WHEN TO SELL YOUR BUSINESS
The first business I ever sold was my own, back when we held the outfitting permits in Marble, Colorado. We first had the business listed with a broker who couldn’t get the job done, and ultimately I ended up selling it myself. At the time, the business was well positioned to succeed, because we had it in top operating condition. It had a good marketing plan, a solid book of business, a strong client database, excellent equipment, and a good reputation. Still, it wasn’t easy to sell.
Once I became a real estate broker, I fell into a niche of listing and selling outfitting businesses, because I had experience and expertise that is not shared by very many brokers. At this point, I’ve sold 17 of these businesses, with another couple of them primed and ready to go, and several other businesses as well. In the process, I’ve learned quite a bit, and I’ve been lucky to have been mentored by some excellent business brokers along the way.
If you’re thinking about selling your business, here are some tips of how to go about it.
TIMING MATTERS--SELL YOUR BUSINESS WHEN YOU CAN This is quite possibly the most important issue. The key is to sell a business when you CAN sell, not when you HAVE to sell. Think about this. Quite often I encounter sellers who are older and losing their physical capacity—and desire—to do the job. I compare these sellers to an A-10 Warthog that has been flying over the front lines, taking hostile fire, bullet holes leaking hydraulic fluid. They’re running out of fuel, the flaps are set for a landing, and they’re basically done. They’ll tell you, “Well, we used to run two more camps over in the next basin, but we don’t do that anymore. But you could do that again if you wanted to!” That’s not good enough. Potential is one thing. Actually doing it is another. It’s the same if you’re running a quick lube, a welding shop, a motel, or a grocery store. The business will attract the most buyer interest when it’s running strong and close to its peak potential.
NUMBERS MATTER--MAKE SURE YOUR BOOKS ARE IN GOOD SHAPE Most buyers will finance a business acquisition, even if they can buy with cash. Banks loan on tax returns, not on “shoulda-woulda-coulda’s”. Anybody can fudge the numbers in QuickBooks to show a great profit-and-loss statement. Balance sheets and tax returns are the documents that everybody goes by. Many businesses accept a lot of cash, and let’s just say that often some of that goes into the back pocket instead of the bank. It’s up to the seller if he wants to avoid taxes, but he has one of two choices—not pay taxes, with the legal implications of that decision, or maximize the value of the business. You can’t have it both ways. Businesses sell on multipliers of the gross income and net income. If the income can’t be documented, it won’t count when it comes time to sell.
MARKETING MATTERS WHEN SELLING A BUSINESS If your website is old and stale and hasn’t been updated in three years, you’d better get with it. How are your Google Reviews? Five stars? If yes, then how many reviews? What about your business Facebook page? How often do you post? Do you have any videos on YouTube? Do you regularly advertise in certain publications? In other words, is your business active and thriving, or is it dying on the vine? Are you involved with community affairs, such as the county fair, charitable organizations, golf tournaments, or concerts? Do people know who you are and what you do? Businesses with a strong profile, good reputation, and community engagement sell more quickly than businesses that are going downhill.
BE PREPARED TO OWNER FINANCE Most banks will require at least 30% and sometimes as much as 50% down on business acquisitions. Not every buyer has that much cash, so if you really want to sell, get ready to offer owner financing. I know that many sellers don’t want to carry a note, but it can make the difference between selling and not. Many people don’t know that a Uniform Commercial Code (UCC) filing can be used to place a lien on physical assets such as restaurant equipment, tractors, trailers, shop equipment, vehicles, etc. If the buyer goes under, at least it’s possible to recover the physical assets of the business. Any time a seller offers financing, it’s best to have the strongest possible down payment so that the buyer has skin in the game. If a seller takes a second deed of trust or promissory note to cover what the bank won’t finance, keep in mind that the lender in first position always gets paid first, so in theory a second lien holder would have to cover the first lien holder’s debt before seeing any satisfaction on a lien in second position.
TO POST A SIGN OR NOT Many business owners are scared to death of posting a sign to notify the world that it’s for sale. They’re worried about employees leaving and business heading elsewhere. Well, it’s hard to sell a business with your hands tied. Yes, we do have access to proprietary businesses-for-sale websites and commercial marketing systems, but an employee could be your buyer. Everyone has the right to move on in life, and why should selling a business be any different? You never know, one of your customers may be your buyer. I’m of the mindset that advertising the sale of the business is good business.
THIS WILL GET PERSONAL Once a buyer has been identified, you may be surprised at the level of detail that they investigate. Of course, they’ll be required to sign a non-disclosure agreement that protects your personal information, but still, you’ll be asked questions that will be very personal to you. Even though it is personal, my advice is to not take it personally. Put yourself in the buyer’s shoes. With the package that you’re offering, will they have the opportunity to thrive and prosper, or will they simply buy themselves a job?
At the end of the day, the goal is to position yourself for the next adventure in life, whether it is a new venture, retirement, investment, or just taking some time off.