Selling a Business – A General Primer

First do an analysis of the business

• Does the business have established systems and procedures?
• Do you have regular, reproducible results?
• Do you have reoccurring clients, products or services?
• Are there any indispensable employees (including you)?
• Consider a before the sale audit
• Do a strengths, weaknesses, opportunities and threats assessment
• Do an appraisal of the business 
• Do an internal review of your legal infra-structure
• Employment agreements with key employees including non-compete agreements
• Agreements with key vendors and continuing customers
• Lease agreements
• Can you assign key contracts (including the foregoing)
  

Why Are you selling?

• move on to new opportunities
• pocket the increase in the value of the business
• burnout, retirement, looming industry changes
  

Who is your ideal buyer?

• Identify Qualified buyers. This is usually based on experience in your industry or finances or both.
• Who are the most likely buyers for the business?
• An internal buyer (family member or key employee)
• An external buyer (including a competitor or someone in the industry seeking to enter your market)
  

Determine an asking price for the business

• A history of profitable operation has a very positive impact on the asking price Unprofitable businesses rarely sell. Usually they simply close.
• An appraisal provides some indication of and independent assessment of the value of the business. These can be as much art as they are science.
• Sellers most often establish pricing based on:
• How much they think they “need” to sell the business in order to:
• Fund their retirement
• Meet their subjective valuation of their efforts
• Although no one wants to “leave money on the table,” it is important that the buyer is able to make a reasonable income.
• The tax implications of the deal structure can influence the asking price
• A Seller may take/get less for a stock sale versus an asset sale.
• Allocations of total consideration among non-compete agreement, consulting agreement, lease or other assets can influence the asking price and after sale taxes.
  

Should you use a business broker?

Business brokers exist and can perform a valuable service (for which they intend to be paid)

• Usually the Seller (or the Seller’s business) pays the broker.
• Usually the broker represents the Seller
• Brokers can sometimes provide industry insights due to specialization (example a broker who deals primarily with restaurants may have insight into the local restaurant market).
• Brokers primarily provide potential Buyers with information given to them by Seller. Brokers sometimes verify Seller information.
• As with all professionals, some brokers/brokerage firms are better than others.