THE BUSINESS SALE CENTER
Are You Ready To Sell Your Business?
Overview of the Selling Process
Back to Home Page Back to Main Tips Page Success Stories
Should
I sell my business? Take this quiz
By James Laabs, The
Business
Sale Center
Answer
from 0 to 5
0 = strongly disagree with the statement
5 = strongly agree with the statement
1.
I have a clear idea of what I want to do with my life after I sell my business.
2.
If the sale price is acceptable, I am willing to take half of the sale price in
cash and loan the buyer the other half for up to five years.
3.
Overall, I would say that myself and my business are both in pretty good shape.
4.
I have 10-20 hours per week that I can dedicate to working on selling the
business.
5.
There are no big impending tax or legal problems that I’m worried about in my business.
6.
Without me around, my business isn’t worth nearly as much.
7.
Sales and/or profits have been stagnant or declining recently.
8.
I have a specific minimum price that I will sell for, and not a single penny less.
9.
I feel very uncomfortable giving out a lot of financial details about my
business.
10.
I’m worried about new competition and/or changes in laws pertaining to my
business.
How
to score:
Questions
1 through 5: Add the points for these questions.
Questions 6 through 10: Subtract the points for your answers here.
Highest possible score is 25 points - all 5's for questions 1-5 and all 0's for
questions 6-10.
What
your score means:
15 or higher – you and your business are on the road to being ready to sell
12 to 14 points – probably ready to sell, with some fine-tuning required
11 or lower – some overhauling is needed to get ready for sale
Your
answers may shed light on your attitudes and business sale readiness:
1. Are
you sure you want to sell? What’s next in your career? Some business
owners realize that they don’t have an
exit plan late in the selling process and back out after wasting a lot of
time and money.
2. Most
business sales (there are a few exceptions but not many) require the seller
to “carry paper” for some percentage of the sale price. If you’re not
ready to consider this likelihood, you may not have realistic expectations.
And if someone tells you they can sell your business for 100% cash,
that’s an indication you should not trust them.
4. Selling
a business takes a great deal of time and effort. Just keeping the place clean
for the parade of potential buyers and meetings with buyers eats up a lot of
time.
6. If
the business is heavily dependent upon you and special abilities or
relationships you have with customers, the business will be more difficult
to sell. And don’t kid yourself that Uncle Harry will still be the
company’s biggest customer after his favorite nephew has cashed in.
8. It’s
OK to have a price in mind – as long as it is realistic. Perform a
valuation (or have one performed) on your business as a reality check on the
selling price.
10. If you’re a storekeeper losing sleep worrying about the new Wal-Mart going up across the street, selling is probably not the answer to your problem since buyers generally investigate very carefully and will probably figure out any major problems.
Overview of business selling process
By James Laabs, The
Business Sale Center
There are different approaches to selling a company, but at the Business Sale
Center, we have found the following steps should be followed to maximize the
selling price and maintain confidentiality during the selling process.
Selling a small business is one of the most
important events in the life of an entrepreneur. For many, it is a
once-in-a-lifetime opportunity to reap the financial rewards of years of hard
work and sacrifice. The financial consequences are greater and have more lasting
impact than any other financial transaction the seller ever made. The result of
the sale can be either ruinous or rewarding, financially and emotionally. With the stakes so high, it is absolutely critical for the business seller to have a sound plan for selling the business.
This step-by-step system has been proven to work in countless business sale
situations. One of the great things about this plan is that, if the business
owner sticks to it, most of the major pitfalls of selling a business can be
avoided.
(1) Valuation – Determine how much the business is worth.
Do you really want to sell? Is now the right time? Use commonly accepted methods to set a
selling price for your business. (See the Valuation article in the Preparation Section for more information)
(2) Prepare
the business for sale – Gather financial statements and tax returns, develop recast financials, and generally spruce up the business prior to putting it up for sale.
(3) Find potential buyers – Now it’s time to find some interested buyers. How do you determine who are the best buyers? And how can you reach them? Also important – how can you keep the planned sale secret from competitors, employees, suppliers
and anyone else who shouldn’t know about it?
(4) Screen potential buyers – If you’ve done step three properly, you have a
group of people who have expressed a preliminary interest in buying a business such as yours. Many are
sharks, a few are kooks and many are wannabes, a lot of them don’t have enough money to do a deal, a few are competitors and suppliers…and a
small number are qualified buyers. It is absolutely critical to qualify potential buyers prior to giving out any information about your business.
(5) Provide a selling memorandum to potential buyers – The selling memorandum is an extremely important document. It must combine salesmanship and truth, putting your business in the most positive light. It sets the stage for all future negotiations and plays a major factor in how much you’ll be paid for your business.
(6) Provide initial follow-up information to buyers – After receiving the selling
memorandum, buyers will have follow-up questions. These can be minimized with a well written selling
memorandum, but questions invariably come up.
(7) Meet with potential buyers – Since this requires effort on your part and the buyer’s part, if you reach this step it implies a good level of
mutual interest. Caution: Just like there are weird people who get a charge out of attending funerals, there are a small handful people who get some unexplained joy from
touring companies for sale. Since preparing for a seller visit takes a great deal of time and planning, make sure visitors are qualified. This is especially true if potential buyers are local. In some cases, it’s advisable to get a letter of intent prior to a visit.
(8) Letter of intent – A buyer should now have all the information needed to provide a letter of intent. The letter lays out the deal structure including offering price and terms, as well as other important information. Although it is generally not legally binding, a LOI is a written promise to follow through with the
deal if due diligence shows all the information you provided to be substantially correct.
(9) Evaluate letters of intent and select first choice – Now comes the interesting part, where you evaluate the deals in the letters of intent you’ve gathered and put them in the order you wish to deal with them. It is
considered unethical to deal with multiple buyers, so you negotiate with only the top buyer (for a limited time) and if that falls through, you move onto buyer number two and so on.
(10) Due diligence and negotiating with the buyer who is your first choice – Now
your number one prospect has the right (for a limited period of time, no more
than 4 to 6 weeks and preferably less) to dig as deep into your business as they need to in order to feel comfortable writing the big check. Intensive scrutiny of financials, physical inventories and even interviews with key employees may happen here. It’s stressful, but you can survive due diligence.
(11) Complete the sale – One of the most exciting and nerve wracking days is closing day. It’s similar to closing on a real estate sale, but usually more complicated. Deals can still fall through at this stage, but with the right professional help, the sale is usually completed.
© 2006 Business Sale Center
Visit the Business Sale Center
Web designers please note: Please feel free to use content on this page on
your
site - but you must include the Copyright, book title and link to Business Sale Center.
Home Page
Back to Main Tips Page
Success Stories
Note: All content in this web site is for general information purposes only and does not constitute legal, accounting or other professional advice. Important financial and legal decisions should be made only after seeking appropriate professional advice.