Business Sale Considerations
Selling a Business involves several considerations, including the structure, marketing, confidentiality, taxes, negotiating a price, contract preparation, due diligence, a business plan, and financing.
The basic steps to selling a business are calculating the value, deciding on the most advantageous structure, marketing the business, soliciting and negotiating with prospective buyers, and completing the sale contract.
While revenues and profits (historical and recent trend) and asset market values are the basic considerations for valuing a business, customer contracts, management depth, intellectual properties, and other factors can also affect the valuation. Also, in some cases, restructuring assets (sale-leaseback of business real estate, for example) and capitalization prior to a sale can increase the combined value of the assets and operations.
Selling a business can have many important legal, business, and financial issues; therefore, you should plan to have independent representation by a lawyer and possibly a CPA to assist you with your business sale.
In order to establish an asking price, you will need to value your business. Certain industries have "rule of thumb" valuation factors, such as a multiple of revenues, cash flows (SDE), or net income. However, industry guidelines vary based on profit and cash flow potential, and cannot always be applied to an individual situation because of asset values, rent and labor costs, financing, and other elements unique to that operation.
Establishing the value of a business generally involves determining; a) the value of equipment, supplies, inventory and other tangible assets and b) the value of the business customer list/contracts, sales/profit potential, and intangible assets like goodwill, etc. Also, the quality of your customer list and relationships may be a valuation factor.
Business owners who are thinking of selling will benefit from engaging or consulting with a professional business broker to provide them with an independent value of their business, taking it to market, and providing objectivity, using their expertise and experience, during the negotiations with prospective buyers and the due diligence process.
A business broker understands the importance of marketing the sale in a confidential manner, in order to preserve the business value while it's offered for sale, and maximizing the selling price.