An old saying goes, “the two best days of owning a boat – the first, when you buy it and the second, when you sell it. The same seems to apply to some start-up businesses too.
As financial experts point out, a business can be sold only once. Even if a business owner has no intention of selling it at any particular time, there may come a time when it is imperative to do so and some plan to smoothen the process may have to be in place earlier. The preparedness such a plan provides may also help get a better price for the business when it needs to be sold considering the amount of hard work and effort that has gone into investing and running a business in the first place.
What it entails
The need is not to make a commitment to sell but to be informed about what is necessary and what it entails to sell a business. Some of the important aspects to be aware of and some upfront questions that are pertinent include:
• What is the business worth? – This is the first question every business owner has to ask and really evaluate. However, money should not be the only reason for selling because then it means that the owner is not exactly ready to sell and chances are that the business will be undersold. Having said that, whatever valuation is done by the owner, accountant or banker, only marketplace trends can really evaluate the current value of the business.
• Is the reason for selling a valid one? – Again there is a double-edged sword; if the business owner has a really solid reason it will most likely be sold. Here, the catch is to have reasonable expectations that increase the chances of the business getting a good buyer at the price expected.
If these two basic questions have been answered favorably, there are some important things about the business that require attention and putting together.
An initial checklist of the business and its operations should include:
• Profit and Loss statements going back at least three years
• Federal and Income Tax returns
• List of assets such as equipment and fixtures
• Lease related documents
• Details of loans taken, if any and repayment schedules
• If business is a franchise, terms of the franchise agreement
• Inventories of cash on hand, amounts to receive etc
• Details of additional investors or business associates, if any
It’s important to remember that any business, particularly a small one, has to make the right impression with the buyer. The above details help to provide a professional outlook and will go a long way in impressing a potential buyer.
In addition to presenting the business ‘well on paper’, an honest and sincere outlook and potential of the business also helps to create the right impression. Prospective buyers will certainly want to review income and expenditure figures but beyond that, the sustainability of the business and its pros and cons should not be ‘shrouded’. After all, no one will want to buy a business that will not provide a living; a seasoned business professional may have the acumen to see the potential and be willing to take a risk, but it’s impractical to expect everyone to have that view.
Once the selling has been figured out, it’s time to ponder on who could be a possible buyer. It could be a like-minded upcoming business entrepreneur who is looking for a chance to escape the ‘run-of-the-mill’ work atmosphere, a competitor or a large company looking to increase its business portfolio. No matter who the buyer is, knowing their aspirations and interest upfront helps to avoid long-winded negotiations and frustrating delays. Getting into a negotiation format with an entity that is not really serious about buying is a mere waste of precious time. This can be overcome by preparing a list of potential buyers amongst the circle of business associates and friends within the owner’s circle who is found to be capable of handling the business in a way that the business owner envisages.