Selling Your Business

My #2 goal is to sell your business. My #1 goal is to sell it without anyone knowing it’s for sale. It takes skill and expertise to sell a business without anyone knowing about it. Your employees can’t know; your customers can’t know; your vendors can’t know.

We don’t advertise your business with your business name, address, photos, and of course, no signage. All buyers are required to sign a Confidentiality Agreement / Non-Disclosure before we provide an offering memorandum.

Once the buyer has an interest in a specific business, we arrange a meeting with both Buyer and Seller in the same room to discuss the business. When the Buyer and Seller build rapport and like each other, it’s much easier to negotiate the sale.

We advertise your listing internationally through the IBBA (International Business Brokers Association), BBF (Business Brokers of Florida), and we pay for premium placement on Biz Buy Sell and Biz Quest. Again, we don’t advertise the name of the business, address, or photos.

We have financing options for the buyer so they don’t rely on the seller for private financing. However some seller financing is very common. 

What Is The Value Of My Business?

There is a bad rumor that a business is worth 3x its annual net cash flow. There is no set standard for the value of a business as there are many factors to consider. Each industry buys and sells differently, and the net cash flow is the greatest determination. Important factors to consider is private branding, location of business, age and condition of equipment, and reputation.

Many businesses sell at a multiplier… the greater the cash flow, the higher the multiplier. If a business is making $50,000 per year, for example, a buyer is buying a job. How much are they willing to pay to earn $50,000 per year?  On the flip side, if a business is producing $500,000 profit, it could sell for 3x or 4x cash flow or greater. We analyze closed sales of similar businesses to analyze the relationship between net cash flow and price, and we analyze Active Listings to see what our competition is.

Exit Strategy – Preparing Your Business For Sale

When we sell our automobile, we get it detailed, make it look great so we can get the most out of the sale. We need to do the same for our businesses, and it’s a two year process.

Can your business run without you? If not, find a way to replace yourself. If I die, and my business dies with me, it has limited value.

If we employ family and/or friends that will not stay on after the sale, replace them with staff that will stay on.

Business Tax Return is the evidence for the earnings / profit of a business. Show ALL of your Income! If we’re hiding $50,000 from the IRS, and we’re in a 28% tax bracket, we’re saving $14,000 in tax liability. However if your business is valued at 2x cash flow, that’s a loss of $100,000. We just lost $100,000 to save $14,000.

Any cash not reported cannot be considered as income unless it is proven by sales receipts or register till. Please keep copies of your sales receipts and make it organized and easy to review. Again, please report all of your income.

Take a “Reasonable Salary” and have it reflected on your tax return. This will be added-back into your income stream. Make sure you are taking advantages of Depreciation of equipment, buildings, etc.

Don’t have just any account prepare your tax returns. Hire a CPA! I can always tell if the tax preparer is an expert. Hiring a CPA will go a long way. If a standard account prepared taxes in the past, hire a CPA to review prior years and possibly file an amended tax return.

Buying A Business

You’re not just buying a business… you’re buying a lifestyle, a means of supporting your family.

Many business buyers approach us not knowing what type of business they want to purchase. I would like to personally interview you and ask about every job or work experience you’ve ever had. It’s oftentimes best to go into a business where you have experience. If you want to go into business where you have no experience, we have a checklist of every possible business, then we see what appeals to you. If you love animals, for example, a doggie daycare may be a possibility.

After a contract is executed and during our Due Diligence period, you will have an opportunity to work the business and see it’s daily operations. Even more importantly, you can see the cash flowing. Before the end of due diligence, you should have a great feeling about it, or you don’t buy. After the sale, the seller will stay on for a period of time free of charge to properly transition or acclimate you to the business. This period is typically two weeks.

Financing

In most cases, the lender will want the buyer to have experience in the business they are purchasing, and perhaps prior business ownership. Lender may want to collateralize your house or other assets as the business is intangible, therefore difficult to resale in case of default. The lender looks beyond the buyer’s credit score. Furthermore, the business itself has to cash flow with a debt service coverage ratio of greater than 1.2x. Ask me to explain.

It is difficult to obtain business financing by conventional means, especially if the buyer does not have experience in the industry. If the buyer has experience, the ability to finance is very probable.

Fortunately there is the SBA (Small Business Administration), a government insured loan. For businesses, the SBA has 7(a) program which will allow financing up to 80% to 90% of the purchase price, and may provide additional funding for equipment, build-out, and even working capital so the business can get up to speed without running out of money. SBA does not lend on business start-ups.

I work with some great Business lenders. Call me to discuss.