Charleston Business Brokers

Are You Ready To Exit? PDF Print E-mail

If you've gone this far, then selling your business has aroused enough curiosity that you are taking the first step. You don't have to make a commitment at this point; you are just getting informed about what is necessary to successfully sell your business. After all, when you do make the decision you want to know all of the facts. This section should answer a lot of your questions and help you through the maze of the process itself.

Question 1

The first question almost every seller asks is: "What is my business worth?" Quite frankly, if we were selling our business that is the first thing we would want to know. However, we're going to put this very important issue off for a bit and cover some of the things you need to know before you get to that point. Before you ask that question you have to be ready to sell for what the market is willing to pay. If money is the only reason you want to sell, then you're not really ready to sell.

Insider Tip

It doesn't make any difference what you think your business is worth, or what you want for it. It also doesn't make any difference what your accountant, banker, attorney, or best friend thinks your business is worth. Only the marketplace can decide what its value is! The good news however is that the value of your business is a variable that you can control.
But don’t believe that the only variable that matters in valuing your business is your earnings. We discuss EBITDA and Seller Discretionary Earnings in our Guide to Selling Your Business. Earnings matter but one has to understand that earnings are but one of the variables that drives the value of your business. Our Quality Listing Analysis tool provides you with an objective framework within which to work in managing all variables that drive the value of your business. To name but a few, these variables include your sales volume (the higher the volume the less the perceived risk); the quality of your financials (clean and organized or your value is diminished); the quality of your assets; the quality of your inventory (is it saleable); the age of your company (is your company well established with a proud history); the location of your company (is visibility important to your business); the terms of your lease agreement (are they favorable and provide for a minimum of a five year extension for the buyer); and other intangible items that really drive value such as whether your company has sources of recurring income, patents, or exclusive contracts, for example.

Question 2

The second question you have to consider is: Do you really want to sell this business? If you're really serious and have a solid reason(s) why you want to sell, it will most likely happen. You can increase your chances of selling if you can answer yes to a second question and that is Do you have reasonable expectations? The yes answer to these two questions means you are serious about selling.

The First Steps

Okay, let's assume that you have decided to at least take the first few steps to actually selling your business. Before you even think about placing your business for sale there are some things you should do first.
The first thing you have to do is to gather information about the business. Here's a beginning checklist of the items you should get together:
  1. Three years' Profit and Loss Statements
  2. Current year’s Balance Sheet
  3. Federal Income tax returns for the business
  4. List of fixtures and equipment
  5. The lease and lease-related documents
  6. A list of the loans, if any, against the business, with amounts and payment schedule
  7. Copies of any equipment leases
  8. A copy of the franchise agreement, if applicable
  9. An approximate amount of inventory on hand, if applicable
  10. The names of any outside advisors

Organization is the Key

If you're like many small business owners you'll have to search for some of these items. After you gather all of the above items, you should spend some time enduring that the information is current, comprehensive and accurate. Everything starts with this information and you cannot sell your business without it.

Keep Your Financials Current

Make sure the financial statements of the business are current and are accurate. If you're half way through the current year, make sure you have last year's figures, and tax returns, and also year-to-date figures. Make all of your financial statements presentable. If you don’t already have it, it will pay in the long run to get outside professional help, if necessary, to put the statements in order. You want to present the business well "on paper". As you will see later, the beginning point for pricing a small business is based upon EBITDA or Seller Discretionary Earnings (and be careful with the use of the term Cash Flow which is often used but thoroughly misunderstood). This includes the profit of the business, but also, the owner's salary and benefits, the depreciation, and other non-cash items. So don't panic because the bottom line isn't what you think it should be. By the time all of the appropriate figures are added to the bottom line, the Seller Discretionary Earnings may look pretty good. To better understand this process click here for a sample Seller Discretionary Earnings calculation.

Look at the Buyer’s Perspective

Do you want to test your pricing expectations? Then take a very simple test. That is to say, would you pay the price that you want for your for your business if you were a purchaser? To test your expectations with reality utilize our Buyer’s Cash Flow Analysis Worksheet to determine if your expectations are grounded in reality.
Prospective buyers want to review your financial figures. Buyers want to see income and expenses. They want to know if they can make the payments on the business and still make a living. Let's face it, on the most fundamental level, if your business is not making a living wage for someone, it probably can't be sold.

 

Insider Tip

The big question is not really how much your business will sell for, but how much of it can you keep. The Federal Tax Laws do determine how much money you will actually be able to put in the bank. How your business is legally formed can be important in determining your tax status when selling your business. For example: Is your business a corporation, a limited liability company, a partnership or proprietorship? If you are incorporated, is the business a C corporation or a sub-chapter S corporation? The tax laws are ever changing. The point of all of this is that before you consider price or even selling your business it is important that you discuss the tax implications of a sale of your business with a tax advisor. You don't want to be in the middle of a transaction with a solid buyer and discover that the tax implications of the sale are going to net you much less than you had figured.
 

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What our clients say...

“Charleston Business Brokers did a phenomenal job for us in getting the deal done.  We received a higher price and a buyout that was properly structured that both parties agreed on. They are full of useful information.”
Shawn West, Charleston, SC

“Charleston Business Brokers is, quite simply, the best business brokerage firm in not only the Charleston Region, but the entire State of South Carolina.”
Doug Lifton, Kiawah Island, SC

“I have worked with brokers across the United States in the sale of my businesses and I can honestly say that Charleston Business Brokers delivered the highest level of service I have ever received from a brokerage group.”
Larry Turisk, Houston, TX