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Seller FAQs

Seller Frequently Asked Questions (Seller FAQs)

Many business owners have questions about selling their business, here are the most commonly discussed topics with answers to help you (seller) make an informed decision:

What are the benefits of using a business broker to sell my business?

Confidentiality. A business broker will protect the identity of the company and contact only owner approved buyers through a blind profile – a document describing the company without revealing its identity.

Business Continuity. Selling a business is time-consuming for an owner, and with a business broker, the owner can maintain a focus on running the business when a broker is working on the sale.

Reaching potential buyers. Business brokers have the tools and resources to reach the largest possible base of buyers.

Marketing. A business broker can help present your company in the best light to maximize the sale price. He or she has an understanding of the key values that buyers are looking for and can assist in identifying changes that can lead to a better selling price.

Valuing your Business. Putting a value on a business is far more difficult and complex than valuing a house. Every business is different, with hundreds of variables that have an impact on the value. Business brokers have access to business transaction databases that can be used as guidelines or reference points. But the best way for a business owner to truly feel comfortable that he got the best deal is to have several financially viable parties bidding for his business, which is much more likely using the resources of a professional business broker.

Balance of Experience. Most corporate buyers have acquired multiple businesses while sellers usually have only one sale. An experienced business broker can level the playing field for a business owner making his one-and-only business sale.

Closing a Deal. Since the business broker’s sole function is to sell the business, there’s a much better chance that a deal will be closed in less time. The faster the sale, the lower the risk of employee problems, customer defection and predatory competition.

 

How can I maximize the fair market value of my business’ intangible assets?
To maximize the fair market value of your business, it’s vital that you capitalize on intangible assets.

Develop key employees. Buyers generally aren’t interested in paying a premium if the business relies on you for its success. Remember to delegate responsibility to key employees and involve your key staff members in the decision making process. Demonstrating that your company’s success is reliant on your capable, well-trained employees – not just you – will pay off at the time of sale.

Document what you do. Be sure that job descriptions, operational processes, and strategic plans are documented. Documented records and plans give a buyer greater comfort that he or she will be able to emulate your successful growth and will help your buyer obtain financing. Also, be sure to keep business records like sales and expense reports, internal profit and loss statements/balance sheet, and tax returns.

Build relationships. Name recognition, customer awareness and your reputation are all a part of your business value. Even if your company doesn’t have many hard assets, your relationships are key. Consider diversifying both supplier and customer accounts.

Improve cash flows. A potential buyer wants to see the “true cash flow.” And, of course, in the business world, cash is king. Be sure you are driving all income to the bottom line.

Review your assets. Sell off or dispose of unproductive assets or unsalable inventory. Remove or buy off any assets that are primarily for your personal use.

Find and build your niche. You don’t have to be everything to everyone. Buyers will pay a premium for a niche that has barriers to competitive entry.

Remodel, clean, and organize. What’s the first thing anyone does when they put their home on the market? They spruce things up and make sure everything is in its right place. Yet, in business, that’s rarely considered. A well-maintained facility will get the best price. Even businesses that lease space can benefit from a thorough cleaning and organization to convey a feeling of quality and efficiency.

 

What Is Balance Sheet Value?

There are several balance sheet valuation methods, including adjusted book value, book value and liquidation value. The adjusted book value is determined by revising the asset’s book value to reflect the cost it would take to replace the assets in their current condition. This method requires the total values to be offset against the sum of the liabilities.

The book value considers the figures from the company’s financial records, as depreciated at the time of the sale. The book value can pose some difficulties for sellers, particularly if the seller has depreciated the assets to gain prior tax advantages.

The liquidation value is the amount that could be realized if all assets – equipment, furnishings and inventory – were sold separately. This value is typically much lower since it doesn’t consider a company’s intrinsic value.

 

What is the Income Approach to valuing a business?

The income approach takes into consideration the company’s level of earnings using a capitalization rate, discount rate or multiplier. Several income approach methods are frequently used. Each method requires a level of earnings and a conversion factor to translate the earnings into a company’s value. Selecting the proper level of earnings – after-tax, pre-tax, discretionary or cash flow – and matching it with the proper conversion factor – discount rate, cap rate or a multiplier – is critical to calculating a reasonable value.

 

What is the Market Approach to valuing a business?

The market approach sets a value based on the values of other businesses that have been sold. Setting the market value involves researching the sale prices for similar businesses in a geographic area. In some cases, however, finding a company that is similar in many ways to your company may be difficult.

Whatever your goal, you want a good advisor to help you assess the value of your company. Question your advisor on the effects of deal structure and how multiples are used. A business owner should never accept a computer-generated valuation or a one-size-fits-all approach when selling the business. And don’t be impressed by the person who presents the highest value – you may only be setting yourself up for failure during the sale process.

 

What are common business sales myths?

The typical business owner will only sell a business once. Understanding the complex process involved will help produce the best results, but don’t fall prey to the myths that can derail or seriously affect a potential sale.

Myth #1 – I Can Sell It Myself

The market approach sets a value based on the values of other businesses that have been sold. Setting the market value involves researching the sale prices for similar businesses in a geographic area. In some cases, however, finding a company that is similar in many ways to your company may be difficult.

Whatever your goal, you want a good advisor to help you assess the value of your company. Question your advisor on the effects of deal structure and how multiples are used. A business owner should never accept a computer-generated valuation or a one-size-fits-all approach when selling the business. And don’t be impressed by the person who presents the highest value – you may only be setting yourself up for failure during the sale process.

Myth #2 – I’ll Sell When I’m Ready

Certainly, an owner wants to be sure he or she is mentally and emotionally prepared to sell. But personal readiness is just one factor. Economic factors can have a significant impact on the sale of a business.

Sale prices can be affected by industry consolidation, interest rates, unemployment and many other economic measures. Talk with a professional and aim to sell when your personal goals and market conditions align.

Myth #3 – I Know What it is Worth

Some owners will base the company value on what they need for retirement. Others will tell you they want $100,000/year for “sweat equity.”

A third party valuation is a good idea for anyone seriously considering the sale of their business. An outside valuation will include a thorough analysis of the business and the market it operates in. This will provide a solid understanding of the company’s growth potential, not some vague industry average.

Myth #4 – It’s Like Selling a House

Selling a company is much more complex than selling a house. A successful business sale usually requires a great deal of pre-planning, at least a year and maybe as long as three years to drive sales, develop key staff, document the operations and control expenses.

The average house will sell in less than four months, while the average business sale is nine months to a year.

Even after the business is sold, the seller can be expected to put in at least a few months, and possibly years of transition time, helping to make the new owner a success.

 

Why should I work with a Certified Business Intermediary (CBI)?

Selling your business will likely be one of the biggest decisions of your business life.

No doubt you have a good idea of what your business is worth. But there are many factors to consider when putting your company on the market. Is now the best time to sell? Should I look for a cash deal or should I consider certain terms? What about confidentiality?

Working with a professional business intermediary will provide the expertise to help you make those decisions. Consider teaming with a Certified Business Intermediary (CBI), a professional who fully understands what it takes to successfully sell a business. A CBI can bring significant value to the complex process and help you complete a sale that will include the best possible value and some peace of mind.

A Certified Business Intermediary, or CBI, is the designation awarded by the International Business Brokers Association (IBBA) to members that have met certain educational requirements and ethical standards. IBBA is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of business brokerage and mergers and acquisitions.

A CBI is an experienced, proven professional whose claim of competence is supported and documented. With the skills necessary to handle the marketing, negotiations and complex details involved, a CBI can successfully complete the purchase or sale of your business.

To earn the CBI designation, an IBBA intermediary must meet the following requirements:

Education – A CBI must complete a minimum of 68 class hours of business brokerage courses offered through IBBA and must demonstrate an ongoing commitment to professional development through continuing education and recertification.

Experience – A CBI must demonstrate competence in the application of knowledge gained through practical experience with a combined minimum of three years experience and education in business brokerage.

Knowledge – A CBI has to demonstrate a high degree of knowledge garnered through the completion of required courses and the passing of the comprehensive CBI examination.

Ethics – A CBI must thoroughly understand the IBBA’s Code of Ethics and apply the code to his or her business practices.

A higher level of education and training means that a CBI will have more access to people and information than other business brokers. A CBI has professional affiliations with hundreds of other intermediaries in addition to the most current industry information regarding taxes, government and legislation.

A CBI’s experience and knowledge of current marketplace conditions is critically important for anyone looking to sell a business. If you are considering the sale of your business, you need every advantage you can garner, primarily preparation, experience and knowledge.

 

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