How to Buy or Sell a Business Privately
These day 9 out of 10 business owners will try to sell their businesses privately before committing to a broker.
Business owners now have the tools at their finger tips which allow them to reach a bigger audience than a broker could when it comes to promoting their business for sale.
Faster results with bigger savings and who better to sell a business than the owner.
Taking the right approach
Research reveals that about 70% of internet searches by potential buyers of a business are now conducted on the internet, and the volume of available businesses is enormous!
However, regardless of the approach you take, you should be able to locate what you are looking for in about six months.
The trick in narrowing down the search is concentrating on the industry that is right for you, based on your personal preferences, your ability and your weaknesses.
Determine how much you can afford to invest in a business and be realistic in your search. Occasionally more than 90% of private businesses for sale include financing by the owner, which is approximately about 40% to 50% of the sale price.
Also, at some point during the buying process, you will be asked to prove your current financial situation. It should include your assets and liabilities, along with an outline of your net worth and verification of your credit rating.
Once you have decided to purchase a business, you will want to weigh the advantages and disadvantages before you sign on the dotted line. The process includes analyzing the business, evaluating it and negotiating to acquire it.
At a minimum, this includes analyzing the company’s audited balance sheets, profit-and-loss statements and income tax returns for the past three or more years. It should include reconciling the taxable income with the profits for every year, and you will also want to assess their resources such as stock, land, equipment and employees.
Consider the current status of the business, its potential for future growth, its competitors, and the method and expense of delivering products and services to your customers. Above all, base you decision on whether the business is part of a growth industry or one that is declining.
Also, as an important measure, you will want to have your accountant and lawyer assist you in these areas.
When evaluating, you should focus on the potential of the company, which will assist making cash-flow, sales and profit forecasts for at least the following year, before you go forward with the acquisition.
As a rule, a business isn’t sold for the asking price. Instead, negotiation between the buyer and seller is needed to determine the sale price (and the related terms) to ensure that the buyer and seller will feel they have been dealt with fairly.
Customer goodwill is a significant factor in buying businesses, and be sure that you are presented with financials to support the seller’s claim of their asking price.
Selling a Business
Be sure that your financial records are correct and updated, and be ready to provide pertinent information to your potential buyers. At the very least, they will want to witness your company’s audited balance sheets and profit-and-loss statements for the past three years. Providing your lease statements and tax returns will be a great help, along with current balance and payment schedule if you are paying off a business loan.
Once you have assembled the documents mentioned above, this will give you some idea of what your business is actually worth. In addition, you will probably want to visit with a financial analyst or your accountant to determine its fair market value.
If you want to sell your business sooner than later, make sure that the deposit you require is very affordable. You might also want to provide seller financing in this situation (as mentioned above) to facilitate the sale, and if you do, the buyer will agree to pay a specified amount over an agreed-upon time period.
While your business is on the market, try to grow your accounts with special promotions and discounts, and be ready to provide potential buyers with relevant documents related to your employees and suppliers. Avoid any significant interruption in your day to day business routines as well.
Resolve to treat the acquisition of your business as a confidential matter. If they find out about your plans, your customers and suppliers might conclude that you are in serious financial difficulty, which could reduce your sales volume. In addition, your employees may begin looking for another job and leave without waiting to see if the new owner is willing to hire them.
Develop a good report with all potential purchasers, but remember to screen each one as well to minimize issues and complications. It’s not uncommon for a competitor to pretend to be a potential buyer just to gain confidential information related to your business. To avoid this, ask your attorney to create a confidentiality agreement that you can use with interested parties who inquire about the sale.
Don’t forget that selling a business privately can save you quite a large amount in agent fees, it’s not that difficult to do, and buyers usually prefer this method.
To reach your goal, list your business on small business for sale websites such as http://www.bizlistings.com.au and in your local newspapers.
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