If you are a business owner in Warrenton Missouri, there will come a day when you look at “how to sell my business” as the main question you ask yourself and perhaps the first thing to type in the search box in Google or your favorite search engine. When you type in “how to sell my business in Warrenton ” I am sure you will find all kinds of information on just that. I have compiled 7 of the things most business owners don’t know about or don’t think about before that day (or the day of) that would certainly make the day you do sell your business a more profitable one. Most companies who visit with us are looking to find out what their business is worth first. Most business owners have no idea what their company is worth. Wouldn’t you like to know about what it is worth before you hire a Warrenton business broker (we’re not brokers, by the way)?Before I go into all that let’s look at the 7 biggest mistake business owners make when they get to the point of asking “how to sell my business”1. They assume they “know” what their company is worth and make up a price – Look the first problem with this approach is that your business is usually “your baby”. If you have owned your business for a long time you know that you have spent more time with it than perhaps even your family, spouse and kids! It’s always there, even in the back of your mind………and sometimes it is hard to understand why someone can’t see your business worth the way you see it. That’s okay, but it is better to have a certified 3rd party give a certified opinion or appraisal of your business.Look at it this way, if you and I were going to go downtown and buy the Hilton Hotel, we would find a qualified appraiser to give us his professional opinion, wouldn’t we? We certainly wouldn’t take the owner’s word for it or even their accountant’s word for it. We would want an independent opinion and official analysis.But you say, hey my business isn’t worth that much to justify the cost. What? Even if your business is only worth $25,000, at least you would have an official 3rd party appraisal and a “floor” price you could start at. And with the discounts available when you go through someone like valuationbroker.com, you could literally add thousands if not tens of thousands to your sales price, and only pay a small percentage to have it done.I would not even consider selling any business without this step, no way, ever.You see, most business buyers are smart, like you, they have done a lot of right things to get where they are and unless they have recently inherited the money, they are sophisticated to a degree and will do their homework when looking for a company to purchase. The real advantage to having your company appraised first (by an independent 3rd party certified appraiser) is that you are the one driving the appraisal, not the buyer.2. They ask their accountant what their company is worth and use that number – You accountant is probably a very smart individual, however when coming to valuing a business or having one in on the sales process, I have one rule. I make sure they have been in on at least 10 business sales in the past 12 months, no exceptions. I have seen more deals killed by well meaning accountants. Don’t make this mistake.I don’t care what your accountant thinks your business is worth. I don’t care what MY accountant thinks your business is worth. I want to know what the market tells me.
So that’s why I want an independent look from a qualified third party to tell me the current “market value”. I have seen hundreds of business owners make this mistake and it can (and has) literally meant the difference of getting only half of what they could have! Half!What’s also most interesting about accountants is that they tend to favor using the book value of your business as a starting point and not the market value. Big big mistake. You’ll leave a ton on the table this way. Don’t do it!3. They take the number off their balance sheet and say that’s what their company is worth – You balance sheet tells you the hard value of the assets you have, that’s it! It doesn’t take into consideration what the value of your assets are that have already been depreciated or your blue sky value, or good name, or customer base……….all things that can add tremendously to the bottom line value of your business!4. They read a few articles in INC magazine and guess a number (even saying something like “companies in my industry are selling for 3 Times earnings”) They may even refer to their latest tax return for a number – Don’t be fooled by this! There are so many variables even with similar businesses in the same industry. The true value of your Missouri business is NOT the same as the guy down the street, even if you do the same thing! The true value of your Warrenton business is NOT like real estate, where you can compare with the property down the street.That is like saying the space shuttle is like a bicycle. True they are both forms of transportation, but one is a bit more complicated than the other. Again, have it appraised by a “market appraiser”. Best money you will EVER spend. Ask ANYONE who has EVER sold a business! 5. They trust a FREE tool on the internet to give them the value of their business – While these free tools are valuable to help obtain a “range of value” (we have one too), they are not the complete answer and you can’t use them to justify your asking price. If you have a properly done market appraisal, it will include a “justification of purchase price” section that says, “this is what your business is worth in this market, and here is why it is worth that”That is such an important step. Buyers are smart and want to know how you came to the price you did. Now you know what to do so you can stand behind your price.
Plus you will know just what the market is doing. It isn’t the accountant or the balance sheet or your uncle attorney that dictates the price, it’s the market! So knowing this, it is important to know just what the market price is. I have seen market prices be twice what the accountant says the business is worth!6. They haven’t made their business run without them – This is a no-brainer, yet many business owners don’t think of it. Your business will be worth a lot more if it can run without you there. Otherwise whoever buys it will be buying a “job”. Nothing wrong with that, but realize, those businesses just are not worth as much when you go to sell them.7. They hire the wrong attorney to help them with the final paperwork (the wrong attorney could be their best friend) – This is just like the accountant, unless the attorney you use has closed 10 or more deals within the past 12 months, don’t use them! So many well meaning attorneys have killed countless deals, UNNECESSARILY!I wish you well and hope you take these things to heart (and action). I have seen so many sellers walk away with a lot less than they could have, had they JUST used these few tips!Good Luck, I wish you continued success! (don’t forget to get a certified third party, independent report for your business BEFORE you list it to sell) You’ll be glad you did! Buying a business? Use the same concepts! Cheers!
The Best Warrenton Missouri Business BrokersHow to Structure a Deal for Selling Your BusinessThere are so many ways you can go about selling your business and it's another source of cash to fund your retirement. You can sell it outright to a buyer or you can merge with another firm. In either case, finding the right buyer is key.Why? Because if you sell your company to a buyer that doesn't share your values, your clients/customers will leave. And if you care about what happens to your clients after you're gone, then selling to a buyer who shares your values is really important.One great way to assure a smooth transition is to bring in a partner before you plan on selling your business. Another option is to make a key employee a partner by giving him/her equity. You could also work with a business broker. Or, you could spread the word through your contacts such as your attorney, CPA and any other trusted advisor who might know a buyer worthy of your business.Most business values are determined by the business results over the last 3 years. Before selling your business, there are some key things that will determine its value.Transition risk of client base: The easier you are able to transition your clients to the buyer, the more your business is worth. For example, say you do business with your clients on a face to face basis but you find out your potential buyer solely does business over the phone. Obviously this is not a good match. Your cash flow: Your revenue stream needs to be as predictable as possible. You also want to make sure that you do not have only a few clients who make up a big portion of your revenue. Also, the age range of your client base needs to be as diverse as possible. This creates a more long lasting revenue stream. Here is a possible math scenario for selling your business:Let's assume your last 12 months of sales are $250,000 and you are selling your business to a junior person at your company.Let's say the sales price is $500,000. You could ask for 20% down or $100,000. You could then issue a promissory note for $175,000. You are basically lending the buyer the $175k and he is making monthly payments, say at a rate of 6%, for a period of 4 years. So you now know exactly how much money you will get paid every month.A third and final phase of the deal is called an earnout. The buyer pays the seller a percentage of the future revenue for an agreed upon period of time. In this case, the buyer has paid $275,000 and is still on the hook for another $225,000.The buyer can pay the seller 10% of the seller's revenues after each year. This motivates the seller to successfully transition the clients to the new buyer. The use of this earnout may increase or decrease the final purchase price.The tax treatment in all of these types of sales varies. Many of these sales can allow the seller to use long term capital gains tax rates and not ordinary income tax rates on the sale. (Please consult your tax professional for more information.)Bear in mind that this is only one way that you could structure a deal for selling your business. There many, many other ways you can structure the transition to achieve the outcome you want.But here's the bottom line. Make your business a lucrative one that's attractive to potential buyers. Develop a plan to monetize the value of it. Your customers will continue to get taken care of and you could be handsomely rewarded.I see so many entrepreneurs close up shop and leave huge money on the table. If you have any questions about selling your business, please feel free to give me a call.