3 Important Things Every Business Owner Should Know About Selling A Business


1)   The fair market value of a business from a professional valuation report should not be the listing price for the business.

A fair market value of a business is what a reasonable person/company would pay without considering any special circumstances. That is the proper way to estimate the likely sales price from a legal perspective.

However, a business owner typically wants to sell to the person or company that has the best potential to earn profits on this business. This will be a person or company that has assets that they can leverage in combination with this business to produce greater value than before - the Strategic Buyer Consequently, a business owner should be looking for potential buyers with special circumstances that might justify a higher price than the valuation.

This should be an important consideration in setting the listing price. There can also be special circumstances that reduce the likely sales price below what the valuation shows. A motel at the edge of Death Valley may have a low vacancy rate and solid profits, but there are likely to be fewer potential buyers of motels that want to live near Death Valley, than a motel in San Diego with similar earnings potential.

2)  Business owners should start their exit planning at least 3 years before they plan to sell.

The central financial maxim of most established, privately held businesses is to minimize taxes. The company financials and tax returns reflect this strategy. A key element to exit planning for most owners is how to maximize the value of the company (with the possible exception of family businesses that will stay in the family).

Maximizing the value of the business requires a significant shift in focus from tax minimization, and needs a period of transition of at least 3 years. Potential buyers will almost always want to see the last 3 years of tax returns.

3)  The strategic buyer is the company that anticipates making the most profit from combining with your business.

If their worst enemy is their biggest competitor, then that company may have the most to gain from buying the owner’s company. In effect, the biggest competitor may be the Strategic Buyer willing to pay the most.

Valuation is a science to estimate the value of a business if sold with no special circumstances. When an owner gets ready to sell the business, he/she needs to focus on identifying those companies that have special circumstances that would produce the greatest flow of earnings. It is up to the owner to get a piece of that greater future pie.

Categories: BizBen Blog Contributor, Selling A Business







  Helpful Resources To Assist In Selling And Buying California Businesses
Diane Boudreau-Tschetter: Escrow & Bulk Sale Services - CA

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.

William F. Ziprick, Attorney: Legal Services For Buyers And Sellers

Through creative problem solving, attention to detail, accessibility, & understanding that unnecessary delay is often a deal killer, I work closely with my clients and other professionals to consistently achieve a high rate of closings. Office: 909-255-8353, Cell: 509-951-7230.

Shalonda Chappel: Escrow & Bulk Sale Services - Southern California

Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.

Helen Yoo, New Century Escrow - Escrow Services In Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Christina Lazuric CBI CBB, Business Broker: Orange County

Premier Brokerage for selling Orange County Service based businesses since 2005! CBB provides a step by step approach to Business Brokerage, M&A Services, Business Consulting & Valuations. Contact me about selling or buying service based businesses: 949-257-7823 Cell.

Chris Seaman, Business Broker: Southern California

Founded in 1994, First Choice Business Brokers has accelerated to become one of the most successful Business Sales Organizations in the world. Our team of agents have gone through extensive training to become experts in the field of business brokerage. Call Chris at 858-578-4111 for more info.

Jim Thomas: Broker Specialist, Consultant - Fitness & Gym Industry

Jim Thomas is the well-known founder and president of Fitness Management USA, Inc., a management consulting and brokerage firm specializing in the fitness, health club and sports industry. He has over 25 years of experience owning, operating and managing clubs of all sizes.

Ryan Clark, Business Broker: Southern California

The Veld Group provides a refreshing approach to Business Brokerage, Mergers & Acquisitions and Business Consulting and Valuations. From Your Street to Wall Street, we cater to Main Street Businesses as well as more complex Strategic Firms and Start-Ups. Phone Ryan, Business Broker at 310-652-8353.


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