How to Sell a Business

These are faqs about how to sell a business that we regularly update due to economic changes. It’s always been difficult to sell a business, but rising interest rates and supply chain issues have made it more challenging. This page will be regularly updated as we answer more of your questions. Ask any question you have using the “Text Now” button below.

 

Can I ignore my recent financials and sell my business based on better years?

It’s been a couple of years since COVID severely impacted business, but it still affects the sale of your company. Because you must consider the last three years of financials, pre-COVID-19 should be given special attention. It is essential to isolate the COVID period as a unique circumstance if your business is negatively impacted. The most recent financial performance can be weighted more heavily as an indicator of future performance.

 

Can you sell my business in a week or two?

It is possible to sell a company quickly but very unlikely to sell in less than two weeks unless the buyer is already identified. The current average is seven months to sell a company.

 

Should I give a buyer an earnout over 10-15 years?

Every deal is different, and I need to know more details; however, keeping earn-outs under five years is recommended. Consider balloon payments if it’s required to keep the deal bankable. The goal is to get the best deal that allows the company to prosper in the future and service your seller note.

 

Can you guarantee my business will sell?

No one can guarantee a business will sell, but if it is properly prepared and realistically priced, it will likely sell. We have many tactics to help you make it more attractive and sell more quickly.

 

Are people buying businesses right now?

People are always buying businesses. It has cycles like any market, but there are always buyers if you take the proper steps to prepare and market your business for sale.

 

What’s my business worth?

Your business is worth some multiple of the cash flow that it generates. Many valuation models include replacement value, debt capacity, discounted cash flow, and rules of thumb for your particular industry. Most businesses that are profitable will sell for 1.0 to 4.0 times earnings. Click here for a free preliminary appraisal.

 

How long does it take to get a business sold?

How long to sell a business is probably the most asked question I get from business owners wanting to sell their business. Unfortunately, it’s a different answer for every owner. According to the Business Broker Press, selling a business in their latest report takes an average of six months. The most significant factor in determining how long a business will sell is the preparation of the business. All financial documents and business descriptions must be available for the prospective buyer to know what they are buying so a fast offer can be made.

 

I’m losing money. Can I still sell?

You can still sell your business while losing money, but your price will be closer to asset value but worth selling versus a liquidation. You can get a much higher price if your business loses money but has high future earnings. Consult a professional for advice before taking any action that may not get you the highest price.

 

Should I tell my employees?

You should wait until your first buyer-seller meeting before telling your employees about a possible sale. Many things can happen that may change your plans to sell. You may decide to delay the sale or hold on until your business value rises satisfactorily. Telling employees too early may tell suppliers and customers that could harm the business. Key employees may also leave due to new leadership potential, so it’s best to delay for as long as possible or until the sale looks very likely.

 

What if I don’t have complete records?

If you do not have complete records, you will not be able to get the most money for your business, and it will take longer if you can sell at all. The minimum documents you must provide are our tax returns for the years you owned the business. Most buyers understand that tax returns may not state all the business income. You must recast your financials based on tax returns to project income for the new owner accurately. The consequence of no records is a low sales price (asset sale) or no sale.

 

How long does it take to get a business sold?

According to the Bizbuysell Insight Report, selling a business currently takes 200 days. This fluctuates by 10-15% but has remained constant for many years. Every business is different, and your company may sell a lot faster. The better prepared your business is, the sooner it will sell. 

 

How can I keep the sale secret from customers, vendors, and employees?

Confidentiality is maintained by requiring non-disclosure agreements from all buyers and advisors before any sensitive information is shared about your business. No one should know your business is for sale until you have closed the deal. We use an online service for our confidentiality agreement, which is an example of here.

 

Am I going to be able to transfer my lease?

A lease’s transferability depends on the landlord and the lease agreement. The landlord often wants the buyer to apply for the lease transfer. A fee is often required to transfer the lease, and an application fee may also apply. In some circumstances, the seller must remain on the lease until the end of the term.

 

I take some of my compensation as cash and have not reported them on the company books. Do I still get credit for that income?

Businesses that don’t report income are disadvantaged because the bankability is decreased, and the buyer won’t recognize this income without verification. You can take steps to show the company’s value despite not reporting the income by using other metrics that show profitability and gross sales.

 

What does it cost to sell a business?

The fees for selling a business are 10% to 12%. The fee is collected at closing after the buyer has paid you.

 

How do I know what my business is worth?

The value of a business is usually a multiple of earnings. Most businesses with gross sales of less than ten million will sell for a multiple of two to six times earnings. We offer a free preliminary appraisal so you can make an informed decision about your company. 

 

I own my building and want to hold on to the property but sell the business?

The business can be sold, and the building leased back to the buyer. A lease will be executed with the buyer with agreeable terms.

 

What happens to my bank accounts, receivables, and inventory?

Businesses are often sold as asset sale where the seller keeps bank accounts and receivables. The business is priced at an asking price plus inventory. Every deal is unique, so that it might be negotiated differently, but you get paid for your assets or take them with you.

 

I have debt from equipment purchases that I am still paying on. Does the buyer pay it off?

A company is usually sold with all debts being satisfied at closing. Remember, every deal is unique, and terms may include the buyer taking over particular debt as a part of the deal. Consult legal advice to ensure you have protections in place in the event of a default.

 

What records do you need to have on hand to sell my business?

We generally need three years of tax returns, a balance sheet, profit and loss statements, and an equipment list. We will adjust as needed or create these documents for you if they don’t exist.

 

What should I do to get my company ready to sell?

The most important thing you will need to have is your financial documents. Lack of financial documents is the main reason businesses don’t sell. 

 

How much time do I need to plan an exit strategy?

Some say you should consider an exit strategy before starting your business. It is advisable to have a preliminary appraisal to make the best decision regarding your company. We offer free preliminary appraisals to help you be informed about the value of your company.

 

What are discretionary expenses?

 

Do I need a lawyer and a CPA to sell my company?

Buying or selling a company is a complex transaction. You should consult professionals to protect your interest. A lawyer should be engaged at a minimum. 

 

Should I sell my business?

It is usually time to sell your business if you have hit a plateau and can no longer grow the company. A lack of growth can be due to the economy, industry, technology, or personal reasons. A company that isn’t growing will likely shrink and become less valuable and attractive to buyers. Companies that aren’t showing consistent growth put business owners at risk of losing significant money upon exit. The decision to sell a business is very personal; only you know the best answer for your situation, but waiting too long can hurt you financially.

 

 

Need Help To Sell Your Company?

 

Selling a business is a  very difficult process. The right steps must be followed to get the most money for your business and sell in the shortest amount of time. Selling a business has gotten more complex, and traditional business techniques no longer work.  Contact us if you have any specific questions about selling a company that was not addressed here.