You have put in a lot of time and effort to make your business successful, and it shows. You’ve finally concluded that it’s time to sell the company. I’ll tell you what to do and how to accomplish it. The first advice is to consult the experts who have helped you throughout the years. Consult with your financial advisor and legal counsel first. Find a local business broker to chat with within a larger city. It would be best to start collecting data about your organization now. Financial and tax documents are examples of this. The business presentation will require the location of any long-term leasing agreements or loan obligations.
Equipment leases and service contracts are also pertinent. If there is one, the union contract should also be included in the company’s complete disclosure if it is a union shop. All this and more is required before a price can be established and a transaction can be negotiated. You may expect a comprehensive review of your company.
Consult a licensed business broker for an official assessment.
One option for determining a fair price is to use a professional evaluation broker specializing in appraising businesses. Expert witnesses from this firm have been employed in court and before the IRS, attesting to their credibility and the accuracy of their estimated value for your business. The payment terms and whether or not the owner would carry some paper are often the only points of negotiation in many purchases based only on their quantity. There is software available, and your accountant might be able to give you a rough estimate, but you may want to see a professional for this crucial business statistic. You may find our piece, Preparing to Sell Your Business, helpful.
Compare current market rates.
Looking at other companies’ valuations of their revenues is another method for gauging your firm’s potential worth. This kind of data can be found at trade groups and on websites dedicated to the industry. Inflation rates tend to be more favorable when the economy is doing well.
At the very least, you should research the prevailing earnings multiples and other valuation techniques. This cost can include market factors. Always remember that national industry trends may need to be modified by a location aspect. Regardless, the company’s strength determines the profit multiplier, ranging from ten to one.
The nature of the company’s operations is also relevant. Setting a price to sell is complex and may be best left to a professional. For this reason, you should see a CBB (certified business broker). Your company’s value will be affected by his education and expertise.
Browse online deals to see what’s available.
You can get a rough estimate from the ads on the business pages of newspapers and industry journals. The Internet is a great place to find a business broker. Discuss with them the going rate for similar businesses in other locations of the country. You may learn just about all you need to know about selling a business from these online resources. You’ll quickly learn from reading the content on these sites that selling a business is much more challenging than selling a home. More information must be processed, and more laws may be considered.
Comparison of Cash and Term Pricing
Establishing a sales price is a necessary step in selling a business. Another choice will need to be made once this is completed. Do you agree to the terms proposed to close the business sale? When you decide to terms, you agree to defer payment of any or all of the purchase price until later. Many vendors will do this, but they’ll ask for a higher price in exchange for terms. Therefore, the vendor has set two prices. The lower price represents a sale for cash, whereas the larger price reflects the need for words to close the purchase.
This is a straightforward negotiation, as the higher price will not hinder the buyer’s ability to profit from the business. The more excellent price is reasonable because both sides got what they sought. Many negotiators have utilized this strategy for years. In this scenario, both parties benefit: the seller realizes a profit from the sale, and the buyer, despite paying a little higher price, acquires an established company with solid prospects for future growth and profitability. The duration of the wait-and-pay arrangement is negotiable, although it is typically at least a year.
The seller needs to remember a few important conditions. When we need more cash, where will it come from? You’ll need this sum to make the additional payment(s). Does the current owner think paying for it with money from the business is possible? If not, the sale must be declined so the previous owner can reclaim company ownership through forfeiture.
Are you willing to help fund the purchase with a loan?
When selling a firm, financing at least a portion of the acquisition price is standard. Many people can afford a sizable down payment but set aside some money to ensure they don’t run out too soon. The previous owner is a natural choice as a lender in this scenario. They will give the financing agreement considerable thought to finalize the sale if they are confident that the new owner can successfully run the business. If you reject this offer, it could be some time before another severe buyer shows interest in purchasing your company. How you feel about the new owner is the deciding factor. This is the right choice if they have other resources. If their credit history checks out, that’s good news for moving forward.
Conclusions
Hiring a Certified Business Broker is a significant first step toward selling your business, as the asking price needs to be supported by data and the company’s track record. In this manner, a reliable and verifiable asking price can be established. Once this pricing has been confirmed, the following negotiations will have a firm foundation from which to work. The owner needs to decide early on whether they can accept the deal’s terms or financing. This decision will rapidly facilitate communication between the buyer and the seller or broker. If it’s a cash-only transaction, the broker will know right away if the buyer qualifies. Putting together a deal is simplified if conditions and finance are already in place.
The initial discussion should include the presentation of a clear presentation folder containing all of the relevant company information. If everything is out in the open, it’s easier to have a productive conversation.
If a broker is involved, you should trust that they will do an excellent job bargaining on your behalf. The broker’s role is to facilitate the deal and ensure its completion.
These factors will enable this buyer and seller to strike the most excellent possible agreement for the vendor. If this attempt fails, the parties must start again with a new round of negotiations. There is always a sweet spot for a transaction, and it’s the broker’s role to guide the parties to it.
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Henthorn is the president of Spiral Marketers, a marketing organization that has collaborations with a wide variety of industries, including those involved in creating innovative software, providing coaching services for professional and personal development, and operating online retail outlets.
He previously led a Honolulu, Hawaii-based resort/commercial real estate company as its president and primary broker, overseeing sales of up to $50 million.
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