Selling your business is a first for most business owners.  It is difficult to know exactly how to approach it and especially to know what the value of the business is and how all the pieces come together.  Selling a business is exciting but it can also be tough from several perspectives.  Let’s face it – It’s Personal.  This is the second part of a two part article on learning to sell your business by looking at it as though you were a buyer.  In the first part we looked at the types of buyers that would be interested in your business and what factors are the most important in determining the value of the business.  Review the first article here.

In this segment we are going to look at two items, first what are the unknowns that you may not have considered as you are beginning preparations to sell your business, and second what financing issues may come up.  This will not be a comprehensive list but is more designed to help give you some perspective by looking at some of the issues as you would if you were looking at buying a business.  It is often difficult for an owner to take an objective and realistic approach when working to sell a business you have spent countless hours and resources building.  Looking at the business objectively from the viewpoint of a buyer will help in preparing you for the types of issues and questions that may come up and allow you to be able to prepare in advance for any concerns.  After we have explored each question from the buyers perspective we will look at how this can help you as a seller.

As a Buyer:  What are the unknowns?

As you look at a business to purchase one of the concerns will be what are the potential obstacles to the sale, and what are the things you don’t know about the business?  Are there any hidden liabilities, unresolved disputes, accounting concerns etc. that would slow or stop the sale?  Usually these are questions that come up during the “Due Diligence” period where the buyer has the opportunity to ask questions and look for concerns that were not talked about or revealed as the purchase offer was put together.   Depending on what issues are uncovered could make a significant difference in the price you might be willing to pay for the business.

To Sell: As you look at selling your business make no mistake these issues will come up, or the questions will be asked.  Be proactive, think about anything that could potentially be a concern for the prospective buyer.  Any concerns with suppliers or subcontractors that are unresolved or may cause an issue with the new owner.  Any issues with customers or landlords or with your facilities or business practices or employees.  Think through the issues that would be a concern to you as a buyer and clean up the issues or put together information that may be needed to answer the questions if they are asked.  Anything you can do to be proactive in having the answers will be a benefit to you and will help build confidence with a prospective buyer.  Keep in mind usually the less confidence a buyer has the less they are willing to pay for a business, so it is valuable for you to have issues cleaned up.  Get help – a good lawyer or exit planner can help come up with a list of the possible issues to look at or the questions that may be asked so you can be as prepared as possible.

As a Buyer:  How will you pay for the Business?

When you are looking at buying a business you will have to figure out how you will pay for it.  Will you need to get financing, will you be able to get financing?  Will you pay the owner in full and have them leave, or would you want to pay them part of the money and have them stay and work for a period of time and “Earn out” a portion of the purchase price based on future company performance?  Will you have the option to pay a portion of the sale price as a “deferred compensation package” over time to the seller for tax advantage?   There are many ways to structure financing for business sales, look at it through the eyes of a buyer to gain perspective.

To Sell: Think about what the options are for you to get paid, and what you are willing to accept.  There are tax implications for different types of payments, but there is also risk involved in not getting paid up front or in financing the purchase yourself.  Are you willing to finance the purchase depending on who the buyer is.  Many times in a sale to family or employees the owner must face the reality that they may have to finance some or all of the deal.  Are you willing to base your retirement on their ability to run the company profitably enough so they can make the payments to you for the life of the financing.  Be careful!  Buyers can be very demanding especially with items like “earn out” agreements and things may not turn out as you think.  Remember the old adage if it looks too good to be true it probably is.  There are several ways deals can be put together and with the help of a good tax accountant and lawyer you can sort out some of these questions so you know where you stand when the financial questions come up.

What would you pay for your business?  It is a tough question!  Too many times an owner is looking at the business from a perspective of winding down.  It is important to keep something in mind; If you imagine a line in the life of the company being drawn at the closing date, this line may be a “finish line” for you, but for the new owner it is a “starting line”.  To have the best results and receive the best value in selling your business you may do better when you choose to look at the sale from the perspective of the buyer starting out.  Focus on the opportunity ahead not strictly on the past results.  The world is changing, markets are changing, and many times the secret to success is looking at something from a new perspective.

If you are interested contact me and I will provide you with a Free list of items buyers may ask about to help you in your exit planning process.