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Tips for Buying Or Selling Your Business

Buying or selling a business is a time-consuming and often stressful activity.  Sellers usually feel they've got less from the sale than they wanted, while purchasers often feel they've paid too much.  About the best thing both parties can do is to be realistic in their expectations and evaluations.

Some businesses are in greater demand than others.  This means they'll sell quickly and the seller will receive a good price.  First we need to look at the criteria that typically make a business appealing to prospective buyers.

Characteristics of a marketable business:

• It is well-established and has a good trading history with at least three years of detailed financial records including tax returns that are in agreement with the books of the business.

• It is not dependent on the skills of the owner, nor on relationships he has.

• It can demonstrate growth in revenues and increases in profitability over the past three years.

• It is in growing market and provides opportunities for continued growth.

• Key personnel will remain with the business after the sale.

• The owner can work reasonable hours and no more than five days a week.

• Premises, fixtures, fittings, plant and equipment are in good condition.

• The inventory (if applicable) can be verified and accurately costed, and all stock is of reasonable age and is in saleable condition.

• Tenancy of the premises is secure for at least three years and the cost to the business reflects market levels or less.

• The location is suitable to the operation of the business and will not be difficult for employees to reach.

• The customer base is diverse without over-reliance on just a major few.

• The seller will provide transition assistance and some finance if required.

Those are characteristics of the business itself, but what can the seller do to help ensure a trouble-free sale process?  Here are some suggestions.

Tips for business sellers:

• Establish a realistic expectation of the value of your business.   It should be supported by facts such as the selling prices of similar businesses and a reasonable ROI for the purchaser.

• Keep the business going as usual. Focusing on the sale and not the business will affect both sales and the team's morale.

• Consider using outside expertise to gain advice and maintain confidentiality. There are many things that you need to know that can only come from experienced business brokers, including how to keep the sale under wraps.

• Be sure your records are in good shape.  You need at least three years trading history and supporting documentation, including tax returns.

• Pay attention to the visual appeal of the premises and equipment.  If the business has a run-down appearance it will be quickly devalued by anyone considering buying it.

• Be positive when talking about your business with prospective buyers.  Be able to give them a reason for selling that makes sense, and if they mention any suggestions about improving the business be receptive.

• Anticipate what a buyer or their agent might want to see in the way of documentation including leases for equipment, licenses from local authorities, stock purchase records and details of any intellectual property the business owns.

• Be prepared to negotiate on every aspect of the sale.  Some buyers might want you to stay with the business for a period of time, some might want you to finance a portion of the goodwill, and some might not want to purchase all the equipment.  Consider every element carefully before accepting or rejecting it.

• If any information is requested that you haven't already prepared, be sure to get it back to the prospect as quickly as possible.  Minimize delays; they can often lead to a buyer making an offer elsewhere.

• Step back and view everything about the business from a purchaser's perspective.  Ask yourself questions such as 'would I want to do business here?' and 'just how good are the future prospects of this business?'  Be honest so you get the answers you really need.

Tips for business buyers

The purchaser can do a lot to facilitate the acquisition and be sure it's the 'right' business they're buying:

• Don't be unrealistic in your expectations.  Accept the fact that every business has faults and you're more likely to uncover them if you do a thorough job of pre-purchase investigation.

• Talk personally with the owner.  This is the best way to put yourself in their shoes and gain a picture of what it's like to run the business.  Don't be afraid to ask questions and don't accept inadequate answers.

• Do your research into the recent selling prices of similar businesses.  Talk with those who were involved and find out how their final valuation was achieved.  If real estate is involved, get records of all sales in the area for the past twelve months.

• Consider using the services of an outside expert - someone who's had a lot of experience in purchasing businesses, typically a business broker.  There are always details to every transaction that are best handled by a professional.

• Don't delay the process; it could give another purchaser the chance to acquire the business you really want.  It's fine to make an early offer that's near the price you think is right, even if you know you'll probably have to pay more.

• Don't look at businesses that are too expensive for your financial means. Overextending yourself at the beginning is almost a guarantee that you'll fall over when some unexpected problem crops up.

• Always ask if the owner is willing to stay with the business during a short transition period.  If goodwill is a significant part of the asking price, see if the owner will be willing to finance part or all of it.

Would hiring a consultant or business broker be right for you?

• Consultants who have been involved in a number of business sales and purchases can make a big difference to the outcome of your own transaction. They will be better at analyzing the marketplace and ascertaining the real value of the business.

• If buying, you'll have a better selection of businesses to consider; if selling you'll have a greater range of prospects.

• They can negotiate for you and give you a better outcome.  They can also act as a 'middle man' and keep you from getting too personally involved.

• They can help keep the transaction confidential and not involve others such as employees or competitors.

• You can ask the consultant questions if you need an honest answer based on experience.

Buyers and sellers both want the best deal.  They want a hassle-free transaction that leaves no doubts they've done the right things and that they've achieved what they wanted.  At InConcert Financial Group we have experienced business brokers who can help you achieve the outcome you desire.