We know that selling your business represents a significant goal and somewhat of a challenge for you. Many business owners with whom we work share your struggle. As you probably know, only 20% of businesses that are listed for sale actually sell. The most successful business owners are those who prepare their businesses for sale before going to market. Of those that do pre-sale planning, 82% of them successfully sell their business. Of those that don’t do pre-sale planning, only 12% successfully sell their business. We encourage you to learn about the ten steps for selling your business.
Deciding To Sell A Business
There are a wide variety of reasons you may be wanting to sell your business. However, no matter why you are selling, confidentiality is of the utmost importance. Your employees, clients, competitors, and vendors will all need to be notified eventually, but should not be told until the sale is finalized. Once you have decided to sell and are ready to begin the process with Allen Business Advisors, you will follow the 10-step process below.
After you have decided to sell your business, the first thing you should do is assemble your deal team. A team is needed because no one person has all the training and experience necessary to sell a business. Your deal team members should include your spouse, any direct business partners, an experienced business transaction attorney, CPA, and a business broker. Getting team members with experience is imperative so that you can have a smooth sale of your business. Make sure that your team is always on the same page, and encourage communication between all the individuals so that your sale goes as planned.
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When a business is being sold, what is really being offered is the future cash flow of the company. One measure of cash flow is called EBITDA, which stands for Earning Before Interest, Taxes, Depreciation, and Amortization. There is also a Seller’s Discretionary Cash Flow which features any method that an owner can pull money from the business.
Business value is a cross between an art and a science. The art is assessing how the business will operate without the current owner. Usually, a business with more robust systems, processes, and management will sell for a higher value. The science is more involved with finding an accurate cash flow that includes the EBITDA and the Seller’s Discretionary Cash Flow.
Your goal is to sell your business for more than the value of your physical assets. During your preparation and planning, gathering and organizing your paperwork will be essential to an easy sale. If you have your documents in order, you will be better prepared to answer a prospective buyer's questions and respond quickly to document requests. Typical documents needed include three years of federal tax returns, contracts, lease agreements, total company debt with monthly payments, payroll information, account receivables aging, and employee resumes. Remember that first impressions make a difference, so you will want to make sure your papers and files are in great order so your prospective buyers won’t have to dig around to find what they need.
As you are preparing your business for sale, it should be marketed in a manner that will interest prospective buyers but doesn't reveal enough information that will allow your business to be identified. At Allen Business Advisors, we want to provide you with multiple potential buyers so you can find the best deal possible. Some of the places that we market businesses for sale include our own database of buyers and sellers, email ads with the business name withheld, trade publications and LinkedIn, and more. Our experience shows that after reading a confidential business review, the prospective buyer will know if it is a good fit or not. If it is a good fit, they will want to meet you. If it is not a good fit, this saves you time.
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If the buyer is interested, it is time to set up an interview. This will give both parties time and opportunity to assess the deal and get a better feeling for each other. Some of the types of questions that the prospective buyer will likely ask will be about:
- Financial performance
- Pipeline of future work
- Your clients
- Your employees
Most buyers of professional service companies tend to be other companies. They will also be assessing the cultural fit and how the merged companies will function.
When an offer is made to purchase your business, it is important to know what is included and what is excluded. Most of the confusion centers around account receivables and cash, as these are business assets. Main street businesses tend to exclude account receivables and cash. Professional service businesses and larger businesses may include working capital, which is another way of saying account receivables and cash.
The offer should include information about the employment agreement, such as your pay rate, number of hours, length of time, job function, and whether benefits are included, to name a few items. The offer may be for a flat dollar amount, or it may also include a percentage of future sales. It will also include timing and amounts of the initial and future payments.
Once the offer has been made and if both parties come to an agreement, you will likely share some of the more sensitive information that you previously were not comfortable sharing. This can include:
- Names of clients
- Corporate records
- Contracts
- Access to select key employees
This will provide the buyer with confidence and help them to finalize their decision to purchase your business.
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If you choose to accept the offer of the buyer, you will then both start the final steps of the process. A detailed and binding purchase and sales agreement will be created by the attorneys that are handling this sale. During this step, the buyer will start the process of obtaining bank financing if needed.
When both parties and their attorneys meet for the closing, the documents of the sale will be reviewed and any remaining edits will be made. Once the documents, including edits, have been approved by both parties, the buyer and the seller will both sign the contract and the sale of the business will be finalized.
After the sale is completed, it is time to break the confidentiality. Now you will begin informing your employees, introducing the new owner to your clients and vendors, and making the change in ownership public knowledge. If your sale included some form of employment agreement where you would stay on to help for a certain period of time, you will need to fulfill that duty as well. This will also be the time that you begin collecting the payment for your business.
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Get Help With The Sale Of Your Business
We specialize in selling architectural, engineering, and land surveying businesses across the country and
healthcare businesses in the Mid- Atlantic. We have deep roots and connections from Maine to Florida and Texas.
Allen Business will be an exhibitor at the following conferences below. Check us out and see how we can help you and your business.
National Council of Structural Engineering Associations Summit – November 7 – 9, 2023
American Council of Engineering Companies – California February 27 and 28, 2024
Contact us to sell your architectural, engineering, or land surveying business.
