Preparing your business for sale

It will likely be the biggest financial deal you’ll ever make, so it’s vitally important to be sure you are properly prepared when selling your business. Taking the proper steps to get your business ready for sale can significantly improve the likelihood of a successful sale.
For many business owners, the prospect of selling the business after years of pouring every effort into growing the company can be emotional and difficult. That’s a major reason why it pays to structure a plan to prepare for the sale. Remember, it’s crucial to use the same care and patience that is used to grow and sustain a business. What important steps are needed to prepare your company for sale?

• Determine the company’s actual worth. There are a lot of formulas for valuing a business. Buyers may base a purchase offer at least in part on the value of the assets in a business, the cash flow, gross revenues, annual growth and other factors. The sale price generally depends on profits and, in most cases, the sale price is some multiple of the businesses profit. Valuations can be obtained from a number of sources including a certified business intermediary.

• Be sure your records are up to date. You want all of your hard work to pay off in the sale, so be sure you have current, detailed records that provide an audited assessment of the company’s financial position and future projections.

• Remember your staff is an important asset. The loss of key employees during a sale can kill the deal. Key employees may be crucial to the ongoing success of the company. Assess which employees are prepared to stay with the company through the transition.

• Assemble a team of experts. No matter how independent you are, the sale of a business isn’t something to handle on your own. A business intermediary will take some of the load off your shoulders so you can spend time running the business when it’s needed most. Keep in mind that the sales performance of the company during the time it’s on the market is crucial, so working with a qualified business intermediary to sell your business will allow you to focus on the ongoing
operation of the company. Business intermediaries know the ins and outs
of Mergers & Acquisitions and take pride in what they do.

Always remember that selling a business is a one time event. Preparation is a key to a successful sale. Be sure you understand the process involved.

The International Business Brokers Association is the largest international, non-profit
association operating exclusively for the benefit of people and firms engaged in the
various aspects of a business brokerage and mergers and acquisitions. IBBA has1,950
members worldwide, with corporate headquarters in Chicago, Illinois.
©2007 International Business Brokers Association (IBBA) all rights reserved

The Sunbelt Process:

When the Owner is Ready to Sell the Business…
Business owners contact Sunbelt Victoria all the time to review the important factors in deciding whether to sell the business – and when.
Our brokers are practiced at consulting with owners to help them get ready to take the big step: selling the business and moving onward to the next phase of their life and personal objectives.
The Sunbelt Broker will also help the owner to understand how the buyer side of the market works, and what attributes of the business will be of most importance to buyers.
When the owner(s) are ready to take concrete steps toward selling the business…

The Engagement Agreement:
The owners formally engage Sunbelt to assist in getting the business ready for the market by signing our standard form of “Engagement Agreement”.

This agreement works in 2 stages. Stage One is researching and preparing an assessment of Most Probable Selling Price (or MPSP) for the business. Stage Two is actually marketing the business once the asking price and major terms are agreed upon by Sunbelt and the owner(s).

The Most Probable Selling Price Report (MPSP):
As most sellers’ financial statements are prepared with a view to minimizing tax liability, they may not express the true earnings of the business available to an owner and would not be effective in supporting an appropriate asking price. The Sunbelt broker will work with the owner(s) to “recast” or “normalize” the financial information, to arrive at a reasonable and critical assessment of the likely selling price.

The final opinion of value is based on various valuation methodologies, specific knowledge of the business, current market conditions and risks, and to some extent future growth potential and opportunities. The recasting of financials and determination of the MPSP can take several weeks to complete, depending on the complexity of the business and the availability of good financial statements and other information.

Here is the information the Sunbelt broker will typically need to prepare the MPSP Report:

• 3 Years (5 years is preferred) accountant prepared financial statements including balance sheets.
• Year-to-date interim financial statements, either management prepared or accountant prepared.
• Copies of the lease for business premises, and any other leases or contracts for equipment, vehicles, etc.
• A list of furniture, fixtures and equipment (“FFE”) and its estimated current market value.
• Average level of business inventory and any seasonal fluctuations.

It is not uncommon for owners to hold optimistic - sometimes unrealistic - expectations regarding the value of their business. It is important to realize that buyers in the market will ultimately determine the actual selling price, which may or may not bear a close relationship with the owners subjective opinion of value.

In considering the asking price, sellers are encouraged to “think like a buyer”. Buyers are attentive to the “affordability” of businesses on the market. Affordability is determined by the amount of cash the buyer is investing and the earnings level of the business. Buyers will only look closely at a business that generates sufficient earnings and is “affordably” priced based on the cash and financing the buyer anticipates investing.


Stage Two: Marketing the Business For Sale

Please bear in mind: All information received by Sunbelt about a business is held in strict confidence, and detailed information including financial information will ONLY be released to potential buyers who sign and deliver the Sunbelt Non-Disclosure & Confidentiality Agreement, and who indicate they have the means to purchase the business.

The Broker and Sunbelt staff will prepare summary and detailed profiles and other marketing materials to package the business for sale. One such document is known as the “Confidential Business Profile” (CBP). This is a multi-page document with detailed information about the business, the industry, market trends and conditions and so on. The CBP contains everything a potential buyer may find relevant in order to understand the opportunity and take action where the business is of interest to them.

In order to complete this stage of the process and effectively market the business for sale, the Broker may ask for more information and continuous updates. We will compile and organize information about the business that will be of assistance during later stages in a transaction. One such stage that is very important is known as “due diligence”.

Due Diligence – What to Expect
During the period of time the business is on the market, it is important that the Seller cooperate with the Broker to prepare and maintain certain records and information that will be required during the “Due Diligence” phase of any potential sale.

Due Diligence refers to the inspection and verification of information, documents and records that a potential Buyer will undertake who has made an offer to purchase that has been accepted. The Broker will explain this and work with the owner(s) to identify and collect the documents and information that will be part of this process.

Our Commitment – and Yours!
Sunbelt is committed to doing a really good job helping owners achieve their objectives through a timely and best-value sale of a business, and invests a lot of time and resources into bringing this about. By entering into an Engagement Agreement with Sunbelt, a business owner ALSO makes a significant legal, financial and personal commitment. Sunbelt recognizes and acknowledges this commitment, is grateful for the opportunity to work with owners in this process, and looks forward to getting started!

  Sunbelt Business Brokers (Victoria) Inc.
“The place to go to buy or sell a business!”

www.sunbeltvictoria.com