Along with substantial changes in the economy since the home loan and banking crises of Fall 2008, considerable change has occurred in the market for small businesses. An owner who plans on selling a small business in today’s environment needs to know six principles that have become particularly important.
1. Be prepared to help finance: A seller’s objective to “cash out” at the close was often a realistic expectation when money was available from business lenders, and borrowers had home equity to use for collateral. But in today’s marketplace it’s usually necessary for a seller, wanting to collect a reasonable price, to help bank the deal. Additionally, willingness to carry back part of the price is a strong selling point by demonstrating faith in the future of the business.
2. Renegotiate agreements: Market value of a company can be improved by boosting profitability with reduced costs. And in this economic environment, cost savings often are available by redoing the agreements with vendors so they charge less or offer more product or service. It’s often in their interests to work with you along those lines to keep your business.
And it’s not only providers of inventory and service who should be urged to help you maintain profitability. The landlord, if the lease is close to expiration, and even employees, if they want to keep their jobs, should be encouraged to help you find ways to shave expenses.
3. Write a business plan when selling a small company: With much of the business community troubled by uncertainty over the future of the economy, the entrepreneur selling a small business can make the company more appealing if a well thought out plan is offered with it. Buyer candidates are much more interested in a business for sale when they can see, in black and white, how it can be successful under new ownership.
4. Execute the marketing program: A key part of that plan, the marketing strategy, is much more persuasive if the owner has started implementing it. The smart seller works on initiatives such as advertising for new customers, building client relations with social media tools, and making sales calls. Instead of ideas for a buyer to follow up on, these are action steps really being taken. They help prospects understand how growth can be achieved.
5. Get prepared for an earnout: The idea of tying the final selling price to a company’s performance going forward has been around for many years. But it can be a particularly appropriate solution today, when a business is experiencing a recession-caused dip, and is likely to resume strong performance once the economy improves.
The problem is a buyer wanting to pay what the business is worth based on today’s profitability, while the person selling a small business listing wants to collect what it “used to” be worth (and, the seller claims, will soon be worth again). The solution is to calibrate the buyer’s payments, up or down, to a total value for the business--a value determined by how well the company performs over a specified number of months or years after close.
6. Retool for 2010: Most businesses that experienced success through the first few years of the new century may now be confronted with a fresh challenge in the form of shifting market characteristics and customer expectations driven largely by new technologies.
The seller who wants his or her offering to be appealing in 2010, will have updated the website to attract new customers, to improve communication with existing customers, and perhaps even to accommodate Internet purchasing. And a social media campaign will be in the implementation rather than the “good idea” stage. Prospective buyers are much more likely to envision themselves owning an enterprise if it is prepared to do business today and tomorrow.
Selling a small business is different, perhaps more difficult today than in the recent past. But following these six tips can substantially improve chances of selling success.
About The Author: Peter Siegel, MBA, is among the nation’s most sought-after consultants by those planning on selling a small business in the California marketplace. His book on selling a California business is available on Amazon.com. Peter can be contacted at BizBen by calling 866-270-6278.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses
Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.
|Elizabeth McGovern: Escrow Services - SF Bay Area
McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.
|Ranvir S. Sandhu, Esq. - Legal Services For Buyers And Sellers
I've worked at top Bay Area law firms and have extensive experience with business entity formation, mergers, dissolutions, conversions, employment matters, including experience in reviewing and negotiating transactional documents such as leases and purchase agreements.
|Joe Sandbank, Esq. - Legal Services
I have provided legal counsel to business buyers, sellers and brokers for over 17 years. With prior experience as a business broker and SBA loan officer, Joe brings both a practical and legal approach to all aspects of the business acquisition process.
|Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area
Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.
|Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services
Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.
|Brad Steinberg, Broker - Laundromat Specialists
PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.
|Diane Boudreau-Tschetter: Escrow And Bulk Sale Services
California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.
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