Determining when it’s finally the right time to sell can be a tricky proposition. If you are thinking about selling your business, one of the best steps you can take is to contact a business broker. A good business broker will have years, or even decades, of proven experience under his or her belt. He or she will be able to guide you through the process of determining what you need to do in order to get your business ready to sell.
One major reason you should contact a business broker long before you think you might want to sell is that you never know when the right time to sell may arise. Market forces may change, unexpected events like a large competitor entering your area, or a range of other factors could all lead you to the conclusion that now, and not later, is the time to sell.
In a recent The Tokenist article, “When is the Best Time to Sell a Business?”, author Tim Fries covers a variety of factors in determining when is the best time to sell. At the top of Fries’ list is growth. If your company can demonstrate a consistent history of growth, that is a good thing. Or as Fries phrases it, “What never varies, however, is the fact that growth is a key component, buyers will look for.” Growth will be the shield by which you justify your price when you place your business on the market.
If your business is experiencing significant growth then you have a very strong indicator that now could be the time to sell. Fries points to a quote from Cerius Executives’, CEO, Pamela Wasley who states, “When your business has grown substantially, it might be time to consider selling it. Running a business is risky, and the bigger you get, the bigger the risks you have to face.” Again, growth is at the heart of determining whether or not you should sell.
Knowing the “lay of the land” is certainly a smart move. For example, have there been a variety of businesses similar to your own that have sold or were acquired recently? If the answer is “yes,” then that is another good indicator that there is substantial interest in your type of business.
Reviewing similar businesses to your own that have sold recently can help you determine how much buyers are paying for comparable businesses. This can help you spot potential trends. In short, you should be aware of market factors. As Fries points out, everything from relatively low taxes and low interest rates to strength in the overall economy and an upward trend of sales prices can impact the optimal times for a sale.
Now, as in this exact moment, might not be the right time for you to sell. Getting your business ready to sell takes time and preparation. Fries points out that smart sellers “look for a good time, not the perfect time” to sell a business. Working with a business broker is a great way to determine if now is the right time to sell your business and what steps you have to take in order to be prepared for when the time is right.
It is never too early to start thinking about what tax structure you should use when it comes time to sell your business. A simple, but undeniable, rule of life is that taxes matter and they can’t be overlooked. Author Tim Fries at The Tokenist has written an excellent and quite detailed overview article on what tax issues business owners need to consider before selling their business. His article, “What Tax Structure Should You Use When Selling Your Business?” explores many aspects of a topic that many business owners fail to invest enough time in, namely taxes.
As Fries astutely points out, the taxes involving the sale of a business can be complex and are usually unknown to those selling a business for the first time. Your tax structure can influence how much money you receive at the closing of your deal, so it’s a very good idea to pay attention to all aspects of taxation and your business. It is key to remember, “When you are selling your business – as far as taxes are concerned – you’re ultimately selling a collection of assets.”
Fries points out that taxes and selling a business are no small matter. It is possible that up to 50% of the sale of a business can go to taxes. Don’t worry if you are learning this for the first time and feel more than a little shocked. However, this fact does a good job of illuminating the importance of setting up the right tax structure for your business. While you might not be able to get around taxes altogether by investing the time and effort to set up the right structure for your business, you can keep from paying more taxes than is necessary.
There are a lot of variables that go into how much you will ultimately have to pay in taxes. Let’s take a look at some of the key questions Fries raises in his article.
- Is your sale considered ordinary income or is the sale considered capital gains?
- Are you operating as an LLC, a sole proprietorship, a partnership or are you operating as a corporation?
- What portion of the sale price goes to tangible assets as compared to intangible assets?
- Is there a difference between your tax basis and the proceeds from your sale?
- What does your depreciation look like?
- Don’t expect that the buyer will instantly agree to your terms.
- Realize that the decisions you make during negotiations with a buyer will have tax implications.
- Is an installment sale right for your business?
- With C corporations, sellers usually want a stock sale whereas buyers generally prefer an asset sale.
- Cashing out immediately, where you receive all your funds at once, will increase your tax liability.
- Have you considered switching to an S corporation?
- Have you consulted with experts to decide which tax structure is best for you?
- Have you consulted with a business broker?
Selling a business is obviously complicated. Finding a seasoned business broker can help you demystify many aspects of buying and selling a business. Ultimately, having the best deal structure and finding the right buyer can be a labyrinthian process. Having the very best professional help in your corner is simply a must.
M&A purchasing agreements can have a lot of moving parts. A recent article from Meghan Daniels entitled, “The Makings of the M&A Purchase Agreement” serves to outline a range of facts including that every M&A deal is different. The article, which serves as a general overview, raises a range of good points.
Components of the Deal
It should come as no surprise that M&A purchase agreements have various components. Everything from definitions and executive provisions to representatives, warranties and schedules, indemnifications and interim and post-closing covenants are all covered in these purchase agreements. Other key factors included in M&A purchase agreements are closing conditions and break-up fees.
Advice for Sellers
In her article, Daniels includes a range of tips for sellers. She correctly points out that negotiating a purchase agreement (as well as the different stages involved in finalizing that agreement) can be both time consuming and stressful.
As any good business broker will tell you, business owners have to be careful not to let their businesses suffer while they are going through the complex process of selling. Selling a business is hard work, and this fact underscores the importance of working with a proven broker.
Likewise, Daniels observes that any serious buyer is likely to look quite closely at your business’s financials, which is yet another reason to work with key professionals during the process. Additionally, you don’t want to wait until the last moment to get your “financial house in order.”
You can be completely certain that prospective buyers will want to examine your finances closely before making an offer. The sooner you begin working on getting your finances together, the better off you’ll be.
Use Trusted Pros
Another key point Daniels makes is that there will be tension, as every party is looking to protect their own best interests. Having an experienced negotiator in your corner is a must. Make sure your negotiator has bought and sold businesses in the past, and he or she will understand what pitfalls and potential problems may be lurking on the horizon. Daniel’s view is that the sale price isn’t the only variable of importance. Factors such as the terms of the deal must be taken into consideration.
The bottom line is that there are many reasons to work with a business broker. A business broker understands the diverse complexities of an M&A purchase agreement. They also have experience helping business owners organize their financial information and can prove invaluable during negotiations. For most business owners, selling their business is the single most important business decision they will ever make. Find someone who understands the process and can act as a guide through the process.
The old saying, “an ounce of prevention is worth a pound of cure,” most definitely applies to any business owner that believes he or she will someday want to sell his or her business. The bottom line is that every business owner has to transition out of ownership at some point. In a recent Inc. article, “Four Mistakes That Could Lower Your Business’s Value and Weaken Its Salability,” author Bob House explores 4 mistakes that could spell trouble for business owners looking to sell.
No doubt House explores some excellent points in his article, such as that you should always have what he calls, “a selling mindset.” The reason this mindset is potentially invaluable for a business owner is that when operating in this way, sellers are essentially forced to stay on their toes.
Or as House writes, “a selling mindset encourages continual innovation, growth, and investment, helping your business stay ahead of the competition and at the top of its potential.” Having a “selling mindset” means that business owners have no choice but to perform periodic reality checks and access the strengths and weaknesses of their businesses.
Mistake #1 Poor Record Keeping
For House, poor record-keeping tops the list of big mistakes that business owners need to address. As House points out, both potential buyers and brokers will want to examine your books for the last few years. The odds are excellent that before anyone buys your business, they will look very closely at every aspect of your financials, ranging from your sales history to your operating costs.
Mistake #2 Failure to Innovate
The next potential mistake that business owners need to avoid is a failure to innovate. House notes that a lack of tech-savviness could make your business less attractive to prospective buyers. The simple fact is that virtually every business is now impacted in some way by its online presence, whether it is the quality of that presence or lack of it altogether.
For House, a failure to maintain an active online presence could be associated with a failure to innovate. Even if your company is innovative, if you do not maintain a coherent and robust online presence, this could portray your company in a negative light.
Mistake #3 Unstable Workforce
House also feels that having an unstable workforce could spell trouble for your business’s value and negatively impact its salability. Most prospective buyers will not be very eager to buy a business that they know has a lot of employee turnover. In general, new business owners crave stability. Attracting and keeping great employees could make all the difference when it comes time to sell your business.
Mistake #4 Delayed Investments
The final factor that House notes as a potential issue for those looking to sell their business is delaying investments and improvements. House states that it is important for owners to continue to invest even if they know they are going to sell. Investing in your business can help it expand, grow and showcase its potential future growth.
Another excellent way to prevent making mistakes that could interfere with your ability to sell your business is to begin working with a business broker. A top-notch broker knows what mistakes you should avoid. This experience will not only save you countless headaches but also help you preserve the value of your business.
If you are a Nashville entrepreneur ready to sell your business, you probably have concerns. One of these likely revolves around the market and whether or not you can make a profit. No blog post can answer that question for you. However, there are a few facts that can help you come to the conclusion. Here are some things to think about that can lead you in the right direction.
The market is hot.
Middle Tennessee is growing at breakneck speed. This translates into a hot housing market and an equally fast-moving economy as it relates to buying existing companies. But just because there are people that want to buy a business in Nashville does not mean that you can sell your business quickly or for what you think it’s worth. Which brings us to…
You can set your price, but buyers dictate value.
According to many surveys, most small business owners feel that the mergers and acquisitions market will cool within the next two years. Many of these believe this cooldown will become apparent by the end of this year. There is a great fear that the slowdown will have a negative impact on business pricing. This is because a sluggish market almost always translates into lower selling prices. So what does this mean for you if you want to sell your business in Nashville? It means that buyers may not be as confident and will not be willing to spend the same on a business today as they might have just a year ago.
There are lots of businesses for sale.
Another factor that determines the value of your business is the amount of competition out there. Just as you want to sell your business, hundreds of other Nashville entrepreneurs want to do the same. Some estimates find that 8 out of 10 enterprises priced between $1 million and $2 million are now or are soon to be placed on the market. One of the main reasons people sell is because of retirement. The record amount of baby boomers reaching retirement age will accelerate the number of businesses for sale.
You cannot sell your business overnight.
Even in an area like Nashville, where growth is apparent in town and in every suburb, it takes time and preparation to get your business ready to sell. If you think it might be time, start by gathering your financial information. When an investor wants to buy a business, their first questions will have to do with cash flow. Next, get other documents together. If you have a franchise, for example, buyers need to see this agreement. You will also need to consult with your franchise home office to ensure you can transfer ownership.
There is a ton of paperwork.
When you want to sell your business in Nashville, Brentwood, Franklin, Hendersonville or the surrounding areas, you should be prepared to do paperwork and lots of it. This runs the gamut from a sales agreement to confidentiality contracts you might require your potential buyer to sign before they have access to proprietary processes or systems.
You cannot just walk away.
Once you find a buyer, you should sit down together and confirm your exit strategy. Remember, the transition period is often difficult, and your buyers will likely want to know how you plan to make your exit. This is particularly important if you have a large company and many employees or have owned the same business for many years.
Not all buyers are right for your business.
Just because somebody shows up on your doorstep with cash in hand does not mean they are ready to captain the proverbial ship. Your business broker can help you weed out unqualified buyers. This might be someone who lacks the experience or financial means to take over successfully. The experience issue should be one of your top priorities if your company is associated with your name and will continue to operate this way under new ownership. Even if you are retiring, you do not want your name associated with a failed or improperly run business.
Nothing replaces a good broker.
If all of the above has you questioning whether you want to sell your business, you should know that an experienced Nashville-based broker can help you smooth out the rough edges. Mergers and acquisitions are never easy; it is a complicated process whether your business is worth $50,000 or $500 million. A single miscalculation or misstep in the process can delay the sale or cost you valuable time and money.
Contact Beacon Exit Advisors today if you have questions or are ready to sell your Nashville business.Read More
If you are ready to sell your business, and your business is in Nashville, you are in luck. Music City is a hot market, and there is a virtually endless line of buyers ready to invest in Davidson and surrounding counties. But before you stick a “for sale” sign in the window, there are a few things to consider.
Why do you want to sell?
Obviously, you want to know what your business is worth, and money is likely a driving factor in your decision to sell your business. But it should not be the only motivator. The real question is, “Do I really want to sell?” If you are truly ready to hand the reins over to someone else, you will take the time to understand the market. You will sidestep your personal feelings toward the company that you built with your own two hands to get a clear idea of what it is actually worth. Once you have this mindset, you are ready to take the first steps.
Your financial records are the first thing you need to put your hands on before you sell your business. Nashville investors are interested in your bottom line, and that means numbers. All of them. Hopefully, you – or your accountant – are completely organized and can easily access your sales figures, profit and loss statements, tax returns, and accounts receivable. Remember, it is these numbers that determine how much you can expect to walk away with when you say sayonara.
A side note here: If you have not reviewed this information in the last few months, now is a great time to get yourself up to speed on your business’s financial standing.
Know your buyers
There are many buyers who want you to sell your Nashville business just as much as you do. But, no two buyers are alike. A huge chunk of business-owner-hopefuls plan to do so after a layoff or unwanted transfer. Some look to entrepreneurship after retirement or because they are unsatisfied with their current career. It is important to know who is looking so that you can best identify a willing buyer.
A willing buyer is one that not only has the desire and need to buy a business but also has the financial resources to do so. Most importantly, like you, they will have a reasonable expectation as to what they can expect to get out of it. This is, in part, why having your financial ducks in a row is so crucial to the selling process.
Whether you have decided to sell your business or not, people looking to buy in Nashville will want to know a few things before they consider your organization. Questions you should be ready to answer include:
- What is your worst profit year?
- Are there opportunities for further growth?
- How is this business unique, and will it stand out in Nashville’s ultra-competitive markets?
- Is current inventory included in the sale?
- How much money does the business currently owe? Will this be settled beforehand?
- Has the company consistently realized an annual increase in sales and/or profits?
- How much is it going to cost?
This final question includes the cost of acquisition for the business itself, salaries of all current employees, rent, if applicable, and any other ongoing expenses associated with running the business. Remember, ultimately, what you are selling is cash flow. If you can not provide financial statistics and answer the hard questions, it is going to be much more difficult to sell your business. Nashville’s investors will not wait around for you to get this information, it has to be ready when they are.
The small things matter
Looking good on paper is only part of the puzzle. If you want to get the most out of your business, you also have to make a good physical impression. Just like selling a home, your best bet is to spruce the place up before buyers come to call. A few small improvements, such as a new copier or redecorated front desk, can make a big difference. While these may not directly affect the price, they will steer your buyer’s first impression. If you are looking to sell your business to an out-of-town buyer, add a bit of Nashville flair, such as skyline art or record displays. This will enhance the overall feel of your brick and mortar location.
Another small thing you can do – and one that will not cost you a dime – is to create an operations manual. This will leave your buyers feeling as though your business is organized and assure them that it will run as smooth as silk after the acquisition.
For help selling your business, contact Beacon Exit Advisors today at 615.813.0461.Read More
Every year countless great deals, deals that would have otherwise gone through, are undone due to a failure to properly utilize and follow confidentiality agreements. A failure to adhere to this essential contract can lead to a myriad of problems. These issues range from employees discovering that a business is going to be sold and quitting to key customers learning of the potential sale and taking their business elsewhere. Needless to say, issues such as these can stand in the way of a sale successfully going through. Maintaining confidentiality throughout the sales process is of paramount importance.
Utilizing a confidentiality agreement, often referred to as a non-disclosure agreement, is a common practice and one that you should fully embrace. There are many and diverse benefits to working with a business broker; one of those benefits is that business brokers know how to properly use confidentiality agreements and what should be contained within them.
By using a confidentiality agreement, the seller gains protection from a prospective buyer disclosing confidential information during the sales process. Originally, confidentiality agreements were utilized to prevent prospective buyers from letting the world at large know that a business was for sale.
Today, these contracts have evolved and now cover an array of potential seller concerns. A good confidentiality agreement will help to ensure that a prospective buyer doesn’t disclose proprietary information, trade secrets or key information learned about the business during the sales process.
Creating a solid confidentiality agreement is serious business and should not be rushed into. They should include, first and foremost, what areas are to be covered by the agreement, or in other words what is, and is not confidential. Additional areas of concern, such as how confidential information will be shared and marked, the remedy for breaches of confidentiality and the terms of the agreement, for example, how long the agreement is to remain enforced, should also be addressed.
A key area that should not be overlooked when creating a confidentiality agreement is that the prospective buyer will not hire any key people away from the selling company. Every business and every situation is different. As a result, confidentiality agreements must be tailored to each business and each situation.
When it comes to selling a business, few factors are as critical as establishing and maintaining confidentiality. The last thing any business wants is for its confidential information to land in the hands of a key competitor. Business brokers understand the value of maintaining confidentiality and know what steps to take to ensure that it is maintained throughout the sales process.
Succession planning is something that many business owners fail to think about; however, it turns out there are benefits to succession planning that might not be immediately obvious upon first glance. In this article, we’ll explore a recent Accountancy Daily article, “Succession Planning for Business Owners,” which details the wisdom and benefits of succession planning.
Accountancy Daily polled 500 SME owners and uncovered a variety of interesting facts. At the top of the list is that one-third of owners felt more confident about the future of their businesses when they had a coherent succession strategy.
In what can only be deemed a surprising finding, the poll discovered that 17% of respondents noted that succession planning actually brought them closer to their families. In short, the Accountancy Daily poll found that succession planning came with a variety of unexpected benefits. In other words, it is about more than preparing to hand one’s business over to a new party.
Author Glen Foster makes the point that business owners frequently underestimate the level of effort and time needed to sell a business. The fact is that selling a business is usually a layered process that can even take years to complete. Importantly, business owners must understand that in the time it takes to sell, the market may have changed or their own financial or personal situations may have changed as well. Additionally, selling can be an emotional and stressful process which further complicates the entire matter.
For most business owners, selling a business represents the single greatest financial move of their lives. As such, it is often accompanied with significant stress and anxiety. It is essential not to underestimate the emotional and psychological side of the sales equation. Properly planning years in advance for the sale of a business will help business owners prepare for the emotional and psychological stress that can result from both the sales process and the eventual sale itself.
A key part of the stress of selling a business is that business owners are often left wondering “what comes next?” after selling. Developing a succession strategy is a way to think through such issues well in advance.
Another key aspect of succession planning is to take the steps necessary to make sure that your business is ready to be sold. As Foster points out, you wouldn’t put a home on the market with significant problems, and the same holds true for your business. If you want to receive the optimal price for your business, then your business should be in tip-top shape. This means diving into your books and records and getting everything in order. Working with an accountant or an experienced business broker can be invaluable in this process.
No one keeps a business forever. At some point, you’ll either want to sell your business or have to retire. When the time comes to sell, it is important to streamline the process, experience as little stress as possible and also receive top dollar. In Alejandro Cremades’s recent Forbes magazine article, “How to Find a Buyer for Your Business,” Cremades explores the most important steps business owners should take when looking to sell.
Like so many things in life, finding a buyer for your business is about preparation. As Cremades notes, you should think about selling your business on the day you found your company. Creating a business but having no exit strategy is simply not a good idea, and it’s certainly not a safe strategy either. Instead you should “build and plan to be acquired.”
For Cremades, it is vital to decide in the beginning if your preferred exit strategy is to be acquired. If you know from the beginning that you wish to be acquired, then you should build your business accordingly from day one. That means it’s essential to understand your market and know what prospective buyers would be looking for.
According to the Leadership Development Program, Kauffman Fellows, acquirers buy businesses for a range of reasons including:
- Driving their own growth
- Expanding their market
- Accelerating time to market
- Consolidating the market
Some of the more potentially interesting reasons that acquirers buy a business include to reinvent their own business and even to respond to a disruption. At the end of the day, there is no one monolithic reason why a given party decides to buy a business. But there are indeed some general factors that acquirers are known to commonly seek out.
Additionally, Cremades believes that for those serious about finding a buyer, it is critical to make connections. Or as Cremades states, “strategic acquisitions are about who you know, and who knows you. Start making those connections early.” He also points out that buyers are not always who one expects in the beginning of the process. Keeping this fact in mind, it is important to stay open and always look to build solid relationships and keep those relationships up to date regarding your status. Getting your company acquired won’t happen overnight. Instead, it is a process that can take years. Therefore, networking years in advance is a must.
Like many seasoned business professionals, Cremades realizes how important it is to work with a business broker. If you have failed to network properly over the years, then a broker is an amazingly valuable ally. They are about more than offering sage advice, as business brokers can also make potentially invaluable introductions and help you navigate every stage of the acquisition process.
Selling a business is more than a big decision, as it is also quite complex. Finding the right buyer for a business is at the heart of the matter. In the recent Forbes article, “Ready to Sell Your Business? Follow These 3 Tips to Find the Best Buyer,” author Serenity Gibbons outlines that selling a business is a multifaceted process with a lot of moving parts.
A central variable for those looking to sell a business is to have a coherent and well thought out exit strategy in place. She points out that at the top of your to-do list should be selling your business the right way, and that means having a great exit strategy in place. In fact, many experts feel that you should have an exit strategy in place even when you first open your business.
Another key variable to keep in mind is that, according to Gibbons, only an estimated 20% to 30% of businesses on the market actually find buyers. This important fact means that business owners, who usually have a large percentage of their wealth tied up in their businesses, are vulnerable if they can’t sell. It is vital for business owners to make their businesses as attractive as possible to buyers for when the time comes to sell.
This article points to author Michael Lefkowitz’s book “Where’s the Exit.” This book outlines what business owners need to do to get their business ready for their exit. Updating your books, ensuring that a good team is in place and ready to go and taking steps to “polish the appeal of your brand” are some of the important topics covered.
Gibbons notes that “not every buyer with cash in hand is the right buyer for your company.” Mentioned are three key variables that must be addressed when looking to find the right buyer: consider your successor, explore your broker options and find a pre-qualified buyer.
In the end, working with a business broker is the fastest and easiest way to check off all three boxes. An experienced professional knows the importance of working exclusively with serious, pre-qualified buyers. Since a good business broker only works with serious buyers, that means business brokers can greatly expedite the process of selling your business.
In her article, Gibbons supports the fact that working with a business broker is a smart move. Those looking to get their business sold and reduce an array of potential headaches along the way, will find that there is no replacement for a good business broker.