What is A ‘Business for Sale’ Advertisement?
Unlike typical advertisements for real estate on the MLS or other websites, advertisements for businesses are confidential and do not disclose the actual name or specific location of the business being advertised. They are commonly referred to as ‘blind ads’ because they are confidential advertisements that protect the seller’s identity. The content of a business sale advertisement displays relevant information such as its asking price, general description, annual gross sales, and annual owner benefit or Seller’s Discretionary Earnings (SDE). Importantly though, a ‘blind ad’ maintains the seller’s confidentiality. A well written and well placed business for sale advertisement avoids disruption to the seller’s business during the sales process while still helping the seller obtain the best possible purchase price. It also avoids jargon and sticks to facts rather than overblown hype.
Where are Business Listings Advertised?
Various websites contain businesses being advertised for sale in Florida. It is free to view such ads and one does not have to be a broker of any kind in order to do so. Potential buyers may narrow down their search to businesses for sale in Palm Beach County or in any other specific geographic region. For Palm Beach County, several hundred or so businesses are for sale with asking prices ranging from $25,000 up to $10M. Additionally, one may find businesses for sale being listed by individual business brokers on their own websites. The best way to begin a search for business listings is by logging in to a reputable website such as bizbuysell.com in order to view the available businesses for sale in a particular search area.
What Items Appear In Business for Sale Listing?
- The key items to appear in an online business for sale listing are its asking price, gross revenue, and owner benefit (or profits).
- The websites in which business for sale advertisements appear mandate that these items appear in the ad.
- If the revenue or cash flow items are blank, it means that the business is a start-up or an ‘asset sale’ with no advertised profits.
- The gross revenue refers to the total sales (not the profits) that the business made in the last twelve months.
- The net profits refers to the adjusted cash flow (or economic profits derived by a working owner) of the business in the last twelve months.
- A professional business broker ensures that the adjusted ‘owner benefit’ of the business is defined correctly in the ad.
- The owner benefit starts with the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and then adds back other adjusted benefits (such as owner’s salary or personal expenses of the owner used as business expenses).
- Where the advertised gross revenue and cash flow are round numbers (such as $500K of gross revenue and $100K of cash flow), it is probable that the advertised financials are the result of estimated guesswork by the seller or by the seller’s broker.
- This is fairly common and does not mean that the business is not worth purchasing, but a buyer should recognize that an accurate financial statement (such as tax returns or profit and loss statements) will probably not be available.
- In any event, a buyer should pay close attention to the advertised asking price, gross revenue, and owner benefit in order to initially determine if the business listing is worth pursuing.
Business Description
The business description is the main body of the advertisement where the broker describes the business and reveals as much pertinent information as possible (without disclosing the identity or specific location of the business) so that the reader clearly understands what is being sold. The description should describe what product or service the business offers, the competitive advantages of the business, how a buyer can improve and grow the business, and how involved the seller is in the business. If the advertisement is vague or unclear, then the prospective buyer may not proceed. A serious buyer will take the time to closely read the content of the business description.
Physical Assets Disclosed
A business sale advertisement also discloses the physical assets of the business including the inventory and ‘Fixed Furniture and Equipment’ (FF&E). These items should be disclosed as being included or not included in the asking price. Inventory refers to goods produced that is available for sale as well as the raw material used for the production of goods. For retail-related businesses, it is especially critical to accurately determine the inventory level and whether it is included in the asking price. The advertised equipment value should be its depreciated value. Often, the business description will identify and elaborate on the inventory or equipment and their condition.
Reason For Sale Disclosed
A business sale advertisement also discloses the reason why the seller is selling their business. For many buyers, it is crucial that the seller is selling the business for the right reasons. Buyers much prefer to buy a business where the seller is seeking retirement after a long and successful ownership period. Conversely, buyers tend to steer clear of businesses where the seller has no valid reason for selling. That may mean the business is not doing well. A professional business broker should give a coherent reason as to why the business is for sale. If the business is in a ‘turnaround’ situation necessitating new management, then some buyers may actually embrace such a situation and will appreciate the seller’s honesty.
Potential buyers of business may go online and view a wide array of quality businesses for sale. Knowing what to look for and where to look will greatly aid this process. After all, a journey of a thousand miles begins with a single step!
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a FREE evaluation of your business.