Selling a Business – regardless of it’s size, complexity or current vitality in the market – is a process. Skipping just one step or ignoring one opportunity can cost the Seller many thousands of dollars in the final sale price.  

Scott offers a unique financial skillset and the analytical tenacity to maximize the value of your business before listing. He walks you through each step, keeping you informed and on-track. Negotiate with confidence from a position of knowledge and strength. 

 Step 1 – BE READY

Understand your situation and formulate a plan

It all starts with what is important to you and where you’re going. This will likely be the largest financial transaction of your life and it needs to be executed in light of your goals and objectives. Your CPA, financial planner and estate attorney all need to be part of this process because they exist to help with various aspects of your life.

Your Emotional Readiness

Are you emotionally ready to make a change like this? Where you are on this scale can determine how long this process takes, what options are available to you and possibly what value you receive from a transition. Discussions with others who have gone through the process and are now living with a “new identity” can be highly important to your preparations. You want to come out of this with no regrets.

 Your Financial Readiness

Unrealistic opinions of value are one of the largest problems for exiting owners and one of the main reasons deals fall apart. This is often the result when an owner does not actually know how much they need to exit or understand the financial ramifications of the terms of a sale. The objective becomes getting the highest possible cash price. But you need to have a reasonable sense of value and deal structure in order for your CPA to plan and minimize your tax exposure and for your financial planner to create your retirement picture. Clarity here may indicate that you need to stay and grow your business value to a point that makes your retirement possible or maybe the current landscape of values for your business are sufficient. Either way, knowing these facts is essential.

Your Business Readiness 

The largest battle on this front is what is called “owner dependence” – how critical you are to the daily operations of your business. Values increase as owner dependency decreases, so some tough decision and time may be necessary to resolve this issue and move you to the values you need to get to your financial goals. Other things to consider are the condition of your books and records, your management team and the physical condition and appearance of your business.

The Best Way Forward & Craft a Plan to Get There

A lot of businesses (sadly) don’t sell and wind up just going away. But of those that are sold, most go through the business broker community and are sold to another private buyer. However there are other options such as corporate buyers, private equity investment, management buyouts and gifting. The options available to you will depend largely on your goals, readiness and the size of your business.

After all of the above is evaluated and an option is chosen, then begins the process of understanding the details of your option and putting a plan in motion and assembling your deal team. This is where your other trusted advisors will be important as well as possibly other specialists to address the necessary details involved. This would clearly include your attorney, accountant and financial planner. But it may also include other professionals that can help to improve efficiencies and resolve outstanding problems which will help to create more value for your exit.

Step 2 – GET SET

Prepare for Sale

Depending on the condition of your operation, this step can be very easy or it can take months. Either way, it is advisable to expect to spend enough time to complete all the steps. After all, if more value can be mined out of your situation, the better.

Review Accounting & Analyze the Financial Picture

This is the first step in preparation. When you are preparing to sell, looking at the financial picture requires some different thinking. Sorting out discretionary spending from required business spending is a large part of this. However, if the books and records are not in good shape, this can be difficult. The quality of your books and records is vitally important and a buyer will need to have confidence in the financial statements he or she is looking at. If your books are bad, then it will most likely be worth the cost to bring them up to standard and up to date.

Determine a Range of Values

After confidence in the numbers is established, then a range of values of the business can be determined. It is virtually impossible to determine an actual value as comparable sales data may not exist, or if it does, it may be unreliable. The reasons business sell vary and without knowing the risk factors behind the data you can only use it as a general guide. Another reason a range of values is suggested is that individual buyers and corporate buyers will view the same business differently and very likely have different value assessments. A appraisal of the business should take this into account. A professional appraiser can be hired for a formal valuation, or a business broker can prepare a brokers opinion of value.

Find Areas to Reduce Costs to Increase Value

After completing the first two bullets, often times things come to light that can be changed or corrected that will improve the earnings and/or lower business risk and hence, improve value. For example, if you have a nagging expense for something costing you $500 per month, fixing it could help increase the business value as much as $15,000. These things can add up to significant value. Also, old contractual agreements should be assessed to see if better terms can be obtained. Another area to look at is business insurance. This should be assessed not only for cost savings, but proper coverage. If your business has been under insured for years, a new buyer isn’t likely to get those prices and your value range is overstated. It may not reduce costs, but it will more accurately present the business and avoid a nasty surprise to the buyer down the road which can lead to problems.

Make Structural Changes that will Improve the Business

As noted above, owner dependence is a major factor in the value of a business. This is the time to start making whatever changes can help minimize this issue. It may not be possible to totally remedy this issue, but there can be many areas that can be delegated and proceduralized. The more work that a new owner has to do, the less he will be willing to pay for the business. Additionally, this limits the pool of available buyers as more specific experience will be needed by whoever buys the business. This step obviously will take time. But it will be well worth the effort in improving business value. Another important thing to keep in mind is the physical appearance of the business. If the business need paint and carpet, do it. If there are old files and unimportant equipment and furniture around, get rid of it. Show pride of ownership and remember, first impressions are important.

Step 3 – LET’S GO

Head to Market

Now the work of executing your plan starts. This includes marketing the business, finding a qualified buyer, negotiating price and terms, completing due diligence and closing the transaction. There are lots of moving parts and bumps and bruises in this process, however, your readiness preparations will help smooth these out.

Develop a List of Potential Corporate Buyers & Make Contact

Development of this list will come from the business owners own knowledge of the industry, industry associations and conferences and research of data sites that specialize in accumulating information on entities that are actively acquiring businesses . Key people in these companies will be identified and directly contacted (initially on a confidential basis) to see if they have an interest in investigating a purchase. It can be time consuming to develop this list and identify the contacts, but since it is targeted it does generate more interest and better potential buyers.

Advertise the Business on the Web in an Anonymous Way

Most business brokers take an anonymized profile of the business and its financial metrics and place them on the six or so major websites that cater to business sales. There is nothing wrong with this process and it is often successful. Most, but not all of the businesses listed are consumer oriented and generally very small. These businesses require less capital and business experience in general and more often the buyer is buying himself a job. Larger more sophisticated businesses list there as well, but unless a buyer has very specific requirements, it may not be the optimal place to find success. There are a lot of “tire kickers” that will express an interest, but they often lack the resources and savvy to actually close on a sale. It is a bit like fishing.

Work with Potential Buyers to Help Them Understand the Business & Make an Offer

Once a buyer expresses an interest and signs a non-disclosure agreement, we’ll open discussions. An initial conference call will be scheduled between the buyer and the seller to talk openly and honestly about the business – warts and all. A buyer will be able to see more detailed financial information and other readily available details at this point, however, this is not the due diligence process. It is absolutely imperative that this process is transparent as possible. It is also the time to determine if there is a good one.

Contingencies & Closing

The usual next step is that if a buyer is still serious, he will make an offer on the business, and negotiations on price and terms begin. The reason this comes early on is to help insure that the buyer is serious, not a tire kicker, and to assure the seller that spending the time and energy on responding to all of the things that will need to be done will not be wasted. Once and offer is finalized, it can be contingent on many things. The usual contingencies are a) the buyers sign-off on his review of the books and records of the business 2) a license transfer and 3) facility lease transfers. If any of the contingencies cannot be completed, the offer is cancelled (or possibly re-negotiated in light of the contingency issues). If the buyer is satisfied and signs off on all of the contingences, escrow is opened and the final formalities of document accumulation, tax clearances and funding are worked out. The ownership will transfer at the close of escrow.

Selling a Business – regardless of it’s size, complexity or current vitality in the market – is a process. Skipping just one step or ignoring one opportunity can cost the Seller many thousands of dollars in the final sale price.  

Scott offers a unique financial skillset and the analytical tenacity to maximize the value of your business before listing. He walks you through each step, keeping you informed and on-track. Negotiate with confidence from a position of knowledge and strength. 

Understand your situation and formulate a plan

It all starts with what is important to you and where you’re going. This will likely be the largest financial transaction of your life and it needs to be executed in light of your goals and objectives. Your CPA, financial planner and estate attorney all need to be part of this process because they exist to help with various aspects of your life.

Your Emotional Readiness

Are you emotionally ready to make a change like this? Where you are on this scale can determine how long this process takes, what options are available to you and possibly what value you receive from a transition. Discussions with others who have gone through the process and are now living with a “new identity” can be highly important to your preparations. You want to come out of this with no regrets.

 Your Financial Readiness

Unrealistic opinions of value are one of the largest problems for exiting owners and one of the main reasons deals fall apart. This is often the result when an owner does not actually know how much they need to exit or understand the financial ramifications of the terms of a sale. The objective becomes getting the highest possible cash price. But you need to have a reasonable sense of value and deal structure in order for your CPA to plan and minimize your tax exposure and for your financial planner to create your retirement picture. Clarity here may indicate that you need to stay and grow your business value to a point that makes your retirement possible or maybe the current landscape of values for your business are sufficient. Either way, knowing these facts is essential.

Your Business Readiness 

The largest battle on this front is what is called “owner dependence” – how critical you are to the daily operations of your business. Values increase as owner dependency decreases, so some tough decision and time may be necessary to resolve this issue and move you to the values you need to get to your financial goals. Other things to consider are the condition of your books and records, your management team and the physical condition and appearance of your business.

The Best Way Forward & Craft a Plan to Get There

A lot of businesses (sadly) don’t sell and wind up just going away. But of those that are sold, most go through the business broker community and are sold to another private buyer. However there are other options such as corporate buyers, private equity investment, management buyouts and gifting. The options available to you will depend largely on your goals, readiness and the size of your business.

After all of the above is evaluated and an option is chosen, then begins the process of understanding the details of your option and putting a plan in motion and assembling your deal team. This is where your other trusted advisors will be important as well as possibly other specialists to address the necessary details involved. This would clearly include your attorney, accountant and financial planner. But it may also include other professionals that can help to improve efficiencies and resolve outstanding problems which will help to create more value for your exit.

Prepare for Sale

Depending on the condition of your operation, this step can be very easy or it can take months. Either way, it is advisable to expect to spend enough time to complete all the steps. After all, if more value can be mined out of your situation, the better.

Review Accounting & Analyze the Financial Picture

This is the first step in preparation. When you are preparing to sell, looking at the financial picture requires some different thinking. Sorting out discretionary spending from required business spending is a large part of this. However, if the books and records are not in good shape, this can be difficult. The quality of your books and records is vitally important and a buyer will need to have confidence in the financial statements he or she is looking at. If your books are bad, then it will most likely be worth the cost to bring them up to standard and up to date.

Determine a Range of Values

After confidence in the numbers is established, then a range of values of the business can be determined. It is virtually impossible to determine an actual value as comparable sales data may not exist, or if it does, it may be unreliable. The reasons business sell vary and without knowing the risk factors behind the data you can only use it as a general guide. Another reason a range of values is suggested is that individual buyers and corporate buyers will view the same business differently and very likely have different value assessments. A appraisal of the business should take this into account. A professional appraiser can be hired for a formal valuation, or a business broker can prepare a brokers opinion of value.

Find Areas to Reduce Costs to Increase Value

After completing the first two bullets, often times things come to light that can be changed or corrected that will improve the earnings and/or lower business risk and hence, improve value. For example, if you have a nagging expense for something costing you $500 per month, fixing it could help increase the business value as much as $15,000. These things can add up to significant value. Also, old contractual agreements should be assessed to see if better terms can be obtained. Another area to look at is business insurance. This should be assessed not only for cost savings, but proper coverage. If your business has been under insured for years, a new buyer isn’t likely to get those prices and your value range is overstated. It may not reduce costs, but it will more accurately present the business and avoid a nasty surprise to the buyer down the road which can lead to problems.

Make Structural Changes that will Improve the Business

As noted above, owner dependence is a major factor in the value of a business. This is the time to start making whatever changes can help minimize this issue. It may not be possible to totally remedy this issue, but there can be many areas that can be delegated and proceduralized. The more work that a new owner has to do, the less he will be willing to pay for the business. Additionally, this limits the pool of available buyers as more specific experience will be needed by whoever buys the business. This step obviously will take time. But it will be well worth the effort in improving business value. Another important thing to keep in mind is the physical appearance of the business. If the business need paint and carpet, do it. If there are old files and unimportant equipment and furniture around, get rid of it. Show pride of ownership and remember, first impressions are important.

Head to Market

Now the work of executing your plan starts. This includes marketing the business, finding a qualified buyer, negotiating price and terms, completing due diligence and closing the transaction. There are lots of moving parts and bumps and bruises in this process, however, your readiness preparations will help smooth these out.

Develop a List of Potential Corporate Buyers & Make Contact

Development of this list will come from the business owners own knowledge of the industry, industry associations and conferences and research of data sites that specialize in accumulating information on entities that are actively acquiring businesses . Key people in these companies will be identified and directly contacted (initially on a confidential basis) to see if they have an interest in investigating a purchase. It can be time consuming to develop this list and identify the contacts, but since it is targeted it does generate more interest and better potential buyers.

Advertise the Business on the Web in an Anonymous Way

Most business brokers take an anonymized profile of the business and its financial metrics and place them on the six or so major websites that cater to business sales. There is nothing wrong with this process and it is often successful. Most, but not all of the businesses listed are consumer oriented and generally very small. These businesses require less capital and business experience in general and more often the buyer is buying himself a job. Larger more sophisticated businesses list there as well, but unless a buyer has very specific requirements, it may not be the optimal place to find success. There are a lot of “tire kickers” that will express an interest, but they often lack the resources and savvy to actually close on a sale. It is a bit like fishing.

Work with Potential Buyers to Help Them Understand the Business & Make an Offer

Once a buyer expresses an interest and signs a non-disclosure agreement, we’ll open discussions. An initial conference call will be scheduled between the buyer and the seller to talk openly and honestly about the business – warts and all. A buyer will be able to see more detailed financial information and other readily available details at this point, however, this is not the due diligence process. It is absolutely imperative that this process is transparent as possible. It is also the time to determine if there is a good one.

Contingencies & Closing

The usual next step is that if a buyer is still serious, he will make an offer on the business, and negotiations on price and terms begin. The reason this comes early on is to help insure that the buyer is serious, not a tire kicker, and to assure the seller that spending the time and energy on responding to all of the things that will need to be done will not be wasted. Once and offer is finalized, it can be contingent on many things. The usual contingencies are a) the buyers sign-off on his review of the books and records of the business 2) a license transfer and 3) facility lease transfers. If any of the contingencies cannot be completed, the offer is cancelled (or possibly re-negotiated in light of the contingency issues). If the buyer is satisfied and signs off on all of the contingences, escrow is opened and the final formalities of document accumulation, tax clearances and funding are worked out. The ownership will transfer at the close of escrow.