How to Sell Your Business (or Buy an Existing Business)
This post comes to us via the Missouri Business Development Program and answers the age old question—what is my business worth? Which assets matter and how does it affect my taxes? What about cash flow and EBITDA?
If you are interested in selling or buying a business (and all of this sounds pretty complicated), be sure to read all the way to the bottom to learn more about an event you won’t want to miss at the Kansas Small Business and Development Center:
Q: I want to sell my business and don’t know what to ask for. Short of paying for a full-blown appraisal, how do I get a ballpark number?
Many times it doesn’t matter what your business is worth on the books or how much it is appraised for. Ultimately, the real value of your business is dependent on what someone is willing to pay for it. If a new owner can’t afford to make payments to the bank from the money the business produces, no one will buy it. When you want to sell your business ask yourself—how can I price this business so a buyer can meet their needs? In most cases, those needs are to make:
The salary they hopes to earn or plans to pay an on-site manager
Payments to the bank to cover the cost of what needs to be borrowed
A respectable return on investment on the 20-30 percent cash the new owner puts into the deal.
With a healthy economy, most buyers realize they could earn at least 10 percent a year just by putting their savings in a mutual-fund portfolio. Most hope to better that performance, with an investment return that covers the additional risk associated with buying a business. That may create problems for you, the current business owner, because you could be drawing below market salary or you don’t pay any financing costs at all because you grew the company from scratch.
Although most buyers look for a company with good growth prospects, they will price deals based upon prior financial performance and pay special attention to the previous year’s cash flow. The banks look carefully at this and also like to see a lot of physical assets for collateral and little or no blue sky, or intangible assets, in the selling price.
When preparing to sell your business:
Show as much profit in your business as possible for three to five years. Just about everyone hates to pay taxes, but it is hard for a buyer to get a deal financed if there’s no profit showing on the books.
Be prepared to let potential buyers see the last three to five years of tax returns, balance sheets, machinery and equipment list and an inventory list.
Consider owner financing. Especially if your price includes money for blue sky assets, you may need to be willing to be paid over a number of years. This may also help on capital gains taxes. Check with your accountant and lawyer before you structure the deal to make it beneficial for both parties.
Focus your sales pitch on people that know your business. Key suppliers, large customers and employees might be your best prospects to buy your business.
This post was originally featured at missouribusiness.net.
Looking for more guidance on how to sell or buy a business?
The Kansas Small Business Development Center has just what you’re looking for:
How to Buy or Sell a Business Conference
Thursday, July 27, 2017
7:30 a.m. — 2 p.m.
Johnson County Community College
Cost: $75 Early bird fee (register by May 31)
$99 Regular fee
Who should attend this conference?
Those who are looking to purchase or sell a business, as well as accountants, attorneys, business brokers, lenders, financial planners, CEOs and CFOs.
What will I learn?
Participants can attend the Buyers track or the Sellers track. Buyers will learn about the purchase process, including finding a business and performing due diligence, financing and negotiating the terms of purchase. Sellers will learn how to prepare their business for sale and be guided through an overview of business valuation. The conference includes a lunch panel of experienced industry professionals and Exhibit Space, featuring professionals in merger & acquisition, lending, law, human resources, etc.
Jul 27 will be here before you know it, so register now for the How to Buy or Sell a Business Conference.
Looking for more events to help your business move forward?
Check out our comprehensive business calendar (updated very regularly) to see what organizations across Kansas City are doing to support entrepreneurs.