Congratulations on considering the sale of your business. All your hard work will surely payoff with a generous sales price. Selling a business, however, is much more involved than selling commercial real estate. You can’t just pitch a for sale sign outside the building – in fact that is probably the last thing that you want to do. Here are the answers to some of the main questions business owners ask before they sell their business.
What is Included in the Sale of a Business?
Selling a business is much more involved than selling a commercial building. There are a lot more components involved. If you have title to the property, will you be selling it to the new owner or leasing it back to them? Will you be transferring any franchise rights, licenses, patents and copywrites or registered trademarks? How about the business’s furniture, fixtures and equipment? You will want to create two lists. One which indicates everything that is included in the sale and another that designates your personal property such as the office computer or work vehicle.
Is the Business Lease Included in the Sale?
If you lease your location, then the business lease needs to be included in the sale. You may want to consult with your attorney to make sure that the current lease contract will allow you to transfer it to the new business owner.
A buyer is going to want to make sure that they will have access to the same location for as many years as they own the business. Hence, you will want to extend the lease as long as possible before you put your business on the market. The longer the lease, the higher the purchase price and the more security you offer a buyer. You will want your lease, with all the renewal options, to run for at least the next ten years. If your current lease will expire before that, then we encourage you to meet with your landlord as soon as possible to sign a longer lease.
Should I Work with a Business Broker?
Once you have determined all the components that will be included in the sale of your business, the next step is to decide if you are going this alone or if you will be working with a business broker. There is no rule that says you need to list your business with a business broker. You can sell it yourself. But before you decide, let’s look at the pros and cons of both decisions.
What are the Pros and Cons of Selling the Business Myself?
Pros: You can keep 100% of the sales price, less any closing expenses and property-related debts. A business broker will typically charge between 10 to 12 percent of the sales price. You are in control of all the marketing, showings, and negotiations.
Cons: You will have to be in control of all the marketing, the showings and the negotiations while you are still managing your business. This will take a lot of time. Plus, marketing is not cheap and getting your business in front of the right crowd is even harder. Negotiating the sale of something so close to your heart is a challenge for many business owners. You are also responsible for all the legalities of the closing. If something goes wrong, the buyer will come directly to you.
What are the Pros and Cons of Listing My Business with a Broker?
Pros: Your broker will be responsible for all the marketing, showings and negotiations – under your guidance and in accordance with your wishes. They have access to a national network of buyers looking for businesses just like yours. They have the training and experience to protect your confidential information from prying eyes. They will also do all they can to limit your liability and protect your interests. Depending on the type of listing contract, if you find a buyer, you’re welcome to direct them to your business broker. One of the main benefits of working with a business broker is that you have a trained professional representing your interests and negotiating the highest possible price.
Cons: Your business broker will charge you between 10 to 12 percent commission off the sales price. There may be a percentage of that fee that is payable in advance, which will be used in the marketing of your business.
How Much is My Business Worth?
Regardless of whether or not you choose to work with a business broker, you will need to establish a listing price and a probable sales price. This is where a business valuation is critical. Since you are selling your business, you are going to want a market approach valuation.
Who Can Value Your Business?
Technically, anyone can complete a business valuation – but with so much on the line, we recommend that you choose someone who specializes in business appraisals and valuations. This would include Certified General Real Estate Appraisers, Certified Public Accountants (CPAs), or Certified Valuation Analysis (CVAs). Your broker will also be able to assist you in determining a fair price for your business.
Can I Use My Tax Returns to Help Sell my Business?
One of the first things a prospective buyer is going to ask for is a copy of your business’ financial records. It may be tempting to simply hand them three or five years-worth of tax returns, but this is not a wise decision. When we complete a tax return, our objective is to make as little income as possible. This is the direct opposite of what you want to be showing a potential buyer. Thus we encourage you to work with your CPA to create Profit and Loss statements that are a more accurate picture of your business.
How Will My Business Look to a Buyer?
There are no second chances. This is true with customers and buyers. Before you put your business on the market, take a moment to step back and look at it from the viewpoint of a buyer – both physically and financially. Now is the time to hire someone to deep clean every nook and cranny and to fix all those minor issues we tend to ignore. Look at your accounts payable, are there small debts or delinquent accounts that need attention? Are all your licenses, contracts and permits up-to-date? Do you have any equipment leases that should be renewed or extended? Does your manager know of your intention to sell? Does he or she know how valuable they are to the business and how much you want them to stay on? These small items can have a massive impact on your ability to sell your business for the best price possible.
Again, we congratulate you on the future sale of your business. If you have any questions that we did not address, please feel free to fill out our contact form and we will be happy to answer as many questions as you have about selling your business.