For those who spend time building and selling businesses, it is known that time and effort into it will pay off in equity at the time of selling it. It is the ultimate goal of those selling a business is to maximize their profit. Therefore, it is important to prepare the business for sale early on. There are also some details that must be looked at when finally going to sell the business. For example, finding the right buyer that will pay the right price. Also, finding the right broker who can get the best offer for the hard work and time put into it.
Vetted Biz has created eight steps that can be followed that will bring the best price for the business.
First, you need to determine how much the business you are going to sell is worth. This can be figured generally out of the Total earnings received by a business based on the U.S. Income Tax Return. The financial numbers of these earnings depend on the type of business, but can include income, guaranteed payments, compensation, interest, depreciation, elective deferrals, and contributions.For further details on how to calculate earnings and where to find financial numbers on tax return forms based on the type of... the business makes. Different business deals can render various results, such as up to 10 times the earnings or some multiple of revenues. However, the average made on medium deals can be in the neighborhood of 3 to 5 times, and a larger deal can be up to 10 times the profits. Smaller owner-operated businesses, especially consulting firms, might sell for 1 to 2 times earnings or even less. While not all businesses are the same, it may take time to properly predict the amount.
The profits usually determine the value of a business, and later the business price. Thus, it is important to keep an accurate account of the financial information of the business. Sellers of a business should make a profit and loss statement as the buyers will be motivated to know these figures when it comes time to make a decision.
In many cases, the buyer may value the deal or business price higher when it is brokered or offered by an investment banker. This should be an option for the seller to seek a professional broker or an investment banker (generally for businesses valued over $5 million) to help broker the deal and find potential buyers. While this may cut into profits, it will be worth the amount of time saved.
Sellers should work on providing a summary of what the business entails. The summary provides the potential buyers an outline of the business and the financial aspects of the organization. There should also be a list of frequent questions with the answers provided so the buyer will know what the organization has to offer.
Next, after all the general paperwork is ready, it is time to place the business on the market. This is also a good time to have professionals help with finding the best and qualified buyers for the business.
Once the offers begin to come, it is also important to have at least two alternative parties interested in the negotiation, in case the first one fails to convert into a sell.
Buyers will need to have time to decide on the deal. In many cases, the average time for a buyer to conduct a due diligence is 60 to 120 days. This includes checking the financials and securing financing. This time is important for the buyer, and the seller should keep close contact to answer questions that may arise.
Once everything is in order, it will be time to seal the deal. Once the contracts are closed, the handover process can begin.