Sell Your Business in 2022
The sale of one’s business can be an emotional yet financially rewarding journey. Many business owners spend years painstakingly building up the value of their business through sacrifice and hard work, and should expect to receive the best possible purchase price when it comes time to sell. For the business owner hoping to sell their business in 2022, they can take simple yet critical steps to improve their chances of finding a buyer at the right price. These steps include preparing and organizing their financials, making the owner’s role in the business more absentee, removing liens and lawsuits against the business, and hiring the right professional business broker so that the business owner can focus all of their time and energy on running their business without disruption.
Organize Financials to Improve Chances of Selling Your Business in 2022
- Financials are the key to selling any business.
- They tell potential buyers the gross sales of the business, and more importantly, the actual net profit or owner benefit of the business.
- The owner benefit is the best metric that buyers use when evaluating businesses for sale.
- It is simply the actual economic benefit that an owner can expect to derive from a business.
- Owner benefit includes personal expenses that the owner expenses through the business, unrecorded sales, salaries paid to family members above fair market value, and other non-cash or non-recurring expenses.
- In order to convince a buyer of the true owner benefit of a business, the seller must have organized financials that tells the true story of the business over a period of two to three years.
- Sometimes tax returns can tell this story, but many times the tax returns of the business do not show all the sales and true owner benefit.
- If that is the case, business sellers should organize and prepare profit and loss statements for potential buyers to review.
- The P&L statements should show actual sales and business expenses.
- If personal expenses or other ‘owner benefits’ are embedded within the P&L, then the business seller must create an itemized list of such personal expenses and ‘owner benefits’ that are expensed through the P&L.
- Without organized financials, it is extremely difficult to sell a business for the best possible purchase price.
- A professional business broker will compute the owner benefit of the business, but only can do so if the seller has organized financials.
Make Owner Absentee to Improve Chances of Selling Your Business in 2022
It may surprise some business sellers to learn that the more absentee their role in the business, the higher valuation the business will receive. This is simply because business buyers assign higher valuations to businesses that are less dependent on the role of the owner. Business buyers do not want to be faced with the possibility that their employees will quit or that their customers will go elsewhere if the previous owner (or seller) is no longer there. Many buyers will not feel comfortable or competent in replacing the seller by themselves, and will be forced to pay higher costs from replacing the seller’s role in the business with one or more employees.
Non-Compete Agreements More Important When Seller is Absentee
When the seller does have a major operational role in running the business, then the buyer is far more likely to demand the seller sign a lengthy non-compete agreement. The non-compete agreement prevents the seller from competing with the buyer after the sale within a certain geographic range over a certain period of time. Business buyers are more likely to fear future competition from business sellers who are more active in the business and industry. When the value of the business is mainly seller-dependent, then sellers can expect that their business valuation will go down and they will be required to sign intrusive non-compete agreements with the buyer. Thus, whatever steps that a business seller may take to de-emphasize their role and responsibility in the business will be very beneficial when it comes time to sell.
Remove Liens/Lawsuits to Improve Chances of Selling Your Business in 2022
As a part of a buyer’s formal due diligence efforts, they will inevitably run a Uniform Commercial Code (UCC) Lien search as well as an on-line search for any litigation involving the business. If the searches turn up liens against the business or lawsuits that the business may be involved in (even as a plaintiff), then the buyer will likely (at the minimum) demand that such liens or lawsuits be extinguished prior to proceeding with the deal. If the liens or lawsuits can not be extinguished on a timely basis, then the buyer is likely to move on to another deal or demand a much lower valuation. Business buyers want to see a clean track record of business activity without the risks and blemishes of liens or litigation. Ensuring there are no liens or litigation against the business is a great way for the business seller to improve their chances of selling their business.
Hire Business Broker to Improve Chances of Selling Your Business in 2022
- Hiring a professional business broker to sell a business is a critical step in improving the chances of selling a business.
- A professional business broker will ensure the business is confidentially advertised with maximum exposure, thus reaching the highest level of potential buyers.
- Further, the professional business broker will qualify all potential buyers, so that the seller’s valuable time and energy are only spent on qualified buyers who have signed a Non-Disclosure Agreement (NDA) and have the resources to actually buy the business.
- All communication with potential buyers goes through the broker, thus saving the seller an enormous amount of time and stress in answering the buyers’ questions, setting up meetings, and providing information to buyers that they deem necessary to make an offer.
- The efforts and time of the business seller must be focused on running their business without disruption throughout the sales process.
- If the performance of the business suffers during the sales process because the seller is distracted with the sale, then the business valuation itself will go down.
- It is therefore imperative that the seller remain focused at all times on running their business during the sales process.
The business sales climate in South Florida is very strong in 2022, and with the right guidance this can be the year you make your dreams come true by selling your business.
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a FREE evaluation of your business.