Advice

The five most important pieces of advice we can give prospective business sellers when they enter one of the most emotional and psychological rollercoaster rides of their lives – the selling of their business.

• Always be candid and honest when discussing your business with a buyer. Honest with everything including its weaknesses and failures, not just the successes. It will only strengthen your credibility in the eyes of the buyer, and a good buyer will accept a forthright explanation of a negative.
• Second, view the entire process of selling your business through the eyes of the buyer.
• Third, the business you are selling is the one you have today, not the one you had years ago.
• Fourth, you (by the way you act and speak to a prospective buyer, whether using an Intermediary or not) will be the best salesman and representative of your business, but remember you are representing your business – not yourself. Check your ego with your coat.
• Fifth, and last, but most important – Patience, Patience, Patience; with the prospective buyers, their advisors and attorneys, your employees, your family and most importantly your spouse and finally – yourself. This journey to sell your business, with its many emotional and psychological ups and downs, will be unlike anything you may have experienced before. Be ready, associate yourself with people you believe in and surprisingly, yes, this will all work out well.

Q. from Jennifer D.; Do I really have a business that is worth selling?

R. The business, while small, $500K in sales and a cash flow of $250K, is managed and not operated day to day on site. You have a solid client base in a very specialized field. Although the first half of this year’s financial results has not performed as well as the three previous year’s comparative periods, your history says that this is an anomaly.

Reach out and take all business that comes your way, even if temporarily discounting your service fees is required.  Your margins are very good compared to the industry so there is elasticity in your pricing. Continue working the business and driving top line and bottom line results aggressively as you go forward.

Cash flows will be adjusted or averaged by a prospective buyer when calculating an offering price, but given the specialization and training required to perform at your level, and the national need of other companies to seek growth through acquisition in this field, your business is very viable and desirable to buyers locally, regionally and nationally. This will sell and at a price you will be satisfied with.

Q. from John L.; if I remain with the business on a post transaction employment agreement how would my salary affect the final sales price?

R. Yes, it would affect it very much. A prospective buyer would typically subtract the amount of salary from the cash flow and use that adjusted number for the basis to apply a multiple. So if your cash flow were $500,000 and you remained with the new ownership on a three year $100,000 salary, that $100,000 would be subtracted from the $500,000 for a new adjusted cash flow of $400,000 and the multiple would be applied to that number. The result, depending on the multiple used would change the pricing accordingly.