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10 Tips from an Experienced Business Broker for Selling Your Business

Katrina Loftin, CBI, M&AMI, Co-Founder M&A Business Advisors, marks 30 years as a Business Broker and M&A Intermediary. Katrina shares advice for Business Owners preparing to sell their business.

Business brokers and intermediaries have vast experience, with an inside look at hundreds of different privately held businesses ranging in value from less than a million to $50 Million. Navigating transactions through the best of times and the worst of times, experienced business brokers know that some transactions come together, and some don’t. Here are 10 tips all Small Business Owners need to know.

10 Tips for Small Business Owners Preparing to Sell

1. Be Ready. Most people never plan for illnesses or retirement. There is one thing that is certain: all businesses will either change hands or close. Have management and a plan in place if something happens to you.
2. Get your books in order. Up-to-date financials are crucial. The importance of staying on top of profits is essential. Make sure your CPA understands your plans to exit and the need to maximize profits and minimize unnecessary and personal expenses, even if you have to pay some tax. You can often see a 2-5x return by cleaning up your books. For example, if you are running $1,000 a month in personal, unnecessary expenses through your business that lenders won’t allow you to add back to cash flow, you are costing yourself anywhere from $12,000-$60,000 in business value.
3. Clean up inventory and sell outdated assets. Get rid of obsolete or excess inventory, most buyers won’t pay for it and stale inventory may negatively impact the sale of your business. Sell or dispose of unused, outdated or broken equipment. Everything should be in working order.
4. Review your contracts. If your company has contracts with your customers or suppliers, make sure they are current, in writing, and, most importantly, transferable. This will prevent loss of value for the business. For example, a longtime (over 50 years) business owner of a distributorship had contracts that expired and were not renewed by the manufacturer. That business lost nearly all of its value and the owner ended up liquidating.
5. Diversify. It may seem great to have some large customers, but customer concentration will actually negatively affect the value of your business. Try not to have any one customer account for over 15% of sales.
6. Hire the right broker. When it comes time to sell, make sure you have the right advisors on board. More often than not, a well-trained broker will pay for itself. Interview brokers that are the right fit for the size of your company. Make sure you are talking to a broker who is properly licensed and active in your local market. This makes a big difference. Most brokers have access to buyers worldwide. Start looking for a broker at least a year in advance and ask them to give you their thoughts on the value of your business.
7. Hire the right attorney. Make sure you have a transaction attorney experienced in business sales. This may not be your current attorney. Inexperience in this area will end up costing you more and mistakes at this stage can be very costly.
8. Hire a CPA that is the best at tax matters relating to a sale and Purchase Price Allocation – this alone can save you a substantial amount of money on taxes. This may not be your current CPA. Most experienced Business Intermediaries and transaction attorneys can refer you to a good CPA as you assemble your team of expert advisors.
9. Know the Value. The best person to determine the current market value of your business is a Business Broker or M&A Intermediary that is active in your market and with your type of business. Many brokers will give you their opinion on value at no charge. A qualified Business Appraiser can also do this for you. There are so many factors to consider that can greatly affect the value, both positive and negative. It’s best to address issues that affect value early on.
10. Know when to leave. Deciding when to sell your business is complex, with many factors to consider. It’s best to leave on a high note when there is still upside for a buyer, and you are seeing steady annual increases in income and profit. Sometimes very good offers get turned down only to have the business fail during the recession. Many businesses may only get one offer. Consider all offers thoroughly and carefully. Business sales are nothing like home sales, very few buyers will overpay for a business.

The bottom line is selling your business is one of the most important and complicated things you will ever do. Having the right professionals to guide you through the process of getting your business ready to sell is essential.

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