A Quick Business Sale
Some business owners may be faced with a situation where they are forced to sell their business as quickly as possible. Typically, family or health issues will be the cause of needing an unusually quick sale. Under these circumstances, a business seller should organize their company’s financials and company records in as transparent way as possible, communicate with their landlord to effectuate a smooth transfer of the lease, and – most importantly – price the business appropriately with the assistance of a professional business broker.
Organize Company’s Financials and Company Documents
Having an organized set of financials and company records is absolutely critical to a quick business sale. A buyer must have a sufficient level of information and data on the business in order to ultimately make the purchase decision. If a seller can not present this to the buyer, then the buyer will not make an offer in a timely fashion. The seller – through the assistance of the professional business broker – should have a professional listing package with a comprehensive checklist of all desired items that the buyer will need in order to effectuate a purchase decision. This will immediately put the ball in the buyer’s court, and the seller should (hopefully) expect an offer as a next step.
Transparency Is Key for A Quick Business Sale
- The financials and company records given to a buyer should be as transparent as possible.
- Most business sellers should have their last three years of tax returns (and profit and loss statements) available for the buyer’s review.
- Often, the tax returns or financial records may have unrecorded sales, payroll for the owner, non-cash expenses such as depreciation, or other hidden assets such as business expenses that are in reality personal expenses for the owner.
- The seller’s professional business broker should analyze the financials in such a way as to include these hidden assets as part of the profits of the business and calculate the adjusted owner benefit of the business.
- Importantly, this analysis should be explained to all potential buyers in a logical and transparent manner.
- Additionally, the business seller should have an equipment list of items included in the sale and have their lease available for inspection by all buyers.
- The sooner that these material items are available to review, the sooner that a buyer can make their purchase decision.
Communicate with Landlord to Effectuate Quick Business Sale
For most businesses (especially retail-related), the lease and location is of paramount importance. Without a transferable lease to a secured commercial premises, a business sale is virtually impossible. Normally, a business sale is kept confidential from the landlord of the premises. Only until after a qualified buyer makes an offer that is accepted by the seller (normally through a letter of intent) is the landlord made aware of the impending sale. In the case of a quick sale, however, the business seller should immediately communicate with their landlord and explain that they are being forced to sell their business.
Lease Transfer Process Takes Time
- Every landlord has their own processes and procedures for allowing a lease transfer to a buyer of a business.
- This process can take as long as 30 days or sometimes even longer.
- The landlord may perform background checks on the buyer, gather due diligence documents such as bank statements from the buyer, and have legal work performed in connection with the lease transfer.
- In the event of a quick sale where time is of the essence, the seller should know in advance what steps the landlord requires to effectuate a lease transfer.
- If there are anticipated problems with the lease transfer (such as the landlord not believing that the seller is current with the rent for example) then these problems should be addressed immediately so that a smooth lease transfer can occur.
- Moreover, the seller should be aware of what their security deposit is and how to get it released by the landlord.
- Lease transfer fees may also be imposed by the landlord, so long as such fees are allowable in the lease.
Price the Business to Sell Quickly
The most critical component of a quick business sale is pricing the business appropriately with the assistance of a professional business broker. Although the ultimate asking price is lower than usual when having to conduct a quick business sale, the process for determining the asking price is the same as when the business is priced to sell under ordinary circumstances. The process begins with establishing the adjusted owner benefit (or true economic profits derived by the owner), as well as determining the value of the physical assets of the business. A host of other factors (such as the longevity of the business, location, lease, and role the owner plays in the business) play a part in then determining the multiple of the owner benefit which then corresponds to the asking price.
Multiple of Owner Benefit Less for Quick Sales
For most businesses, a fair asking price is a multiple of 2-4x the current adjusted owner benefit. For quick business sales, this multiple will be compressed in order to more quickly attract buyers. It is first necessary to determine the fair multiple of owner benefit, and thus to perform the same evaluation process as if the seller was not being forced to conduct a quick sale. The resulting fair asking price (higher than the asking price for a quick sale) should be communicated and explained to all potential buyers so that they are aware of what a tremendous deal they are getting by purchasing the business.
Discount to Fair Asking Price for Quick Sales Varies with Seller’s Needs
The discount to the fair asking price varies with how quickly the seller needs to sell. If the seller only has 30 days or so because of a true emergency, then the discount will probably be about 50% of the fair asking price. If the seller has a few months, then the discount is around 25% of the fair asking price. Of course, the discount should sufficiently entice willing buyers to act as quickly as possible in order to effectuate a quick sale. On the other hand, the seller should still realize as much of a fair value for their business as possible.
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a FREE evaluation of your business.