Preparing Your Business for Sale: A Comprehensive Guide

Selling your business is a significant and often life-changing event. Whether you’re looking to retire, move into a new venture, or simply cash in on your hard work, preparing your business for sale requires strategic planning and execution. This article will guide you through the essential steps to preparing your business for sale, including how to attract the right buyers, understanding the role of brokers, and potentially using online platforms like BizBuySell.com and Empire Flippers to facilitate the sale.

Step 1: Know Why You’re Selling

Before preparing your business for sale, it’s critical to understand why you’re selling. Your motivations will influence how you position the business and negotiate the sale. For example, if you’re retiring, you may be more inclined to sell the entire business for an upfront payment. On the other hand, if you’re seeking to pursue other ventures but still want involvement in the business, you might prefer an earn-out arrangement, allowing for phased payments based on the company’s future performance.

Understanding your objectives will also help you better communicate with potential buyers. If buyers understand your motivations, they can structure offers that align with your goals. This is especially important for entrepreneurs who might be selling businesses built around their personal brands.

Step 2: Get Your Financials in Order

Potential buyers will scrutinize your business’s financial health, so it’s vital to have accurate and up-to-date records. Organize your tax returns, profit and loss statements, balance sheets, and any other relevant documents. This process might also involve hiring an accountant (one who specializes in business sales) to ensure everything is in order.

Business buyers often use two key financial metrics to evaluate companies: Seller’s Discretionary Earnings (SDE) for smaller businesses and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) for larger businesses. Having your financial records prepared according to these standards helps buyers determine your business’s true value and makes the negotiation process smoother.

Step 3: Reduce Owner Dependence

This step is geared for businesses with multiple employees. If you are a solopreneur, then this step doesn’t apply since you ARE your business, and your business is YOU.

If your business relies heavily on your personal involvement, it can be challenging to sell. Buyers want assurance that the business can operate successfully without you at the helm. Start delegating key responsibilities to your management team and document your processes. Creating an operations manual is essential, as it provides new owners with the guidance they need to maintain operations smoothly after you leave.

This is particularly important if your business is tied to your personal brand. Gradually phase yourself out of customer-facing roles and ensure that your team members are capable of managing the business independently. This not only enhances the business’s value but also makes it more attractive to potential buyers.

Step 4: Value Your Business Accurately

Determining the right price for your business is one of the most important steps in preparing your business for sale. An accurate valuation can help you avoid undervaluing your business or scaring off potential buyers with an inflated asking price. Factors such as your industry, revenue streams, and the business’s growth potential will influence its value.

Consider hiring a business valuation expert or working with a broker who specializes in your industry to help you assess the market value of your company. Brokers often have access to databases of previous business sales, which can help them determine what similar companies sold for. This information will guide you in setting a realistic price for your business.

Step 5: Create a Marketing Strategy to Attract Buyers

To sell your business successfully, you need to attract the right buyers. There are several ways to market your business for sale:

1. 1. Use a Business Broker: Brokers have industry knowledge and networks that can connect you with qualified buyers. They can handle the marketing, negotiations, and even help with due diligence.
   2. Online Marketplaces: Platforms like BizBuySell.com and Empire Flippers are valuable tools for marketing your business. These websites attract buyers specifically looking for businesses to purchase, and listing your business on multiple platforms increases your chances of finding the right buyer.
   3. Direct Outreach: Depending on your industry, reaching out to competitors or companies in adjacent sectors can lead to strategic buyers. Strategic buyers often see the greatest value in acquiring businesses that complement or expand their current operations.

Advantages and Disadvantages of Using a Business Broker

Advantages:

1. 1. Industry Expertise: A business broker brings deep knowledge of the selling process, including how to price your business, negotiate deals, and manage paperwork. Their experience can help you avoid common pitfalls.
   2. Network Access: Brokers have a network of potential buyers that you may not be able to reach on your own. This network often includes qualified buyers who have the financial means and experience to close the deal.
   3. Maximizing Value: A broker’s goal is to secure the highest price for your business. Their expertise in structuring deals can lead to a more favorable outcome than if you were to sell the business on your own.

Disadvantages:

1. 1. Commission Fees: Brokers typically charge a commission, often 10-15% of the sale price for businesses under $1 million. For small businesses, this fee can significantly reduce the proceeds from the sale.
   2. Loss of Control: Some business owners feel a loss of control when working with brokers, as brokers may negotiate deals or communicate with buyers on your behalf.
   3. Potentially Longer Sales Process: Brokers may take time to find the right buyer and negotiate the best deal, extending the length of the sale process.

Using Online Marketplaces: BizBuySell.com and Empire Flippers

BizBuySell.com

BizBuySell.com is one of the most well-known online marketplaces for buying and selling businesses. It provides a platform where business owners can list their companies, complete with financial details, asking price, and other relevant information.

Advantages:

1. 1. 1. Wide Reach: BizBuySell.com attracts thousands of potential buyers, giving you access to a large pool of individuals actively looking to purchase businesses.
      2. Cost-Effective: Listing a business on BizBuySell.com is often more affordable than using a broker. You’ll only pay a listing fee and avoid the commission costs that brokers charge.
      3. Seller Control: Selling through BizBuySell.com allows you to have direct control over the process. You manage the listing, field inquiries, and negotiate terms yourself.

Disadvantages:

1. 1. 1. Limited Guidance: Unlike working with a broker, BizBuySell.com does not provide the same level of expertise or guidance through the selling process. You’ll need to handle everything from marketing to negotiations.
      2. Lower Offers: Buyers on online marketplaces are often looking for bargains, and without expert guidance, you may receive lower offers than your business is worth.

Empire Flippers

Empire Flippers is a specialized online marketplace primarily focused on the sale of online businesses, including e-commerce, SaaS, and content-based businesses.

Founded in 2011, Empire Flippers started as a platform to help online business owners sell their companies. The founders, Justin Cooke and Joe Magnotti, initially launched the platform after realizing the need for a trusted marketplace for online businesses. Over the years, Empire Flippers has become one of the leading platforms for selling digital assets, offering a transparent and thorough vetting process to ensure high-quality listings.

Empire Flippers serves both buyers and sellers by offering due diligence, negotiation assistance, and post-sale support. The platform provides a smooth experience for those selling digital businesses, particularly for entrepreneurs looking to sell companies built around e-commerce, affiliate marketing, or SaaS models.

Advantages:

1. 1. 1. Targeted Audience: Empire Flippers specializes in online businesses, meaning that the buyers on this platform are specifically looking for digital assets. This increases the likelihood of finding a buyer who understands the value of your online business.
      2. Vetting Process: Empire Flippers vets both buyers and sellers, reducing the risk of fraudulent transactions. This ensures that you’re dealing with serious and qualified buyers.

Disadvantages:

1. 1. 1. Higher Costs: While Empire Flippers offers a more specialized service, their fees can be higher than other platforms like BizBuySell.com. You may need to pay for additional services such as due diligence reports.
      2. Niche Focus: Empire Flippers is best suited for online businesses. If you’re selling a brick-and-mortar business, this platform may not be the best fit.

Preparing your business for sale is a complex process that requires careful planning and attention to detail. By organizing your financial records, reducing owner dependence, valuing your business accurately, and attracting the right buyers, you can set yourself up for a successful sale.

Sidenote: We have members at The Works who’ve bought and or sold businesses recently and can speak to their experience. These transactions happen right here in Gilbert……..all the time.

Seller Notes – and they can work for for both sides

Financing the purchase of a small business can involve creative deal structuring and different sources of capital. With different arrangements of financing available, it becomes important for the acquirer to come up with a capital structure that offers the lowest cost of capital. One such financing alternative is seller financing or seller notes.

What is a Seller Note?

Seller note is a type of debt financing usually used while acquiring smaller businesses. A Seller Note is a provision where the seller of the business pays some portion of the purchase price in the form of a promissory note. Buyer presents the seller with a written note including details like the interest rate charged, the debt amount, principal repayment schedule and other terms of arrangement like converting debt to equity in case the buyer defaults while honoring the commitment.

An example of using a Seller Note would be: 

• • • • Buyer and seller agree to a purchase price (in this example, we’ll use a round number like $500k) At closing, the buyer pays an agreed-on intimal “deposit”, say $350k. This leaves a balance of $150k.
      • Over the next 4 years (the buyer makes monthly payments to the seller in the form of principal and interest. There will be an amortization schedule showing how much of each monthly payment is applied to principal and interest.
      • To get more granular in this description, let’s say the interest rate is 6%. Financing (thru the seller) the remaining balance of $150k, for 48 months at 6% APR, the monthly payments would work out to $3,522.75/month)

How a Seller Note creates a Win-Win Situation

Seller Note, if utilized well, can be a win-win situation for both buyers and sellers. A seller note gives confidence to the buyers in term of seller’s belief in the future of the business. It also offers buyers the flexibility with the loan structure and interest rates.

Not only to the buyers, but seller notes also offer a form of guarantee to the banks involved in financing the transaction. They make loans safer for banks considering such lending adds up to the low priority loans on their books. In turn, banks may offer lower interest rates.

On the other hand, seller notes can help sellers get better valuation for the business considering the seller confidence in the firm’s vision and capabilities. It also speeds up acquisition. Sellers additionally benefit from tax advantage and interest income.

Securing Seller Notes

Seller notes are riskier than bank loans or business line of credit and may carry higher interest rates comparatively. However, sellers can secure the debt in times when the business is not able to generate enough cash to repay the debt or in times of high uncertainty. Seller notes can be secured using collaterals like company assets, personal guarantee and may also include arrangements like imposing limitations on running the business and increasing interest rates.

A transition period ties loosely to the seller note

Often, when a small business is sold, there exists a good faith transition plan. As a way of alleviating the stress that the buyer may feel when they’ve been handed the “Keys to the Castle”, the former owner may (and probably should in most cases) offer to work and train the new owner and/or employees the ins and outs of the business for a certain period of time.

Few things can bring on Buyer’s Remorse more than a series of issues like “The seller never gave us the key to that storage room and we cant in now (and the seller is on a cruise for the next week, otherwise unavailable 🙁)”, or  “nobody told us how to run this CRM system”, or “the IRS is sending us letters about something that happened 2 years ago and I don’t know how to respond!”

This is why an agreed upon transition period can do wonders.  In addition to the financial terms of the deal, the sellers and/or employees of the former owner will work (in a training capacity) to help the new ownership group understand the day to day operations.  Meeting and greeting the long-time customers along with with the new owners.  And that’s how you avoid alienating the customers who’ve been with the business for a while – proper introductions.

Casual conversations such as “Had we not sold the business, we were going to convert that room over there to open seating to allow customers to use as a sort of lounge area” or “We had considered changing our cleaning company. Now that you’re the new owner, perhaps now would be a good time to interview cleaning companies”.  There is value in these conversations betyween the seller and new owner.

 

Can the American Dream be achieved by building and selling a thriving business?

The American Dream has long symbolized the belief that anyone, regardless of their background, can achieve success and upward mobility through hard work, determination, entrepreneurship, and let’s be honest – more than a few sleepless nights 😀. A significant part of this dream involves building and selling a business, which embodies the core values of independence, innovation, and financial security.

In the modern era, entrepreneurship has become a prominent pathway to achieving the American Dream, allowing individuals to take control of their future by creating something from scratch, nurturing it to success, and eventually capitalizing on its value through a sale. This process not only provides financial rewards but also represents the ultimate expression of individual achievement and contribution to the economy.

Building a business requires resilience, creativity, and the ability to identify opportunities in the market. Entrepreneurs invest their time, money, and passion into their ventures, overcoming challenges along the way. They create jobs, innovate new products or services, and often transform industries. For many, the goal is not just to maintain a lifestyle business but to grow it into a thriving enterprise that can be sold for a significant profit. Selling a business can be seen as the culmination of years of effort, risk-taking, and strategic decision-making. It provides the entrepreneur with the financial freedom to explore new ventures or retire comfortably, making the American Dream tangible.

The process of preparing your business for sale and ultimately selling a business contributes to the broader economy, fostering the cycle of innovation and growth. Many successful entrepreneurs, after selling their business, reinvest in other startups, mentor young business owners, or become investors. This cycle keeps the economy dynamic and continues to promote the entrepreneurial spirit that is integral to the American Dream. The ability to build a business and then sell it for profit highlights the potential for personal and financial growth in the U.S., where the business environment encourages entrepreneurship through access to capital, resources, and opportunities.

Ultimately, the American Dream of building and selling a business captures the essence of personal freedom and success in the U.S. It reflects the pursuit of goals through hard work and ingenuity, the financial independence it can bring, and the legacy that entrepreneurs leave behind (and doing all of this on YOUR terms). The journey of starting and growing a business, culminating in its sale, remains a powerful symbol of achieving the American Dream.