Blake Taylor
What is included in the Sale of a Business – Q & A
There are many different things that can be included in the sale of a business. We’ll discuss what is typically …
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When a business owner considers selling their company, one of the things they are concerned with is how to sell their business for the highest price. They need guidance about the selling process, including how to get all records and operations ready to make it more attractive to buyers.
Many factors go into how much a business will sell for. Based on our years of experience selling companies, we provide you with some insights into how to sell your business for the highest price.
The first crucial step you need to take to maximize business sale value is to prepare its finances and verify its legal standing.
Before you know how much your business might sell for, it’s necessary to look at your company’s financial picture. You will need to review, at a minimum, the last three years of tax returns and a current year-to-date profit and loss statement of the business. These play a role in determining how much your business is worth. We generally recommend listing your business for its full worth, unless you want to sell your business faster. Most tax returns should also be completed to minimize taxes.
Buyers will want to understand the true owner’s income of the business. This is sometimes referred to as Seller’s Discretionary Cash Flow or Net Cash Flow. In addition to profit and the owner’s salary, cash flow also includes the perks and benefits that the owner gets from the business, such as:
It also contains some discretionary expenses that may not be necessary for the business. These types of expenses include optional travel and entertainment, country club memberships and other perks for the owner and their family.
To sell your business at the highest price, you need to show potential buyers all the details that make up the owner’s discretionary cash flow. If buyers see that your business makes good profits, they will be more willing to pay a higher price because they believe it’s a smart investment.
A legally compliant business builds buyer confidence and can prevent legal issues that could arise during the sale. Here are a few steps to ensure compliance:
If you think you might have issues, consider hiring a lawyer or compliance expert to thoroughly audit your business and identify any compliance gaps.
Next, ensure you value your business accurately. Valuing your business helps to set a realistic asking price without undervaluing or overpricing it.
Several methods can help determine a business’s value, each with its own advantages and disadvantages. Here’s an overview of the main business valuation methods:
Evaluating the strengths, weaknesses, opportunities and threats to your business will allow you to sell your business for the most profit. Let’s look at them and how they impact the price of your business.
To get the best price for your company, you want to work with a business broker or mergers and acquisitions (M&A) firm that knows your industry well. Their expertise will allow you to reach more buyers, position your business correctly, and speak the language of your industry.
Pricing a business properly is an integral part of maximizing the sale price of a company. The best strategy is usually to price it a little higher than you usually get for companies that are similar to yours. This allows you to leave some room for negotiation, and you may end up getting the full price when you get enough buyers interested.
In selling any business for the highest price, you want to have a great marketing plan. Marketing your business for sale effectively will attract the right type of buyers and achieve the best price.
Develop a detailed document that outlines your business’s strengths, financial performance, operations and growth potential. Include metrics such as revenue, profit margins and customer demographics. Emphasize what makes your business stand out, whether it’s a strong brand, loyal customer base or proprietary technology.
You want to reach as many potential buyers as possible while keeping the sale confidential to avoid alarming employees, customers or suppliers. An experienced business broker is skilled at writing ads to bring in the right buyers and qualify them so that you focus on the best buyers who are most likely to give a good offer and have finances in place to close on the deal.
A top business brokerage will advertise the business through many different avenues, including the internet, email marketing and social media. They also have a large network of contacts in similar or related industries and private equity groups. Additionally, your business broker will require potential buyers to sign a nondisclosure agreement (NDA) before sharing sensitive information about your business.
The best offer may come from a buyer within your industry or from outside your sector. Of course, we want to make sure all potential buyers are financially qualified to buy your business at the highest price and have the necessary skills to run your business. Still, as long as you are willing to stay on after the sale, you can teach them or a manager that they hire how to run the business. That brings us to the next topic.
After receiving a few offers, it’s time to negotiate. This process takes several steps.
To sell your business for the highest profit, you must offer a transition period to most buyers. Even if they already know the industry, they will want you to stay on to introduce them to the employees and customers and teach them the way that you do business. Transition periods vary greatly and depend on the needs of the buyer. As long as you are open to providing what the buyer needs, that is a benefit.
After the transition period, the owner’s function in the business will need to be replaced, and someone will need to learn these functions in the company. Training new business owners will help sell your business for the highest price.
It’s good to have people within your company who can fill in for you when you are on vacation, and this also makes it easier when selling your business. Ideally, the owner’s job function can be easily replaced.
Department managers and salespeople who manage relationships with customers are a plus. The more the owner is involved in the critical aspects of the business, the longer the transition period that is typically needed.
The more open you are about the details of your business, the greater the confidence that potential buyers will have in terms of the success of your business going forward. Also, establishing good relationships with prospective buyers helps to increase the value of the offers that they provide. Every buyer wants to feel that they understand your business and can work well with you during a transition and continue to build on the company’s success after you are gone.
Communication is essential in every relationship. You want to communicate well with potential buyers and your advisors, such as your attorney, accountant, and Business Broker or M&A Advisor. This will establish trust and keep things moving forward to overcome any roadblocks to getting the maximum value for your company. You also want to have advisors who are good communicators and have experience in the process of selling a business.
Nothing gets people interested in something more than knowing that other people are interested in what they want. Your business broker will use a marketing plan to generate many potential buyers. They would also let potential buyers know that there are others interested in the business. This will provide buyers with a sense of urgency and move them along. Multiple offers provide leverage in negotiations and go a long way in maximizing the value of the sale of your company.
Getting multiple offers goes a long way in getting your full asking price. However, it’s important that your M&A advisor explains the offers so that you understand them. The proposal with the highest price isn’t always the best offer. It’s also about the structure of the offer and the buyer.
Once you understand the offers, then you can decide which buyers to negotiate with and what is most important to you in terms of the overall amount at the closing.
You want to complete due diligence as quickly and efficiently as possible. It’s essential to have an accountant who is accessible and available to provide all of the necessary documents and communicate effectively with the buyer’s accountant. An experienced business broker will also know what is typical in due diligence and negotiate any differences in the expectations and length of the due diligence.
You want to select an attorney to represent you who has experience in the sale of a business and has enough time to devote to getting the purchase and sale agreement negotiated with the buyer’s attorney. If there are any roadblocks, then a good business broker can often get both sides looking for a compromise to satisfy both parties.
Synergy Business Brokers offers the best of a Business Brokerage and M&A Firm. We have over 20 years of experience selling businesses for the maximum price. We don’t charge an upfront fee and only get paid a percentage of the purchase price, so our goal is always to sell a business for the highest price.
We do this by marketing the business aggressively to create the most potential buyers, then communicating effectively with buyers and the seller to establish good relationships and transparency. This helps to develop multiple bidders and gives you the best opportunity to maximize your price when selling your business.
We specialize in selling businesses with annual revenues of $700,000 to $250 million in manufacturing, technology, construction, distribution, services, healthcare, engineering and transportation. Contact us for a confidential consultation.
