Are You Ready To Sell?

…….What a “loaded” question you may think, but the reality is that almost no business owner and their business reach the qualifications of “Ready to Sell” without professional assistance from a qualified individual.

Getting your business and yourself,  as the business owner “ready to sell”, takes quite a bit of work and preparation. You need to know and work with someone whose sole profession is selling businesses. You know your business better than anyone, but do you know how to get it ready and in its best shape to sell?  Most probably not and the worst mistake a business owner can make is try to get both themselves and their business ready to sell and then try to sell it themselves.

 

 

 

 

Experience has shown us that more often than not, the Seller will spend more time and money trying to sell and take less than the business is actually worth because they skipped the professional assistance they needed to insure the best price. In short, leaving money on the table!

It is an unwise decision to put your business up for sale without knowing that you are fully prepared.

Preparation may range from simply sprucing up your business to preparing all financials in their true earnings condition, knowing what your industry is doing, understanding the tax implications of a sale, how you can gather more dollars for your business beyond the closing, knowing who most probably will be your buyer, the best manner in which to market your business and last, but not least, you certainly want to make sure that you know exactly what your business is worth.

10 Questions A Seller Should Ask A Broker

  • Are you a Certified and Registered Broker/Intermediary?
  • Are you affiliated with any business brokerage associations or trade groups?
  • Will you provide any references? (Sellers, Attorneys, etc.)
  • How will you determine how much I should ask for my business?
  • Will you display my business on any Internet sites? If so, how many?
  • How, other than the Internet, will you market my business?
  • How can you help me to qualify a potential Buyer while protecting my Confidentiality?
  • Under what circumstances will you show my business?
  • How often will you contact me about what is going on?
  • Can you please tell me about you and your firm?

FOR YOUR CONSIDERATION

  • BUYERS WANT CASH FLOW

    Recasting financial statements will help you provide a potential buyer with a better view of cash flow.  Cash flow is not the same as profit.  All potential buyers will want to see the income tax returns, profit and loss statement, owner compensations, etc.

  • LOOKS CAN MAKE A DIFFERENCE

    Just as you will need to do all that you can do to show a well organized, profitable business, you also will need to make sure that your facility is as aesthetically attractive as possible.  Anything that you do to increase sales, increases profits and adds to that important cash flow that buyers seek.

  • ADD VALUE TO YOUR BUSINESS

    Don’t overlook the impact of a loyal customer lists, proprietary products, well-maintained equipment, special computer software programs, unique services or products and good employees will make when considering the value of your business.

  • ELIMINATE SURPRISE

    If your business has any flaws, be open about them.  Do not allow legal, environmental or any other undisclosed problem to kell the deal.  You need to resolve any problem before you market your business for sale.

  • ALWAYS SEEK PROFESSIONAL ADVICE

    The R. A. Kent Company, LL. Professionals are experienced, credentialed, and knowledgeable in helping buyers and sellers achieve their goals.  Call us today.

TEN STEPS FOR A SUCCESSFUL SALE

  1. Your reason(s) for selling your business and your future goals need to be clear and well thought out before you try to market your business.  A prospective buyer will want to know why you are selling and may be curious about what you intend to do after the sale.
  2. A poor economic climate and/or a peronal emotional dilemma can cause you to accept a deal that is not in best interest for you or for a buyer.  It is important to market your business for sale at a time when you are not under pressure to sell.
  3. As soon as you have a firm objective to sell, gather key information to facilitate the marketing and divestiture process:
    • Three years of profit and loss statements.
    • Three years of Federal income tax returns for the business.
    • A complete list of business assets (fixtures and equipment).
    • All lease agreements and related documentation (property and equipment).
    • List of loan amounts and payment schedules.
    • Copy of franchise agreement (if applicable).
    • Total worth of the assets.
    • Names of outside advisors (accountant, attorney etc.).
  4. When you decide to engage a professional to help guide you through the process of marketing and selling your business, you agree to become part of a team effort to make it happen.
  5. Confidentiality will ebe emphasized by the professional as he works on your behalf to find a buyer just as you will maintain confidentiality about a pending Sale as you go about your day-to-day business operations.
  6. It is very important that you look at your business as if you are a potential buyer.  What do you see?  This may help you determine what you need to work on or what you can do to improve a first impression.
  7. As you navigate through the process of divestiture, keep the following in your focus:
    • Keep normal operating hours.
    • Keep your facility and your equipment in top condition.
    • Remove any superfluous items or items not included in the sale.
    • Spruce up the exterior and the interior of your property.
  8. Engage a seasoned professional for the best possible results.  To parphrase David Gumpert, former Harvard Business Review associate editor, experienced lawyers know the necessity for some risk in negotiations, whereas inexperienced professionals are often reluctant to advise their clients to take any risk.
  9. Flexibility and patience will pay off in the long run in getting the best deal.  The right buyer may be better than a higher price.  You have probably spent years building your business and yoiu certainly will want it to continue to be successful.
  10. A successful deal is created when the transaction represents a win-win where all parties walk away happy.

Is It Time to Raise Prices?

Increasing the price of your products or services is, in most cases, the most difficult decision a business owner has to make. Looking at the negatives is easy.

•    Our business is too competitive to increase prices.
•    Our customers/clients are used to our pricing.
•    Customers are too price-conscious.
•    We won’t be able to get new customers/clients.
•    We are known for low prices.
•    We have a lot of repeat customers, they won’t pay more.

The list of reasons why prices shouldn’t increase could go on and on. The fear is always that people won’t pay the increase and profits will suffer.

Before considering a price increase, one must look at their current pricing method. Do you work on a cost plus a certain mark-up? If you use a mark-up percentage, are all items marked up by the same percentage? Do you try to maintain a price comparable to the competition? If you work on an hourly rate, for example consulting, when was your last increase? Have costs increased and have you increased prices to compensate for them?

Looking at the positives is also easy. Profits will increase; and the price of the business will increase based on the increase in sales and profits. Funds will be generated to do that advertising or promotion you have always wanted to do. With increased profits you can hire that extra salesperson you know will increase business; you can install the technology you know will increase service and lower costs.

As Ravi Mohammed said in his book, The Art of Pricing, “Let me ask you, will a 1% price increase really cause your customers to stop purchasing from you?” A 1% increase on a business doing $5,000,000 a year is $50,000 to the bottom line. On a business with sales of just $500,000, a price increase of only 2% would bring in $10,000 to the bottom line.

One does not need to increase prices across the board. On fast-selling items, increase the price more than on slow-moving items. By doing so, you can test the waters on increasing prices. As Ravi Mohammed also points out, “McDonald’s profit on hamburgers is marginal, but it has substantial profits on French fries and soft-drinks.”

You many decide not to increase your prices, but at least you have taken a look at your pricing policies.

Visiting Your Lease Again

When is the last time you reviewed the lease on your business premises? When you signed it years ago?  There are some important reasons that should prompt a business owner to revisit the terms of his lease. If you can’t assign your lease to a new owner, you may not be able to sell your business. A similar concern is that if you can’t assign the lease, it may cost you a lot of money. This means that the landlord may want what could be termed as a “transfer” fee; or the seller may have to reduce the price accordingly. Whether you are thinking of selling or not, it is a good idea to review your lease and the transfer of lease provisions.

It’s also a good idea to check what happens at the end of the lease. Is there an option to renew and if so, how soon before the termination of the lease do you have to notify the landlord? And, just as important, do you want to stay, or is it time to move on?

A recent article in the New York Times titled “Thinking Past Location in Finding Space” said: “With rent typically the second largest expense after salaries for small business, and with office occupancy costs up sharply in many markets, a simple miscalculation can cost an entrepreneur her business.”  An existing lease may make it difficult to negotiate a lower rent with the landlord, but it may be worth a try. If the rent is benchmarked with similar businesses, a landlord may be convinced to make some adjustments.  Landlords don’t like late rental payments and they especially don’t like going through the eviction process.

If you are just now looking for space for a new business or if it’s time to move into new space, here are a couple of things to keep in mind when reviewing a new lease.

  • The first thing to do is to find an attorney who is experienced in leases—this will be an excellent investment.
  • If the business requires a lot of space or if location is critical, engaging a commercial real estate broker who represents tenants is also an excellent investment.
  • Keep in mind that landlords want to pass on as many of the costs of leasing property as they can. Taxes, landscape upkeep, parking lot maintenance, shopping center advertising and promotion—the list is endless. The good news is that if they are looking for tenants they may negotiate on some of the items.
  • Always ask the landlord for enough free rent to pay for the move into the new facilities or ask to have the premises remodeled for your particular usage.
  • Make sure the space works for your business requirements. Is the parking sufficient? If the premises are inside a building, do the hours it is open work for your business? Do the premises have the necessary hook-ups for your needs? And, most important, does the space under consideration allow you to expand, grow – meet new requirements, etc?

By following the points outlined above, your new business or your new space should allow you to build or grow your business. If you’re in an existing space, some of these strategies may allow you to renegotiate your existing lease, or make some beneficial changes when you renew it.

What are Business Buyers Really Looking For?

The obvious answer is probably that most people are looking to buy a business that makes a lot of money. But the real answers may surprise you. Here is a list of just a few that buyers have mentioned:

•    Pride of ownership
•    A business that looks like fun to own and operate
•    Happy employees
•    Financial records that make sense
•    Good growth prospects
•    A well-known or popular business
•    A good track record
•    A great location
•    A seller who is willing to finance the sale
•    A reasonable price

Certainly, a buyer wants to make money when buying a business, but there is more involved, as the list above indicates. If you’re even thinking about selling, a visit with a business brokerage professional will pay big dividends by finding out what local business buyers are really looking for.

Why Sellers Won’t Sell

A recent survey asked leading business brokers and intermediaries: What is the seller’s biggest obstacle to selling the business? In other words, why do business owners who are considering selling fail to follow through?

Seller’s Biggest Obstacle to Selling

The answers to this question were revealing, fascinating and important for prospective sellers to understand and consider prior to placing their business on the market.

The biggest reason was one that most people would guess—price. Here are a few explanations that sellers offered concerning price:

•    Price—net amount after tax proceeds

•    Never enough dollar value in the deal, after taxes, lawyers, accountants, brokers

•    Price justification

•    Price versus offer

•    They don’t want to accept the market price of the business

•    Price does not meet owner’s retirement needs

•    Understanding that valuation is based on historical cash flow rather than “potential” cash flow

•    Perception of value of their business in the marketplace based on reliance of an ill-informed source

Price was the area most mentioned (by far) as the reason sellers don’t sell or, not to mince words, why businesses don’t sell. A professional business broker is aware of local market conditions, has comparable sales data available and is knowledgeable in pricing businesses.  Keep in mind that the ultimate decision-maker in determining a selling price is the marketplace. If you are not willing to accept what the market is willing to pay, then you should reconsider your reasons for selling—and read on.

The Next Biggest Obstacle

Two obstacles other than price were mentioned more frequently than any others.  One of these had to do with books and records—or the lack of; and the other was a fairly new obstacle—seller’s remorse. You read that right: not buyer’s remorse, but seller’s.  Here are some examples:

•    Money/letting go

•    Motivation

•    Giving up business

•    Price and emotional ties

•    What are they going to do after selling?

•    No more income stream

•    Being ready to really let the baby go

•    Motivation to actually sell when the offer comes

•    Can’t afford to retire

•    Pricing, indecisiveness (family/friends advise)

The point here is that sellers really shouldn’t put their business on the market unless they are totally convinced that they want to sell. Check with your business advisors, family members, and most important of all, ask yourself if this is really what you want to do.

Financial Information

Although inadequate books and records, etc., probably cause more difficulty than seller’s remorse, this subject is far less emotional than whether you really want to sell your business.  Although it deals with straightforward numbers rather than emotions, it still takes its toll. Too many sellers wait until they have made the decision to sell and are ready to put their business on the market before they realize that their books and records don’t measure up to a buyer’s expectations. Today’s buyer wants to see everything in black and white; they are not willing to accept a seller’s version of sales and profits. If you are even considering selling your business, now is the time to go to your financial advisor, accountant, or CPA and have your financial records put in order in such a way that the information can be verified and a buyer or his or her financial advisor can easily access them. Contact your business brokerage professional, who can advise you about what buyers are really looking for when examining a seller’s business financial records.

Needless to add, but worth adding anyway: proper record-keeping should be done on an ongoing basis rather than on the eve of the decision to sell.

The Numbers Don’t Tell the WholeStory

You’re considering selling your business.  Your accountant or financial advisor has reviewed your profit and loss statement, and told you what he or she thinks your business is worth. Is this a valid figure? Do the numbers reflect the real value of your business? Below are some other factors to consider regarding the true value of your business. These factors may not have a specific dollar amount attached to them, but they certainly influence value and the price a business may sell for.

•    Are you serious about selling, and is it the right time? (Use this only if selling is the reason for the valuing.)

•    What are the two or three biggest obstacles to growing the business?

•    Why is your business different than the competition?

•    If you don’t own the real estate, what is the status of your lease?

•    What is the short-term and long-term trend of your business and the industry?

•    Does, or can, international competition impact your business?

•    Why do customers patronize your business, or why do clients use your services?

•    Have you increased prices recently, and if not, why not?

•    How much will you need to invest in your business over the next three to five years to maintain your customer/client base? How much to increase it?  How will you spend it?

•    Are there any legal or governmental issues facing the business?

•    If you got hit by the proverbial truck, is there someone who could run the business?

•    Can the business be relocated? Should it be relocated?

•    What are the secrets to the current success of the business?

•    What prevents the business from growing?

•    If the business is based on your personal goodwill with customers, knowledge of the product or services, etc., are you willing to stay for a fairly long period of time to assist in transferring this personal goodwill?

•    If you were given an additional $100,000, and you were much younger, what would you do to grow the business?

Price or Terms: The Structure of the Deal

An old saying in negotiating the sale of a business goes like this: The buyer says to the seller, “You name the price, and I get to name the terms.”

Another saying used to explain the actual value of the term full price: “If we could find you a business that nets you $250,000 a year after debt service, and you could buy it for $100 down, would you really care what the full price was?”

It seems that everyone is concerned only about full price. And yet, full price is just part of the equation. If a seller is willing to accept a relatively small down payment and carry the balance, a higher full price can be achieved. On the other hand, the more cash the seller wants up front, the lower the full price. If the seller demands all cash, barring some form of outside financing, full price lowers – and, in most cases, the chance of selling decreases as well. Even in cases where outside financing is used, such as through SBA, etc., the lender will do everything possible to ensure that the price makes sense.

Sellers should understand that both what they hope to accomplish in the sell of their business and the structure of the actual sale can dramatically influence the asking price. Price is obviously important, but other factors may be even more important. For example, consider a seller with health issues who needs to sell as quickly as possible. In his case, timing becomes more essential than price. Another seller may place more importance on her business remaining in the community. In her case, finding a buyer who will not move the business may supersede price or certainly influence it.

Likewise, the structure of the deal can both influence price and be a more significant factor than price to either the buyer or the seller. The structure can dictate how much cash the seller receives up front, which may be more important than price for some sellers. On the other hand, sellers should also be aware how much the interest on their carry-back can add up to. If cash is not an immediate concern, monthly payments with an above-average interest rate may be enticing.

These examples all demonstrate the importance of the business broker professional sitting down with the seller prior to recommending a go-to-market price.  During this meeting, the broker should find out what is really important to the seller, as these issues may have a direct bearing on the price.

Sellers should look at the following factors and rank them according to importance on a scale of one to five, with five being extremely important.

•    Buyer Qualifications
•    Full Price
•    Amount of Cash Involved
•    Financing
•    Confidentiality
•    Commission/Selling Fees
•    Closing Costs
•    Exclusive Listing
•    How the Business is Shown
•    Advertising/Marketing
•    How a New Owner Continues the Business

By ranking these items and discussing them with a professional Business Broker, a seller can receive helpful advice from the broker on price, terms, and structuring the sale.

Selling Checklist

Thinking About Selling?

Here are some tasks business owners should consider completing before going to market to help their businesses sell.

  • Remove any items not included in the sale. That family heirloom portrait behind the counter of Grandfather William, founder of the business, should be removed.
  • Remove or repair any non-functioning equipment.
  • Prepare an operations manual to show a new owner all the functions of the business, how things are done, the major customers and suppliers, samples of advertising, and any other information that would help a new owner manage and operate the business.
  • Take care of any outstanding bills and resolve any legal, tax, or governmental issues.
  • Bring your financial statements up to date, and have your accounting professional prepare them for a buyer’s inspection.
  • Clean up the business inside and out. Fill the shelves, clean up the inventory, and paint the interior if necessary.

Is Your Business Saleable?

Many business owners probably have asked themselves this question. There are many unique and different types of business. Some fill very small niches while others have carved out a unique product or service while still others require a unique or very specialized talent, knowledge or experience. An owner of a “unique” or at least unusual business may feel that there is no one out there who would buy it.

Almost all businesses are saleable, but the big question is: Is the seller willing to sell? Because of Internet marketing and other new technologies, business brokerage professionals know how to reach potential buyers world-wide. Somewhere there is a buyer for almost every business. Locating the right buyer is the job of the business broker professional, who recognizes that the seller’s willingness to sell is the key. Why is a seller selling; what is important and what is not. If a business owner just wants to see what the market might pay for the business; or hopes to “make a killing” on a sale – it most likely won’t sell.

Gauging what is most important in the selling process is very important. Following are some critical factors that every seller or would-be seller should assess:

  • Full price
  • Down payment
  • Keeping existing employees
  • New owner’s plans for the business
  • Confidentiality
  • Selling costs
  • Buyer qualifications
  • Keeping the business locally
  • Providing jobs for children/relatives
  • Structure of the sale

There may be other factors that are important. Keep in mind that every one comes with a string attached. What are the most important ones? Will you bend on them? Will you lose a sale over it? Businesses with a broad appeal and a successful track record are in a much better position to stand firm on the important factors. The unique or niche businesses or those with a less stellar track record may have to be willing to bend on any or all.

Sellers should tell their business broker professional what is really important – and take note of the one or two factors that could be “deal-breakers.”  Remember: almost all business can be sold, but every sale requires a willing buyer – and a willing seller.

You Want How Much for Your Business?

This is often a prospective buyer’s first response when given the price of a seller’s business. This is especially true today when many excellent and profitable businesses have few hard or physical assets. For years, buyers, and even business appraisers, have called the difference between the actual physical assets and the asking price as “blue sky.” Goodwill has often been a prime force behind the blue sky concept, and it is one of the reasons a potential buyer might feel that the seller is asking an “arm and a leg” for the business. Goodwill has been called many things – very few of them good.

However, today’s goodwill is more than just the hard work and effort a business owner has put into building the business. The Web site name alone may be worth a lot of money. Think “Google,” which by now may have achieved the same name recognition as Kleenex. If another search engine company could use that name, the business could be worth millions – even billions. The technology behind the name has a lot of value, but it’s important to remember that the name recognition or brand name, which is known all over the world, is also where the big bucks lie.

How does this relate to goodwill? The goodwill of a business can include patents, copyrights, its Web site and/or domain name, licenses, trademarks, proprietary software, secret recipes (What is the value of the secret recipe for Coke?), royalties – the list goes on and on. Would a McDonald’s business, assuming the same sales and profit, have the same value if the name and franchise were not included.

Buyers are beginning to realize that much of the value of a business in today’s world is not to be found in the hard assets such as the fixtures and equipment, but in the intangibles that create the income. Take the McDonald’s just mentioned, it may have beautiful stainless steel equipment, but the equipment is only worth the income it can produce; and to take it a step further, there are warehouses in every major city in the country full of “for sale” stainless steel equipment. The real value is the name and what it represents to the dining public.

For those who are considering selling their business in the near future, this new emphasis on goodwill means that some business procedures need to be changed. Operations manuals should be copyrighted, Web sites and domain names should be protected,  product and specific service names should be trademarked, inventions patented. There needs to be emphasis placed on intangibles that have to be earned, such as name recognition, brand names, employees, business relationships with suppliers and customers, long-term advertising, reputation, etc. Don’t let anyone tell you that goodwill doesn’t have value – it is most likely the most valuable asset of your business.

Goodwill should be as protected as the law will allow. A visit to an Intellectual Property attorney may well be the best investment a seller can make.

For those who are considering buying a business, make no mistake about it, in many cases, what you are really buying is the goodwill of the business. If a buyer is still hung up on buying the stainless steel equipment, we have a warehouse full of it for sale!

A Business Owner’s Report Card

How does someone else, for example, a potential buyer, rate your business on the issues listed below?   Rate your business and yourself on the time-honored “A” to “F” scale.  You can even use a plus or minus.  What’s your average? Too many business owners operate on gut feel or “from the heart.”  Nothing wrong with that; many people start or buy their own business and operate it successfully with nothing more tangible than this kind of factor. But, every now and then, perhaps once a year, seize the moment and take a more realistic look at your business.  Grade yourself, using the following business report card as yardstick:

1.    Difficulty or the lack of competitive entry
2.    Stature of the business or product . . . exciting/glamorous
3.    Perceived level of required expertise – or licensing
4.    Ability of the business to secure funding — seller carry-back
5.    Volatility of business/customer loyalty
6.    Diversity of customers and/or suppliers. Exclusives?
7.    Length of business – history
8.    Reliability or fuzziness of financial records
9.    Key-man syndrome
10.    Severity of business seasonality
11.    The people factor
12.    Hours of operation
13.    Hazardous work, work place, products, or neighborhoods
14.    Bad lease – no lease
15.    Owner to stay
16.    Trend or erratic numbers –non recurring
17.    Goodwill (Blue Sky) as percentage of price
18.    Sparkling physical appearance or needing upgrade
19.    Regular or home office
20.    Remote location
21.    Contemporary and ship-shape equipment
22.    Franchised or Independent
23.    Visible expansion opportunity
24.    Loyal key employees in place
25.    Broker involved with deal
26.    Potential
27.    Name and reputation

Is It Time to Make Some Changes?

One of the major advantages of small and mid-sized businesses is that it is much easier to make changes with this category of business than it is with the larger kind. The larger company can become so  mired in bureaucracy that it can’t turn on a dollar much less on a dime.  Changes can be a new product or service, expansion into new markets or focusing on existing markets, or a change in direction or positioning.

If your business is small or mid-sized, this might be the time to consider whether change, no matter how minor, might  increase business.  For example, if you’re in a retail business, would a new product or product line increase sales without increasing costs?  If you’re in a service business, are there some new services that can be offered, or existing ones expanded?  It is better to attempt a change rather than not to try one, because in the small and mid-sized business, strategies for change usually can be withdrawn or modified without inordinate damage to the existing business.

One change increasing in popularity is co-branding.  It movement manifests itself in a variety of business combinations, one of the most common being the gas station and convenience store or mini-mart.  Food franchises are also co-branding because one company may own or franchise several brands.  KFC and Taco Bell may share the same premises and kitchens.   Many of the travel plazas will have, for example, a Burger King, a Popeye’s Chicken and a Cinnabon’s (cinnamon rolls) joined together. There are coin laundries that also house espresso bars, tanning salons, and there are small convenience stores that sell soaps and other laundry items for use in washers and dryers, right along with snacks and other products.

Many other small businesses are adding other products and/or services to their existing business.  Even some movie theatres are adding fine dining as a complement to the traditional movie to create a whole entertainment experience.  Perhaps your business would profit by adding something else to the mix. All it takes is a little imagination, some homework, perhaps a trial run, and the courage to give it a try.

Selling Price Defined

When the time comes to sell your business, what makes up the selling price. What is it that you are selling and the buyer is buying? It is important that the selling price be defined in such a way to avoid any confusion. Below you will find some sample wording used by business intermediaries to define the selling price. Keep in mind that this is sample wording only and is presented here merely for informational purposes.

  • The term “selling price” shall include (a) the selling price of the assets acquired plus any obligations assumed by the purchaser, (b) if the sale becomes one of stock, then the selling price will be all of the assets plus all of the liabilities of the corporation plus the value of any covenants not to compete, employment and/or consulting agreements plus the value of any allocations for goodwill and/or intangible assets.
  • The total sale price shall consist of all consideration received by the owner and/or the company including the sum of the following:

(a)    The total amount of cash received by the company and/or owner in connection with the sale, lease, or other transfer of the company, or any interest therein.  Such cash consideration shall include but not be limited to purchase price, lease consideration, non-competition payments, consulting payments, license fees, royalties, retained cash, and other consideration received at or subsequent to the consummation of the sale transaction.

(b)    All future, contingent or undetermined amounts in whole, such as an “earnout.” The commission shall be based on the actual amount of such future or contingent payments as and when they are received.

(c)    The current fair market value of all non-cash items such as securities, notes or other property.

(d)    Any amounts retained by the company for ultimate distribution to the owner, including any salaries, bonuses, deferred compensation, liquidation proceeds, or other amounts (in excess of the owner’s historic salary) received, retained or withdrawn by or for the benefit of the owner (including profits generated prior to closing) from and after the date of execution of this Listing Contract.

(e)    The amount of any liabilities assumed by a purchaser (except for unsecured liabilities shown on the company’s financial statement or unsecured liabilities which arise hereafter in the ordinary course of the company’s business; i.e., any secured debt assumed by a purchaser shall be part of the sale price.

Questions Business Buyers Want Answers To

If you are even thinking about selling your business, it’s important to know the questions that buyers generally want answers to. For example, the first question almost always asked by buyers is: If this is such a good business why is it for sale? How you answer this question can make or break a sale. A vague answer can discourage buyers from further consideration of your business, as they may assume the worst.

If you say you are “burned out’ or just ready to try something new – that’s fine. If you’ve owned and operated the business for 10 to 15 years, buyers will most likely accept your reason for sale and continue their investigation. However, if you’ve only owned and operated the business for two years or less, a prospective buyer may find it concerning that you are already burned out or ready for something new.

If you’re sick, be open about what the problem is; otherwise buyers will think you are just sick of the business. The worst thing a seller can do is to fudge an answer or not provide a completely honest answer. Buyers will, most likely, see right through the given reason for sale and walk away. So, even if you really are tired of or just plain hate running your own business, be up front and explain why. Honesty is always the best policy.

It is also a good policy to engage the services of a professional business broker. Brokers have been through many transactions and can help a prospective seller deal with the reason for sale as well as the other questions a buyer may have. Here is a brief list of other questions buyers often ask and business brokers deal with all of the time:

•    Why should I buy an existing business rather than start one myself?
•    How are businesses priced?
•    What should I look for?
•    What does it take to be successful?
•    What happens if I find a business I want to buy?
•    Do I need outside advisors?

In addition, buyers often want answers to some more specific questions such as:

•    How long has the business been in business?
•    How long has the present owner owned the business
•    How much money is the business making?
•    Are the books and records readily available?
•    Will the new owner help me learn the business?

These and many other questions are ones that business brokers deal with every day, equipping them to help you prepare honest and useful answers.

What Happens If?

You may not have any intention of selling your business today. But, what happens to your business if you get hit by a truck, fall ill or are injured in some other way making you unable to operate your business for a fairly long period of time? Will your spouse step in? Do you have a trusted employee that can run things? Now might be a good time to give this some thought and discuss it with family and advisors.

You have spent time, effort and money building your business. Your business is probably your and your family’s biggest asset. So, what happens to this asset if one of the unfortunate events mentioned above actually occurs? Without some strategies to deal with the unexpected, your business could be in serious trouble by the time you recover and return to work. Or worse, if you fail to survive an illness or injury, your family/heirs will be forced to create a plan of action to run the business or, at least, operate it until it can be sold. The obvious time to come up with a plan for the unexpected is before it happens.

This type of plan is different than an exit strategy. An exit strategy provides a plan that can be followed for a planned retirement or cut-back. Illness, accidents and death are seldom planned events. They are sudden events where the owner and operator of a business becomes incapacitated and, if there is not a written plan of action the business could find itself in jeopardy.

This written plan of action should outline your wishes in the event of illness, injury or death. Is there someone who can run things until your business is sold? If you are the main cog in the company’s success and you are not able to be there, how will your customers and suppliers feel about doing business with your company? Maybe now would be a good time to get key person insurance, increasing your own life insurance to cover taxes in case of death. It may also be a good time to pick a successor – just in case. If there isn’t someone who could take over, is there someone who could at least keep things operative until the business is sold? Maybe it’s time to have your spouse or one of your children learn something about the business – again, just in case. Maybe you have an employee who could keep things running until the business is sold or until you are able to return to work.

In addition to your family and advisors, it might also pay to talk to a professional business intermediary. You may not be ready to sell, but if selling becomes a necessity in the future, a consultation with a business intermediary can provide you with a lot of valuable information about the sales process to help you plan now.

Increasing the Value of Your Business

Considering selling your business? Just want to increase the value of your business? Here are some areas to look at that can fairly quickly increase profits, which are, after all, a main building block in creating value.

•    PRICING: Are the prices of the products or services set too low? Owners too often continue with the same prices year after year without revisiting their pricing structure.

•    CUSTOMER SERVICE: Despite all of the above Elevating the quality or amount of customer service may not only increase business and support the higher prices suggested above, but also encourage customers to pay more promptly, increasing cash flow.

•    EXPENSES: Owners should review what they pay for inventory, supplies, utilities, insurance, technology and any other expenses. Are you getting the lowest price possible? Are you taking advantage of all available discounts, etc.? It may pay to check pricing from other suppliers and vendors. Every saving increase profits and subsequently profits.

•    INVENTORY: In some cases inventory levels may be higher than necessary. Retail operations want their stores to look “busy,” but they don’t need a basement or warehouse full of inventory. In today’s fast-moving economy, inventory can be supplied almost on demand – in most cases. This should be balanced by still taking advantage of special pricing on certain items or stockpiling hard-to-get inventory.

•    OUTSOURCING: Some services, especially in today’s environment of the self-employed, can be outsourced. While replacing workers is not pleasant, and should only be done if substantial savings can be realized, outsourcing is often worth investigating.

•    EMPLOYEES: Now may be the time to get rid of any disgruntled employees. Happy and contented employees make for a profitable business.

These are just a few areas to consider to help increase profits and, subsequently, increase value.

Unreported Income: “Show Me the Money!”

Prospective buyers don’t want to hear about “what the business really makes” – they want to see the books and records that show what is down in black and white. Here  is the old story about proper accounting procedures, or lack of:

A Greek restaurant owner had his own bookkeeping system.  He kept his accounts payable in a cigar box on the left-hand side of his cash register, his daily cash returns in the cash drawer of the register, and his receipts for paid bills in a shoe box on the right side of the cash register.  When his youngest son graduated as a CPA, he was appalled by his father’s primitive bookkeeping methods.  “I don’t know how you can run a business that way,” he said.  “How do you know what your profit is?”

“Well, son,” the father replied, “when I got off the boat from the old country, I had nothing but the clothes on my back.  Today, your brother is a doctor.  Your sister is a speech therapist, and you’re a CPA.  Your mother and I have a nice car, a city house, a country house, and plenty of money for retirement.   We have a good business and everything is paid for.  Add all that together, subtract the ‘clothes on my back,’ and there is your profit.”

Great story and it is probably an accurate depiction of many small businesses, even in today’s world. Unfortunately, today’s buyers are not going to buy a business—not for anywhere near what the business may actually be worth in the marketplace—without checking the books and records. Buyers will not pay for what they can’t see. Some sellers want it both ways. Since they haven’t reported this income to anyone, they haven’t paid taxes on it; and now they want to sell it as a real number. They also seem to forget the most important part – “skimming” is against the law.

Joseph Bankman, a professor of tax law at Stanford University Law School said, “Nothing is as good as taking half your income off the books to start with; that’s better than any phony deduction. That’s the biggest single source of revenue loss in the tax system.” What these sellers may fail to realize is that the Internal Revenue Service (IRS) has audit guides for many different businesses. It tells them, for example, how to roughly calculate annual sales and expenses of a pizza place by tracking its purchase of cheese. Any seller who doesn’t think that the IRS can’t figure out income and expenses of most businesses is kidding herself. Too many small business owners think that they are getting away with it – but they just haven’t been caught yet. If they kept accurate financial records they probably would get a much higher price for their business, most likely making up for more than what they would have skimmed.

What happens is this: a business owner gets ready to sell, realizes that due to his or her unreported financial dealings, the business won’t sell for anywhere what he had hoped for. Now he is in the position of having to reveal to a prospective buyer how he is skimming from the sales, paying help under the table to avoid the usual employee costs, or padding expenses. Buyers do not look favorably on sellers who attempt to justify their price by revealing how they are cheating the government(s).

Here are some tips for business owners who are considering selling:

•    Plan now to maintain accurate financial records. When it comes time to sell, you will be able to show a prospective buyer where the money is and what it was used for.

•    Keep in mind that a selling price is usually based on the cash flow of the business. The dollar you hide today will most likely be worth two or three times that when it comes to selling price. Think long-term, not short-term.

•    Talk to a business broker professional. He or she can provide some education about  how businesses are priced. They can also offer suggestions on how to gather the necessary information for a prospective buyer.

By following the suggestions above and reporting all income, by taking only legal deductions and maintaining accurate financial records, when it comes time to sell and the buyer says “Show me the money” – you can!