When helping buyers and sellers with small business acquisitions and sales, I talk a lot about the importance of credibility.
One of the largest hurdles is determining who is a real buyer and who is a real seller.
Sellers do not like it when buyers waste their time, and buyers also need to know they are dealing with a motivated seller.
To alleviate some of these problems, sellers need to give serious consideration to these issues:
First, a seller must understand that they are selling their business now not last year or next year. The old saying is still relevant: Buyers buy a business for potential, but pay for history. If there is a disconnect between the business' current financial performance and the owner's expectations, one or the other needs to be adjusted.
Upon determining that the business has a legitimate value, the owners must decide if they really want to sell their business. A sale will usually require sellers to pay off existing loans or notes and those sellers need to understand how those payoffs will affect them. Also, any sale will have income tax implications. It is important for the seller to understand all the financial effects of the sale before they get in the middle of a deal with a buyer.
A seller must know their reason(s) for selling. It is typically one of the first questions that a buyer will ask. It is always better when the reason(s) are not urgent. It is always better to sell in good times, rather than when the owner is burning out. Some sellers wait too long before putting their business up for sale, and that situation is apparent to a buyer.
Sellers also need to get their books in order. Prospective buyers and financial institutions want to see at least three years of tax returns and profit and loss statements.
As part of this process, sellers need to understand the true cash flow of their business. Since most businesses claim a variety of non-operational expenses (personal auto cost, personal medical insurance, etc.) owners need to make sure they have supporting documentation.
Sellers must also make sure their legal commitments are in order. For example, location is very important to a business, and a long-term lease and any options are important to the value of a business and potential buyers.
Another issue of which sellers need to be aware is their role in the business. If a seller is absolutely vital to the operation of the business, they need to make sure that they can delegate their responsibilities to a key staff member, especially if it pertains to customer relationships.
Finally, as simple as it sounds, the seller needs to make sure that they make a good impression on the buyer's first visit. Buyers look for companies that show well because it is usually indicative of a well-run business.
Dave Hunter works for Liberty Group of Nevada LLC. He has worked in long- range financial and operations planning for start-up companies, as well as day-to- day front line management responsibilities with corporate clients. He is a licensed Real Estate Broker in Nevada and California.
