Getting Your Business Ready to Sell
CLEARWATER, Fla. – (June 6, 2006) – Selling a business can be a difficult decision, one often driven by personal considerations rather than market conditions. However, there are certain key indicators that can help owners determine the right time to sell.
“More potential buyers are available now because Corporate America is downsizing 40 to 50-year-old executives and forcing them into early retirement,” says Roger Murphy, president of Murphy Business & Financial Services, the largest business brokerage firm in the United States with 30 offices and 60 agents. “There is no safety strap on the corporate ladder. So, many are planning their own exit strategy and leaving the corporate world to become their own boss. And the availability of relatively low interest rates is making it easier for these buyers to get financing.”
Other factors leading owners to sell their businesses include insufficient capital to grow the business, burnout, receiving an unsolicited offer from a buyer or the desire to achieve estate liquidity.
“The best time to sell a business is when the business is doing well and the owner does not need to sell,” said Murphy. “In that scenario, owners do not need to move quickly and can set their own terms, rather than making any decisions under pressure. If there are no heirs to consider, we recommend they begin thinking about selling at least a year or two in advance of retirement.”
Murphy suggests the following tips to help owners get their businesses ready to sell, noting that discretion is important in keeping plans confidential, both from employee and competitor points of view:
- Organize your finances first. Make sure all financial records are in order and that all expenses and revenues are included in your accounting records.
- Make sure your building and equipment are in good shape.
- Take stock of your staff. You should have the proper staff and management in place so you can phase out of day-to-day operations. Your ultimate goal is to become less essential to the day-to-day operations so that the transition from one owner to the next is as smooth as possible for employees, customers and vendors.
- Determine your business’s market value. This is the most critical step. A broker can help determine the market value and usually determine that the business is worth two to four times your discretionary cash flow. Other things brokers look at to determine the value include how good your staff is, condition of assets, quality of customer base, whether the business is growing or downsizing, the business’s age and reputation. This information will provide the basis for an improvement or growth plan if your business is appraised for the amount you need for retirement.
- Be realistic when determining a sale price. With the availability of Internet research and other market value databases, buyers generally do their homework and are knowledgeable about realistic asking prices. As a result, they’re unlikely to pay too much for a business. However, sellers often tend to overvalue their own business, a condition that may delay a transaction with an otherwise ready buyer. Consider seeking a professional business valuation to ensure you know the true value of your business.
- Seek tax and legal advice before selling. Tax advice is particularly important, as you will not be able to keep all of the money from the sale of your business. In some situations, the taxes can amount to as much as 50 percent. Having the sale properly structured, whether as stock or an asset sale, can minimize taxes.
- Negotiate with more than one buyer. With more than one prospective buyer you can negotiate from a position of strength and mix and match some features of each offer. Try to secure the sale, but keep the business on the market until closing.
- Don’t “nitpick” in negotiations. Buyers and sellers sometimes argue over details that aren’t critical. Compromise makes for a more successful process.
- Evaluate the buyers’ personality and skills. Sellers often do some of the financing of the sale themselves, so you should determine if the buyer can be successful running your company. Also, be honest with your buyer about what it takes to run your company.
- Don’t stop running the business during the sale process. It’s easy to mentally “check out” of the business when you get an interested seller. Unfortunately, this can make your business regress if the sale falls through. In other cases, the sale may be contingent upon the business continuing at a certain revenue level. In addition, don’t make any major purchases without letting the potential buyer know. Until the closing, focus on your business and let the business broker focus on the sale.
“A business broker can anticipate what needs to be done throughout the process and keep everyone moving on a timetable to resolve issues,” says Murphy. “Buyers and sellers don’t negotiate well face to face, and a broker can act as a buffer during those negotiations.”
“The bottom line is that selling a business is a major step in someone’s life,” says Murphy. “The way that a deal is structured can greatly impact the amount of taxes that sellers must pay. Sellers should always consider making the best deal that nets them the highest amount of money after taxes.”
Clearwater, Fla., Murphy Business & Financial Services, Inc. (www.murphybusiness.com ) is the largest business brokerage firm in the United States with 30 offices and 60 agents. Murphy sells approximately 350 businesses each year and has completed more than 3,000 transactions in Florida. Services include business sales, M&A, valuation, business consulting, commercial realty, small business accounting, tax and payroll services and new franchise sales. A charter member of the Business Brokers of Florida as well as the Institute of Business Appraisers and International Business Brokers Association, Murphy Business offers clients access to the largest business brokerage network in the world.
MEDIA CONTACT: Jeannie Magri
RFB Communications Group
813.259.0345
jmagri@rfbcommunications.com
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