Selling your business can be a confusing process. From deciding when to let go to understanding the legal and financial implications of selling, it can be overwhelming for even seasoned entrepreneurs. That’s why we’ve written this handy guide. It goes over some of the most commonly asked questions by business owners regarding the sales process and provides answers to help you get started.
Can You Sell Any Type Of Business?
Yes, it is possible to sell any type of business. However, the process may vary depending on the size, complexity and nature of the company in question. For example, a large, public company would require more steps than a small, family-owned business.
Why Do People Choose To Sell Their Business?
People choose to sell their business for many reasons. The following is a list of some of the most common.
Retirement
For some, the decision is made due to retirement; not all business owners have someone suitable or willing to take the reins after they leave, so listing for sale makes the most sense for their company’s long-term viability. Many retirees also opt to sell for the financial payout that can come with it – after a lifetime of investment and commitment to their business, they’re ready to reap the returns of what they’ve built.
Personal Life Changes
Whether they’re relocating, starting a family or taking on new responsibilities outside of work, personal life changes are a common reason why owners choose to sell their business. Running a company is a full-time job, and not everyone is able to maintain the level of commitment they know their organization needs to stay afloat. These decisions are often difficult but are ultimately made in the best interests of both businesses and owners.
Poor Business Performance
In some cases, business owners choose to sell because their company is underperforming.
Heading an organization that’s struggling to make end’s meet can be tough, not to mention stressful. By opting to cash out on what they have, owners are able to move onto greener pastures while affording their business a second chance through an entrepreneurial flipper or investor.
Boredom or Lose Passion
It’s not uncommon for business owners to consider selling as a result of boredom. While initially invested in its goals, they may become disengaged, uninterested or uninspired in moving forward with their company. This can sometimes be the case for startups, or for owners with multiple organizations under their belt. Regardless of the reason, selling is an attractive option to those who are ready to move onto the next challenge.
Who Buys Businesses?
While technically anyone with enough money can purchase a business, there are a few types of buyers who are especially common.
Individual Investors
Many individual investors choose to buy businesses as a means of diversifying their portfolios. These investors typically have the necessary resources and experience to make a successful purchase, as well as to ensure that the company continues to be profitable.
Strategic Buyers
Strategic buyers are typically companies in the same or similar industries as the business being sold. These buyers are usually looking to purchase the company in order to expand their own offerings or to take advantage of the target’s existing customer base.
Venture Capitalists
Venture capitalists are typically interested in startups or businesses with high growth potential that require capital for expansion. They are usually looking for high returns on their investment and tend to focus more on the future of the business than its current performance.
How Long Will It Take to Sell My Business?
The amount of time it takes to sell a business can depend on a range of things, including its size, industry and financial situation. Generally however, you can expect the process to last anywhere between five and eight months.
This is a broad average – some companies sell faster than this, while others take much longer to close. Ultimately, the biggest factor that will determine your timeframe is how prepared and strategic you are in approaching the sales process.
How Can I Make Sure My Business Gets Sold Fast?
While you can’t control external factors like market conditions and buyer demand, there are some proactive steps that can be taken to increase the chances of your business selling in a timely manner.
Preparation
Preparation is one of the most important parts of the business sale process. The sooner that you have all of the information necessary to get started, the easier it will be to list, market and close a deal. You should have everything from financial records to legal contracts handy so as not to cause any delays.
Pricing
Some owners choose to list their business at a high price with the belief that they “can always lower it during the negotiation process”. While this strategy may sometimes work, it often backfires by discouraging buyers or driving away potential offers. It’s generally better to price your business fairly and competitively from the start to make sure you don’t miss out on any potential opportunities.
Down Payment
Down payments are important for many sellers, as they provide them with assurance of buyers’ seriousness about and commitment to a purchase. And you should never go without one – doing so can leave you at risk of having a buyer back out or renegotiate later on. But one common mistake made by business owners is asking for too much of a down payment – too high of an up-front cost can cause buyers to hesitate or walk away. It’s important to strike a balance between getting the insurance you need and not asking for too much.
Professional Help
Some business owners assume that their position alone qualifies them to manage the sale of their company. After all, isn’t it the same as any other big deal?
Unfortunately, the answer is no. While you may be an expert in your industry and understand how to run your business, selling a company is an entirely different process. It requires a detailed knowledge of the legal, financial and tax implications that come with it – something that is best handled by a qualified professional.
From navigating the sale process to finding potential buyers and negotiating terms, working with a team of experienced advisors can make all the difference in the speed of your business sale.
What Is a Business Broker, and What Role Can They Play In the Sale of My Company?
Business brokers are third party professionals who specialize in facilitating the sale of companies. They typically have a deep understanding of the marketplace and have established relationships with potential buyers. This makes them invaluable resources for sellers who are looking to get the best deal possible in a timely manner.
Business brokers can provide sellers with valuable advice and guidance throughout the sales process, from pricing and preparing company documents to marketing the business and helping with negotiations. They can also act as intermediaries between buyers and sellers, helping to ensure an efficient and successful sale.
One thing to know about business brokers however, is that they are not magicians. While they can definitely be a great help in getting your business sold, the speed and success of the sale will ultimately depend on factors such as market conditions, buyer demand, and the effectiveness of your preparation.
Should I Sell My Business Myself Or Hire a Business Broker?
Every business owner, regardless of the size of their company, can benefit from the help of a business broker. Even if you’re comfortable managing the sale process yourself, having a professional on your side can give you peace of mind and help ensure that no stone is left unturned.
If you’re still on the fence about whether to hire a business broker, consider what you stand to gain from doing so. A good business broker can do the heavy lifting for you, from finding and screening potential buyers to guiding you through negotiations. They also have industry connections that can help increase the visibility of your business, which can lead to more offers and a better sale price.
At the end of the day, it all comes down to personal preference. But if you’re serious about getting a good deal for your business and don’t want to leave anything to chance, it’s worth considering the benefits of working with a professional.
How Much Do Business Brokers Charge?
The amount of money you can expect to pay a business broker will depend entirely on your situation and the specific firm you choose to work with. Generally speaking, most business brokers will charge a percentage of the sale price, usually between 10 and 15%. In some cases, business brokerage firms may also charge a flat fee or an hourly rate, depending on the type of services they provide.
What Is Seller Financing?
Seller financing is a type of real estate agreement that allows buyers to purchase an asset over a period of scheduled installments. It’s a common alternative to traditional mortgage loans, especially for those who are looking for a faster or more flexible deal. While benefiting buyers by providing them with a sustainable, accessible way to pay off their purchase, seller loans can also be valuable to owners, as they allow them to make a steady return on their investment without selling the business outright.
Is Seller Financing Worth It?
Seller financing can be a great option for those looking to maximize their return on investment. While there are risks associated with this type of agreement, it can be a win-win for both buyers and sellers. Sellers can benefit from a consistent income stream and additional interest payments, while buyers are able to purchase the asset without taking on a large amount of debt. Ultimately, it all comes down to your personal circumstances and the specifics of the transaction.
I Heard That Seller Financing Can Help Me Get a Better Deal On the Sale of My Business. Is That True?
According to data, yes. Surveys show that sellers who ask for their payment in cash receive an average of 70% of their asking price, while those who accept terms hit an average of 86%. This 14 point difference is likely due to the fact that seller financing can make an otherwise difficult purchase more accessible and attractive to buyers.
What Are Seller’s Discretionary Earnings?
Seller’s discretionary earnings (SDE) is a financial metric used to measure the net income of a business after deducting certain expenses. It’s typically used by buyers and brokers to evaluate the potential investment of a business. SDE is calculated by taking total revenues and subtracting all operating costs, taxes, and other expenses. This number can then be used as a benchmark to measure the potential profitability of the business.
When evaluating a business for sale, it’s important to understand SDE and how it can be used as an accurate assessment of a company’s financial performance. While SDE is not the only factor that should be considered when assessing a business, it can provide crucial information that should inform your decision.
What Is Escrow?
Escrow refers to a legal arrangement in which a third party temporarily holds funds or property during a real estate transaction. The purpose of this is to ensure that both the buyer and seller are satisfied with all terms of the agreement before exchanging anything and therefore shielded from any potential risk.
Should I Use Escrow When Selling My Business?
Escrow services are typically handled by a professional who acts as an impartial agent and facilitates the transaction process. This can include collecting payments, verifying documents, and ensuring that all parties meet their obligations as agreed upon. Escrow services can provide buyers and sellers with added peace of mind to ensure that their deal is secure and transparent.
Selling a business isn’t easy, and having a solid understanding of the process is essential. Seller financing, SDE, and escrow services are just some of the important topics to review when determining the best course of action. Every situation is unique, so it’s important to consider all available options and compare them to your own needs and goals. Ultimately, this will help ensure that you make the best decision for your business and yourself.
Interested in learning more about what your company is worth? Schedule a free valuation with 1-800-Biz-Broker today.