About 20% of small business owners are either actively trying to sell their enterprise or are thinking about it. But only one in five of those who want to divest will get the job done, according to Grover Rutter, owner of Grover Rutter Business Brokerage, Valuation & Consulting in Findlay, Ohio. Sometimes, that’s because a business is faltering. “The best time to sell is when profits are at their peak,” Rutter says. “In other cases, the business simply isn’t ready for sale, even if the owner is all too ready.”
Preparation needs to begin years in advance. Among the records a prospective buyer will want to see are three or more years of financial statements and tax returns. Because those play a major role in determining the business's selling price, they should be as strong as possible at the time you decide you want out. So make sure your books are impeccable, and that they accur-ately reflect the operation's earning power.
There are many other tasks to attend to before the For Sale sign goes up. First, determine whose consent you need. Are there partners, lenders, a board of directors? Next, ascertain whether the company's contracts with vendors, customers, landlords, and other parties can be transferred to a new owner. Getting clear about the sale's effect on your taxes is vital, too.
You also need to settle all legal issues and make sure licenses, tax filings, and corporate records are current. Otherwise, a buyer's attorney or CPA might nix the deal. Shoring up the financials is smart, too. So try to get obsolete inventory and dated receivables off the books, and fully fund the company pension. The physical plant also deserves attention. Repair signs and lighting, consider painting, and fix or scrap dead- beat equipment.
Business brokers and interme-diaries that market small-to medium-sized businesses can give you an idea of what yours might sell for under current market conditions. Larger companies, which are often sold with the assistance of a middle-market mergers and acquisitions firm, may warrant the cost of a more formal valuation by a business appraiser, preferably one with a professional designation in the field. Appraisers offer a range of services. Keep in mind, however, that the appraiser's job is to be objective, not your advocate. Your company's uniqueness in its marketplace, customer base, and post-sale management team are among the numerous factors influencing its value.
One final step before going to market: Mental prep. Don't ask for the moon, Rutter advises. "If the price isn't realistic, buyers won't even look." Actual sales typically close for 85% to 90% of the asking price, he notes. Also consider financing the sale. Not only does that improve the odds of closing a deal, but offering favorable terms may also mean a higher selling price than if you accept only cash.
This article was written by a professional financial journalist for Preferred NY Financial Group,LLC and is not intended as legal or investment advice.