Preparing a Small Business for Sale

Adequately preparing your small business for sale is crucial – for both ease of sale and maximum profitability. A prospective buyer will naturally be wary of taking on the huge financial and personal responsibility that comes with the purchase of a business, so you must ensure that your business is unproblematic to turn over into new hands. By adhering to the following steps, you can make the preparation for the sale as efficient and effective as possible.

One of the most vital steps is to allow ample time to prepare for the sale – a year is preferable.  This gives you time to tie up all loose ends, and get your financial statements and other paperwork in order. A potential buyer will want to thoroughly inspect all of your financial records and projections, so you must ensure that these are comprehensive and up to date.  Document all business agreements and relationships, such as those with suppliers and local government departments - unwritten or ‘handshake’ agreements are not guaranteed to survive the sale. Also attempt to settle any outstanding debts, whether they belong to the business or customers with unpaid accounts. Any leases on real estate and equipment should also be renegotiated or renewed.

Creating a complete inventory of all stock and physically cleaning up your business are also key steps in preparation. Having a full record of all stock not only looks appealing in your financial records, but will also benefit the new owner of the business. If your business has a physical location, take a moment to look around your premises through the eyes of a potential buyer. Eliminate any unnecessary clutter, repaint where required, and make certain that everything is in a state of good repair and cleanliness.

Ensure that your current employees’ interests are met, so that good employees are retained through the sale process. Loyal and effective employees are essential to a business, and prospective buyers will be positively influenced if they know employees will stay with the business. Experienced employees will help to make the ownership change a smoother transition, and therefore make your business more attractive to buyers.

Finally, do not be afraid to seek the help of an experienced business broker at any time during the preparation and sale process. Such an individual can greatly aid the final sale, and also assist you with many aspects of the sale preparation. By following these steps and allowing yourself sufficient time, preparing your small business for sale can be a straightforward and ultimately profitable endeavor.

Tips for Selling a Resale Franchise

At some point and time, all franchise owners will go through the process of selling their franchise. This can be a frustrating process, if you are unprepared and uninformed. Fortunately, the stress of this task can be greatly reduced by following a few simple guidelines.

Know the franchisor’s rules regarding resale

It’s important to keep your franchisor informed about your plans to sell the franchise from the beginning. Many franchisors have rules pertaining to the sale of a franchise, and criteria that the buyer must meet. Most franchisors will offer assistance in selling your franchise, and may also be aware of potential buyers interested in a specific territory.

Prepare for the sale

Be aware that some franchise sales require more detailed preparation than others. Ask your franchisor for specific advice about what you may need to do for the sale of your franchise. This may involve putting financial records in order, establishing the value of the franchise, setting a price, and notifying employees if necessary.

Understand the market, and the potential buyer

Having a basic understanding of the market before listing your franchise for sale is imperative. Use similar franchises that have sold recently for a baseline to determine what your franchise is worth.  Establish if the local economy is suitable for a quick sale, and verify if there are potential buyers in the area. Check with your franchisor about any specific qualifications that a buyer must meet (total capital investment, liquid capital requirement). To save time, know the type of buyer that you are looking for so that those with insufficient qualifications can be disregarded.

Market the franchise

There are many options for advertising your franchise for sale. Organize exposure for your franchise in the form of networking with people in the industry, and online and print advertising.  You may also choose to involve a business broker in the sale of your franchise. When it comes to a sales pitch, ensure you know the demographics of your market, answers to potential questions, and all about the franchise system for sale.

Provide assistance to the buyer

Ultimately, you might need to provide assistance to the buyer of your franchise. Help them complete their application with the franchisor. Include training or even working alongside the buyer for the first few months.

Tips for Buying a Profitable Business

Purchasing an existing profitable business can certainly be a wise investment, especially in contrast to starting a business from scratch. There are a number of shares in the process that can easily be avoided. It will serve you well to start off by considering hiring a professional to assist in buying a business. Business brokers are worth their weight in gold when making such a sizable purchase. These folks can help guide you through the proper methods of Due Diligence, critical in this kind of business transaction.

There are three important areas to consider when looking at buying a business. First is reviewing the company’s income. Since the business is looking to sell, it will most likely have polished up all records to show it in the best light possible. Asking good questions and knowing what to look for will help to reveal hidden costs. If there is equipment, make sure it has been regularly maintained to avoid significant cost as soon as the company becomes yours. Next remember that, essentially, you are looking to purchase an income stream, not isolated spurts. That means that you should look for irregular income items in the records, such as sale of machinery. Then keep in mind that a business in new hands often has higher initial costs until the new owner establishes a rhythm; never assume that you can run the business more efficiently when considering income. Also, never underestimate the income tax impact cutting into profits. Especially if among the company’s assets there is a lot of equipment or property, you need to beware, since such things are generally re-appraised for tax purposes upon a sale.

The second area is staff. Many businesses, especially small ones, pivot around the owner as the key employee. Without the key employee the impact may be unknown. Evaluate as carefully as possible. As far as other employees are concerned, you’ll want to consider such things as whether they are under contracts, if there is a raise schedule, if they have been with the company for long, and if they plan to stay given a transition of ownership.

The final area is negotiating the price you will pay. Never pay for potential. Although it may be listed out and may be nice to consider, make sure you aren’t paying for something that has not yet happened. Along these lines, identify what the primary force driving income is. Sometimes it is the current owner. Make sure whatever it is, it is something you will be able to successfully replicate. If you are presented with income projections, pay more attention to the assumptions made in generating those figures than the figures themselves. Again, wanting the business for sale to shine, the seller or broker may be showing you figures based more on optimistic assumptions than realistic ones.