my pocket?
Every day I meet with business owners that want to sell their businesses. They have all worked hard and they have each built meaningful and successful businesses. Because of retirement, health reasons, family crisis, or the fact that they are ready for a new challenge, these business owners call us seeking professional help with their exit strategy.
These business owners are intelligent, hard-working, persistent, motivated and enthusiastic. Every one of these business owners asks great questions about confidentially marketing or their business, legal documents, legal and accounting and due diligence.
At some point, every business owners ask, “How much will my business sell for and how can I maximize profits?”
~ Good Books - Let’s be honest, bookkeeping isn’t a passion for the vast majority. While it may not be a passion, bookkeeping becomes a business owner’s best friend if they want to grow their business. When a buyer inquires about buying a business they will always want to see the books and have their accountants review the books. Most buyers will want to see the past three years of books at a minimum. They will want to verify annual revenue and their trends, owner benefits and all expenses related to the business they are considering buying.
~ Accurate Numbers - What factors influence the value of the business the most? Is it the business location, number of years the business has been established, the business industry, goodwill, and sweat equity or is it business potential and future growth? All of the aforementioned factors do influence business valuation but none of these are the foundational factors determining the business valuation.
When a professional is helping you determine the value or your business they will primarily be looking at two numbers. These two numbers are weighted in the algorithms that determine your business value. These two numbers are the only two numbers that matter but they do have the most influence. Have you ever heard the saying, “Numbers don’t lie?”
There is a reason this simple saying has lasted for centuries and it is because it is true. What are the two numbers that most impact business valuation? Owner benefits and annual revenue are compared to industry multiples and percentages to determine the value of your business.
Every industry has different multiples that are applied to owner benefit and different percentages used for annual revenue. Your business advisor or broker will know these multiples and percentages for your particular business. Let’s make this even more simple… When someone wants to buy a business, they are buying a salary or income. Do not miss this fact! They are not buying potential, they are not buying your history, they are not buying your stuff. The bottom line is this for a business buyer, “How much will I get paid each year.”
The only way for them to determine how much they will be paid is to look at the books and see how much the current owner is being paid. Do you want to sell your business for more money? If so, you need to build a business that pays the owner a great salary. Businesses that can pay their owner well are worth more money plain and simple.
TRANSWORLD BUSINESS ADVISORS