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Frequently Asked Questions About Selling a Business

What’s my business worth?

Your business is worth some multiple of the cash flow that it generates. There are many different valuation models that 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.

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 it takes an average of six months to sell a business in their latest 2016 report. The biggest factor in determining how long a business will sell is the preparation of business. All financial documents and descriptions of the business 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 you are losing money but your price will be closer to asset value but worth selling versus a liquidation. If your business is losing money but has high future earnings you can get a much higher price. Consult a professional for advice before taking an action that may not get you the highest price.

Should I tell my employees?

You should wait until at least your first buyer – seller meeting before telling your employees about a possible sale. There are many things that can happen that may change your plans to sell. You may decide to delay the sale or hold on until your business value rises to a satisfactory level. Telling employees too early and they may tell suppliers and customers that could have a negative impact on the business. Key employees may also leave due to the potential of new leadership 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’re able to sell at all. The minimum document you must provide are tax returns for the years you owned the business. It’s understood by most buyers that tax returns may not state all the income of the business. You must recast your financials based on tax returns to accurately project income for the new owner. The consequence for no records is a low sales price (asset sale) or no sale at all.

How long does it take to get a business sold?

Do I have to show my financials?

If you expect to sell your business for more than asset value, you will have to show your tax returns, adjusted profit and loss, balance sheet and equipment list at a minimum. Not doing this will cost you money. No matter this size your business, financials will play a huge factor in your sales price.

Do I have to sell my real estate associated with business?

If you have a real estate associated with your business you do not have the sell the real estate with the business. You may lease the real estate to the new owner or sell the property to a 3rd party. Banks love real-estate and may make it easier for your buyer to finance your business for top dollar if real estate is included.

Anything I can do to increase the value of my business before asale?

Increasing cash flow has the most impact on raising the business value. Also, having systems in place that allow the business to run efficiently after your departure increases the price you can expect for your business.

What does it mean to re-cast my financials?
Financials for small business is prepared for the benefit of the owner. Typically, Income and expenses are reported in a way that minimizes the tax obligation for the owner. The tax burden goes down as income goes down so you can usually see income understated while expenses are overstated. This isn’t true in every case, but it’s no uncommon to have many discretionary expenses that the new owner won’t need to spend to operate the business. There are also items like depreciation that gets added back to income as this isn’t an actual expense but an accounting measure that allows for the hypothetical replacement of equipment. Financials are “adjusted to add discretionary expenses, depreciation, amortization , etc…

Do I have to finance part of the sale?
You do not have to offer financing to sell your business. However, you may attract more buyers if you agree to hold a note for a percentage of the sales price. Businesses with little assets but strong income will generally hold a larger note than other businesses that have more assets.

Can I sell my business without a Business Broker?
You can absolutely sell your business without a business broker. Selling a business is complex and takes a lot of work, but if you educate yourself on the business selling process, you can, in fact, do it yourself.

Is there more than one way to value a business?
There are more ways to value a business than you could ever imagine. In the end, a company is valued at the amount and quality of its earnings. The more earnings, the higher your business will sell for. The quality of earnings is defined by the likelihood the profitswill continue. Everyone expects that Google will continue to have terrific earnings for the foreseeable future, so Google gets a high valuation. The Same thing holds true for small business. The next measure of quality is the difficulty of achieving the earnings. Competitive industries like retail may have strong earnings, but cut-throat competition may make profitability a constant battle with no end in sight. When you compare this to Google who has relatively little competition, you can see why Google is worth more than Walmart.

Should I tell my employees?