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HOW TO SELL A BUSINESS |
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e-mail: gus@gustrantham.com |
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Business Opportunities & Commercial Real Estate Division RE/MAX Suburban, Glen Ellyn, IL |
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THE INTERVIEW
Editor: What is the most important thing a business owner should consider when thinking about exiting and selling his business? Gus: Timing the sale of your business is all important. Obviously the best time to sell your business is when you don’t have to sell it. Ideally, owners should plan far enough ahead to put the business on the market when sales, conditions, and profits are attractive to potential buyers. If he has the luxury an owner should start thinking and planning the sale of his or her company three years before his anticipated exit or retirement date. Unfortunately in most instances because of health reason, special family circumstances, or for one of many other reasons, the potential seller generally finds himself under the pressure of a much shorter time to have a broker market the business for a fair price in the shortest period of time. Editor: I thought the answer to the question would be proper financial statements rather than timing. As long as I am on that where does financial statements fit into the importance of a sale by the seller and the buyer for that matter? Gus: Accounting is the language of successful business transactions, and unfortunately the business owner generally finds this to be on of the weakest avenues of presenting his business. Financial statements should present the operations performance in a timely consistent and understandable manner. Generally today, a buyer’s bank is going to ask for up to 5 years of past statements on the business they are expected to finance for that buyer. It is critical that year end statements accurately reflect the earnings and financial condition of the operation. “Plugged” statements, continuous yearly losses, unreported income, and excessive “perks” will all detract from the stability of the business, and create numerous problems in the Due Diligence investigation of the process between buyer and seller. These will definitely effect the offering price, and will also hurt the buyer’s ability to borrow money from a bank. Editor: How does a business person know what his business is worth? Gus: The value of the business is the amount that is exchanged between a willing buyer and a willing seller. In today’s market, buyers are very sophisticated about the values of the companies in which they are investing. In 8 out of 10 business sales, the buyer is not even in the industry. Even if a buyer is willing to pay more than a company is worth, it is unlikely that his or her banker will provide the financing. If the owner discovers that the value of the company is less than the amount desired from its sale, the owner should either revise his or her expectations or take the necessary steps to enhance the company's value. Description of perks, promises, stories and other presentations |
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