Below are some frequently asked questions about selling a business. This information is designed to help you better understand the business selling process and to explain the advantages of using a professional business broker to manage the sale.
How long will it take to sell my business?
A business sale may take between two months and two years to sell depending on the nature of the sale, the industry, whether the business is franchised or not, the contracts in place, the location, the financial records, the purchaser’s ability to secure finance, local economic conditions and the complexity of the transaction – such as whether a private equity group is involved requiring management buy-out terms etc. On average though, a business will usually sell within three to six months from listing if it is priced correctly, presented well and marketed to the right target audience.
Exclusive business authorities?
It has been our experience, that to serve our clients effectively, a team approach is best. We recommend that we are your exclusive business brokers when selling your business as general authorities and listing a business with a number of broking firms often works against you as the vendor appears to be desperate to get out and opportunistic purchasers will ‘play’ one business broker off against the other to drive the purchase price down. Once we are appointed, we will work in with your lawyer, accountant, and other key advisors.
Am I ready to sell my business?
The decision to sell is an important one and preparation is required before placing your business on the market at least a year or two beforehand. The business’s financial records and business operations must be evaluated and analysed to determine the strengths and weaknesses of the company. A Market Appraisal will provide you with the necessary information used to determine a realistic selling price, deal structure as well as identify prospective purchasers.
What should I do or not do when I put the business on the market?
Work with your business broker and heed their advice. Experience shows a first-rate business broker is essential if you expect to get top dollar for the sale of your business. Be certain you are familiar with and appreciate how the different categories of prospective purchasers perceive your business so as to ensure that it is advertised in the correct category.
Purchasers will need to trust you and clearly understand your reason for sale, always be candid and truthful. A purchaser will want up-to-date, complete financial information – a word of caution, you are better off showing the business ‘warts and all’, rather than trying to ‘sanitize’ your records.
Focus on running your business as if it were not for sale; do not become distracted, your bottom line is what counts. Good records and documentation are important. We often recommend eliminating excessive personal or non-business related expenses, turning unused assets and obsolete inventory into cash, resolve any outstanding legal disputes, renew any periodic licences associated with your business and remove personal assets from the business.
What happens if I have unreported cash?
If you are not reporting all your income for tax purposes, we highly recommended that you start doing so immediately. A prospective purchaser will want you to prove that your business is doing what you state, therefore unreported income can prove to be very detrimental. It may also reduce the amount you will receive for your business, which will undoubtedly take longer to sell, and greatly limit financing options. It will also greatly increase the chance that you may not be able to sell at all.
What happens if I own the property my business is in?
You have several options if you own the real estate that your business operates from. Firstly, you have the option to sell both the real estate and business to the purchaser, sometimes beneficial to the purchaser from a bank financing perspective. Secondly, you can sell only your business, and then lease the premises to the new owner. There are also a number of hybrid options which can be negotiated between the parties if suitable with the help of one of ur business consultants.
Who will handle all the inquiries on the sale of my business?
Your Business Broker is trained to deal with incoming inquires and help determine which of those prospective purchasers may be ready to move to the next level.
Will I have to provide vendor financing to the purchaser?
A seller’s natural instinct is to ask for an all-cash deal from a purchaser. However, in the current economic climate it may be difficult for some small businesses to acquire finance from banks and traditional lending institutions. Thus vendor financing may be part of many small business acquisitions.
Vendor financing also makes sense for both the vendor and the purchaser for a couple of reasons. Firstly, if the vendor is willing to provide financing, it shows the purchaser that the vendor is confident that the business will continue to perform at the same level or better to cover the financing. It also works for the vendor, because businesses that include vendor financing typically attract more initial interest from purchasers and often generate a higher sales price than a business without vendor financing. In some cases, the ongoing payments and interest on the loan also suit the interests of the vendor as they can be better than what may have otherwise been achieved in a bank. In short, providing vendor financing is an important part of setting both price and terms of sale, and could make the difference between selling your business for a top price and not being able to sell it at all.
What types of offers should I expect to receive when I sell my business?
An astute purchaser will typically start with an offer that is substantially below your asking price. This initial offer is normally used as the first step in the negotiation process to ‘test the waters’. All offers will contain contingencies, including a review of the books and records, obtaining a satisfactory lease, and agreement on training and transition periods. Other contingencies specific to your business may also be included. Contingencies are normal as they provide the purchaser with the opportunity to verify the information presented in the marketing materials. They also provide some negotiating room for the purchaser as the process moves forward.
How long is the training period for the purchaser?
This is a negotiable point and there are no firm rules regarding training, as many businesses have more complex learning curves than others. Your business broker will negotiate the best arrangements for you depending on the type of business you are selling and your personal circumstances but we have found that most purchasers will ask for 14-30 days. If a longer period is required we often find that vendor’s will negotiate a consulting fee after a certain period of time. Remember, if you are providing vendor financing in respect of the purchase price you still have a financial investment in the business, thus, proper training of the purchaser is in your best interest.
Should I expect to sign a non-compete agreement when I sell my business?
Yes. You should expect to agree to a non-compete agreement covering the geographical area from which you draw your current customers for a three to five year term. The geographical area will usually depend on the type of business and its location.
When should I tell my employees I plan to sell my business?
Although it sounds harsh, even where you may have a close relationship with your employees, our considerable experience has proven that it is best not to tell your employees about the sale until immediately before or immediately after the sale. This may be difficult for you emotionally however experience dictates that silence is the best practice. The exception to this rule would be if there is an employee whose expertise will be needed after the sale – in such a case there may be some advance notice required to this employee and this employee alone.
Do I need a lawyer and/or an accountant?
Many small business owners decide not to utilize the services of a lawyer and/or an accountant. However, we highly recommend that appoint a professional advisory team as selling a business is a complex transaction which can be very costly if not handled properly. You should try to appoint advisors with prior experience in similar sized business transfers and have the time available to handle the paperwork on a timely basis.
Lawyers should be used to review Contracts of Sale and additional closing documents. Accountants consulted for tax advice, structure, and the review of financial data. An experienced lawyer and accountant can be of real assistance in making sure all of the details are handled properly, at the same time inexperienced advisors can easily kill your transaction. Keep in mind transactions that work are structured as win-win and fair for all parties – it is important to remember that only you can make the final business decision and stay in control of the process!
