One of the most important tasks is determining the value of your business. This process is both a science and an art. Naturally, as your life's work, you will have an emotional attachment to your business, which affects your perception of its value. Unfortunately, more often than not, this is unlikely to match the actual market value. This is often a jolt to your system, so be prepared for a possible shock. If it is an asset sale, you should determine what assets you wish to sell and those you wish to keep.

The sales price is critical to achieving a good return on your investment. Marketing the sale of the business correctly to provide maximum exposure is extremely important. This enables the business to be sold for the highest value. Sales formulas are comprised based on a Multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Determining the EBITDA is the start in measuring a company's potential value in a sale.

Recent sales of comparable businesses (or "comps") comprise this multiple of EBITDA. This starts by identifying similar businesses that have sold in the area. Small businesses typically trade for between 1x to 4x EBITDA. The difference in the multiple is generally the result of a variety of characteristics specific to your business industry, type and qualities.

What justifies a higher or lower Sales Price?

The Challenges in Selling A Business

Before you try to sell your business, make sure you know what buyers want. When finding a "GOOD DEAL," buyers identify a business that is important to them. A business may be seen as worthless by one buyer, yet be worth millions to another. The difference is the fit and opportunities recognized by the buyer. The person who perceives the value of the opportunity pays the best price.

If you decide that selling your business is the right strategy for you, be sure that you cover all your bases. In order to sell your business officially, you will need to prepare a sales agreement. This is the key document in buying the business assets or stock of a company. It is important to make sure the agreement is accurate and contains all the terms of the purchase. It is in this agreement that you should define everything that you intend to purchase of the business, including assets, customer lists, intellectual property and goodwill.

Some points to consider: Confidentiality - how do you minimize the possibility of employees, vendors, and competitors, finding out that your business is for sale? An experienced and competent broker operates on a "need to know" basis by first evaluating prospective buyers and only then having them sign a confidentiality agreement.

Prepare Your Business for Sale: during this stage of the sale process, we will take a close look at your business operations, the appearance of your business, and the condition of your financial books to determine what changes are important to make before the business is listed for sale. For example, if you own a wholesale business, we may recommend that you establish clear procedures and train key employees on those procedures before you list the business for sale. Likewise, if you own a retail store, we may suggest a fresh coat of paint, new signs or other cosmetic changes to increase the value of your business. Regardless of the type of business you operate, we will help make sure that your books are well organized and complete so that potential buyers will be confident in their purchase.

Because buyers these days tend to be better educated, it is essential that even if the business facility is not as clean and tidy as it should be, an owner who wishes to sell their business should pay extra special attention to presenting the financial picture of the business. Accuracy and transparency is essential if the owner wishes to avoid any possible suspicion on the part of the buyer, since poorly presented financials will be red flags every time. In fact, not only financials should be well documented, but also, every aspect of the business should be committed to paper to tangibilize or describe the intangibles of the business. This is especially true for a service business that has little in the way of assets, as in reality all that is being sold is the goodwill and customer list.

Once you have decided to sell, the first thing you have to do is to gather information about the business.

Here is a checklist of the items you should get together:

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1. When selling a business, the sale is done in secret. Confidentiality is imperative to avoid disruptions with creditors, customers, suppliers and employees.

When selling property, the sale is done in the open market. Maximum exposure is essential.

2. For a sale to occur, the seller and buyer have to come to an agreement.

"People want to do business with someone they like. If people like you, they're going to want to do business with you. And if they don't, you're going to have an almost insurmountable obstacle to overcome."
  -  Barbara Corcoran, Entrepreneur

3. Opportunities in business and in real estate are all based upon probability and timing.

Increase your chances of making a great deal!

SELLING: Increase the number of viewers by marketing in avenues that generate the most circulation. More viewers give you more chances of finding a good buyer for your business.

BUYING: Increase the number of business buying opportunities and write and submit offers on opportunities you are interested in. The more businesses you see and the more offers that we write, the better the chance you have of finding a excellent opportunity.

TIMING: Is it the right time now? If you spend too much time thinking about this, the opportunity may pass.

The magic question, “When is it the right time?”

If you do not try now, you may regret it later.

"The graveyard is the richest place on earth, because it is here that you will find all the hopes and dreams that were never fulfilled, the books that were never written, the songs that were never sung, the inventions that were never shared, the cures that were never discovered, all because someone was too afraid to take that first step, keep with the problem, or determined to carry out their dream."
    - Less Brown

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There are many deals available but a GOOD deal may not reveal itself unless you are paying close enough attention.

A GOOD deal may require countless hours of research and/or preparation.

If you see an opportunity, go NOW, get information NOW, write a contract NOW.

Later may be too late.

"Good deals are here now but they do not last forever"

Look at a business through the eyes of a BUYER:

You can't value a company simply by looking at its sales.

Yes, every industry has a rule of thumb for valuations and usually it's expressed as a multiple of sales, but that's a matter of habit and convenience.

Two things that MOST buyers are interested in is:

1. Free cash flow: Free cash flow is a function of profit, not sales. Earnings before interest, taxes, depreciation, and amortization, or known as "EBITDA".

2. Potential: What is also purchased is the potential to make money in the future.
    Are the sales increasing?
    Can the sales increase and how will this happen? (How soon & what will it take to make it happen?)

What can a buyer review in assessing the price he or she is willing to pay?

The seller should have answers available for most of the pertinent items on the following checklist. The more favorable each item is, the higher the price.

• Stability of Market
• Stability of Historical Earnings
• Cost Savings Post-Purchase
• Minimal Capital Expenditures Required
• Minimal Competitive Threats
• Minimal Alternative Technologies
• Reasonable Market
• Large Market Potential
• Reasonable Existing Market Position
• Solid Distribution Network
• Buyer/Seller Synergy
• Owner or Top Management Willing to Remain
• Product Diversity
• Broad Customer Base
• Non-dependency on Few Suppliers

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