Critical Issues for Sellers to Be Aware of When Selling a Business

Truforte Business Group - Brokers Blog

If you want to sell your business or are considering doing so, there are many crucial factors to consider. As a Seller, you should ask yourself the following essential questions: how much am I asking? How do I approach prospects? Do I need the services of a professional? Without attempting to cover all of the concerns that a seller must consider, this article highlights some of the fundamental issues that every seller of a small business in Florida (or elsewhere) should examine before putting it on the market.

Who is the legal proprietor of my business?

It’s nearly a foolish question, but don’t dismiss it. Almost definitely, your business has assets. When we mention assets, we mean equipment, inventory, trade fixtures, customer-client base, accounts receivables, and everything you need to operate your business. The majority of small firms are sole proprietorships, S corporations, or limited liability companies.

If you operate as a sole proprietorship, you own the assets in your capacity. If you operate your business as an S Corporation or LLC, the corporation owns the assets, and so the entity, not you personally, is the “seller” of the business.

How will people buy my business?

Selling may be done in two ways: The assets may be sold and transferred from the selling party to the buyer. This is known as an “asset sale.” Alternatively, the buyer might acquire the seller’s stock or ownership stake in the current business.

The entity (i.e., company or LLC) that owns the assets will continue to exist in the second situation but with a new owner. This is known as a “stock sale.” Most small firms are bought via an asset sale rather than a stock transaction. In other words, the buyer/new owner will acquire the existing assets of the seller’s business and manage it as a distinct organization.

How much should my asking price be?

To answer this question, you should first try to determine the worth of your business. The discretionary earnings approach is a popular business to evaluate small businesses. This process entails scrutinizing the seller’s Profit and Loss Statement for non-essential items or costs and then recasting the Statement to determine the “actual” cash flow or profitability of the business.

The recasting process entails revising or “adding back” the seller’s costs that are not critical to the business, or the buyer is unlikely to spend as the new owner. After this recasting, the “value” is calculated by multiplying the seller’s net profits by a multiplier. This is not an exact science, but it does assist the seller in determining the price range of his business.

Suppose you find that the seller’s discretionary cash flow or profits are $100,000 after recasting the seller’s Profit and Loss Statement. In that case, the next step is to multiply that figure by a multiplier. Each industry will almost certainly have its multiplier. However, a standard benchmark multiplier is approximately 2.0. So, if you multiply the seller’s reconstructed net profits by 2.0, you get $200,000.

As a result, the approximate worth of the hypothetical business is $200,000. It is essential to highlight that the discretionary earnings approach is not the only way to evaluate the price of a small business. There are various approaches. If you believe you need expert advice in valuing your business, consult with an accountant or a business broker.

How can I promote the sale of my business?

You will need to advertise to potential purchasers. This is always best done by a professional Business Broker. Marketing may be done via a multitude of channels and media and a Business Broker can help maintain the confidentiality of the sale. A Business Broker could even potentially approach those who work in your industry without disclosing the name of the Seller’ business. For example, a rival may be interested in purchasing the company. Traditional print advertising in your local newspaper is another option. If you are in a well-known sector, there may be trade or industry periodicals where a Business Broker might promote the sale of your business. It is usually best for a Seller not to advertise a business on their own as it can be very difficult to maintain confidentiality when doing so.

Typically, the business broker would also “list” it for sale on the internet (and other channels) in the same way a real estate broker would offer a property for sale. A Business Broker typically charges a fee of 12-15% for their services. If you want to hire a Business Broker, you should learn about their services, the types of firms they have sold, their commission rate, and how they handle the marketing process. Inquire whether the broker is a member of the Business Brokers of Florida. Using a Business Broker will almost always get you the best results and their fee is well worth the money in most cases and they can be a great resource. We hope that this article’s content gave you a better understanding of how to sell.

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