Guide To Selling a Business

This website is based on the book "Guide to Selling a Business" by Gary Schine and David Annis. While we'd love to have you buy the book, which has some advantages, such as being easier to read in a bathtub, in many ways the website is better, because we're supplementing the book with a number of interactive tools that work better on screen than on paper.

We are business brokers and this book was motivated by a desire to help the vast majority of business sellers, who we can not help. We turn away most prospective sellers that approach us, either because their business is too small, because the best buyer for their business is an employee, or for some other reason that makes using a broker a poor choice for them. So, these businesses either end up being sold by an incompetent broker, sold by a good broker who took the listing at a commission that's egregious, the owner stumbles through the sale on his own, or the business is never sold. There are few good resources to help you sell your business yourself and the book and this website are intended to remedy that. Many of the few resources that do exist are expensive. This site is intended to be a Do it yourself kit for small and mid-sized business owners who want to sell their businesses themselves.

If after reading the section on when to use and when not to use a broker, you feel that a broker is still appropriate for you, or you just want to hire us to help with a small piece of the transaction, please Contact us. We're also always interested in hearing comments, suggestions, and criticisms of the site.

Introduction

Selling a business is often the largest financial transaction of an entrepreneur's life. More money can be gained or lost in this transaction than in any previous deal in which most business owners have ever been involved. The potential for profit (or loss) can be enormous. The successful sale of one's business can determine whether a retiring owner can retire in the style he or she has dreamed of, or whether retirement will be a constant financial struggle. For a younger business owner, it can determine whether that person will start a new business or work for someone to pay off nagging debt.

Despite the high stakes, the buy/sell process is little understood by business owners. Some of the most successful entrepreneurs do not have a good understanding of how businesses are transacted. Even those that do can become so emotionally involved with "giving up" their business, that it is difficult for them to effectively move forward toward a successful sale.

Many myths prevail about the buy/sell process. For example, many people including some professional advisors like accountants and brokers, advise that a business is not saleable unless it is generating profits. They advise owners in less than profitable situations to liquidate their assets and be done with it. While some unprofitable businesses are not saleable, others are very much in demand.

Years ago, I sold an unprofitable business for a client. The business grossed $70,000 in the 12 months previous to closing the sale (down from $93,000 the previous year). The owner was taking about $11,000 out of the business as his total compensation. Fair market value of the assets was about $13,000. The business sold for over $100,000. The buyer was not a neophyte who didn't know better but a large and well established CPA firm.

In another instance, I am currently finalizing a deal for a company that is grossing about $250,000. This company has tangible property worth about $25,000, and the owner's total compensation is well under minimum wage. The buyer, a sophisticated individual with top level management experience and an MBA degree, plans to pay $175,000 for 70% of the company.

Businesses sell based on their value to buyers. As these two examples demonstrate, that value is not always based upon financial performance. It is up to a business seller to figure out what value the business may have and to whom it has that value. It is then his or her job to package the business so that the value is clearly demonstrated to the prospective buyers. Obviously, this is not an easy job; it might well be best to seek professional assistance with handling these crucial steps.

Unfortunately, too many business transactions are handled poorly by business owners who don't have a good understanding of the buy/sell process and by incompetent intermediaries, who should know better. This website will take you through the key steps of the buy/sell process and explain each one. It will also point out some of the more common mistakes and pitfalls inherent to the process.

Selling a business is a complex and sometimes frustrating undertaking. Don't enter into it without adequate consideration and preparation. In fact, if you are planning to sell in one to three years, now is the time to start planning for the sale. Appropriate preparation steps are covered in the website.

Finally, the actual sale is sometimes better handled by a qualified business broker. In some instances, a good broker can make the sale faster, smoother, and far more pleasant. A good broker will also, in essence, pay his or her own fee by getting a better price for the business than an entrepreneur can get on his own.

However, there are problems involved in using brokers. Brokers prefer larger businesses so they typically don't devote adequate attention to smaller companies. If you own a very small business that you need to sell, your motivation may be more valuable than the broker's contacts and experience. To you the sale is very important; to the broker it is one of a number of chances to earn a commission. He or she will work on the easiest sale with the biggest commission, which may not be your company.

Also, the unfortunate fact is that finding a good business broker is not easy. There are too many incompetent brokers out there. Just as most business owners have little experience buying and selling businesses, they have even less experience evaluating, hiring, and working with business brokers. We will not only discuss when it makes sense to hire a broker and when it makes sense to go it alone, but we will also discuss some of the issues that you need to consider when evaluating a broker: what qualifications to look for, typical commission structures, warnings signs to beware of, and alternatives to a typical client/broker relationship.

Finally, you should understand that many business brokers are working as business brokers so they will have first shot at buying the right business opportunity when it comes along. In and of itself this may not be a problem. However, understanding this fact may help you in understanding a broker's motivation and his or her attitude toward servicing clients.

Issues to consider in choosing to sell with or without brokers are also covered on this website.

Next, Overview of the Buy/Sell Process