QUESTIONS ABOUT HOW TO SELL A SMALL BUSINESS WITHOUT A BROKER
Knowing how to sell a small business without a broker may be one of the best skills a business owner can have. Nobody knows more about your company than you and may be the most qualified to sell it. Business brokers charge too much for what most people can do on their own with common tools you are probably already familiar with.
Do I have to show my financials to a buyer and sell my business based on better years?
You must take into account the last three years of financials. It should be documented if an extenuating event like COVID hurts the business. Also, include a realistic forecast for what the typical performance will likely be for the business in the future.
Can you sell my business in weeks?
It is possible to sell a company very quickly, but expect it to only come at a quick discount. Plan on average, which is about seven months to sell a company. Selling a business takes patience and planning to get a successful transaction.
Should I give a buyer an earnout over three years?
Every deal is different, and one would need to know more details to make a judgment. You should always make the deal that allows the company to prosper after you are gone while getting the maximum overall return.
Can you guarantee my business will sell?
No one can guarantee a business will sell. If your business is properly prepared and advertised to a large audience of potential buyers, you stand the best chance of getting a sale.
Are people buying businesses right now?
People are always buying businesses in every economy, whether up, down, or otherwise. Buyer inquiry levels are currently at all-time highs as people are exploring alternative sources of income.
What’s my business worth?
Your business is worth some multiple of the cash flow that it generates. There are many valuation models, but we recommend using the Business Rules of Thumb for small companies. Most profitable businesses will sell for 1.0 to 4.0 times discretionary earnings or 40% to 60% of gross sales, depending on type of business.
How long does it take to get a business sold?
Every business is different and results vary depending on an infinite amount of variables. It is recommended that you plan for at least six months to get your business sold. Time can be accelerated if you reduce your price below market or offer seller financing for some part of the price.
If you execute in the following areas well, you will get your fastest sale:
- Business Valuation & Pricing
- Business Memorandum for Marketing
- Advertising on Major Business for Sale Websites
You must also have all financial documents ready for the buyer’s review. The business must be ready for due diligence to reduce the time it takes to close and transfer the business.
I’m losing money. Can I still sell?
You can still sell your business If you are losing money. The asking price should reflect the current financial performance and the projected future performance. The future projection should be realistic and based on data and facts.
Should I tell my employees?
You should wait until your first buyer-seller meeting before telling your employees about a possible sale. Don’t risk sharing the news and causing uncertainty until it seems likely that interested parties are looking at your company. Telling employees too early risks telling suppliers and customers about potential sales that could harm the business.
What if I don’t have complete records?
You will not get the most money for your business If you do not have complete financial records. It will take longer, delay the process, and even make a sale impossible. The minimum documents must include tax returns for the years you owned the business. It’s understood by sophisticated buyers that tax returns may not state all the business income. The financials need to be adjusted to add items like discretionary, depreciation, interest, and other expenses in this category.
How can I keep the sale secret from customers, vendors, and employees?
Confidentiality is maintained by requiring non-disclosure agreements from all buyers and advisors before any sensitive information is shared about your business. Only the most trusted people should know your business is for sale, which should be on a need-to-know basis until you close the deal.
Am I going to be able to transfer my lease?
The transferability of a lease is dependent on the landlord and the lease. The landlord often wants the buyer to apply for a new one. A fee is often required to transfer the lease, and an application fee may also apply. In some circumstances, the landlord may ask that the seller remains on the lease for some time.
I take some of my compensation as cash and have not reported them on the company books. Do I still get credit for that income?
Any unreported income will come under great scrutiny. It is financially beneficial to report all income because you will get a multiple of income when you sell.
What does it cost to sell a business?
The fees for selling a business with a business broker are 10% to 12% of the price the business sells for. There may also be a retainer collected up front to begin the process.
How do I know what my business is worth?
The value of a business is usually a multiple of earnings. Most businesses with gross sales of less than 1 million dollars will sell for a multiple of two to six times seller discretionary earnings (SDE).
I own my building and want to hold on to the property but sell the business?
The business can be sold with or without the property. If the building is not sold with the company, the new owner can lease the building from the seller at agreed-on terms.
What happens to my bank accounts, receivables, and inventory?
Businesses with less than one million dollars in gross revenue are often sold as an asset sale. This reduces the cost and complexity of transferring the business. It also makes the due diligence process easier. The seller keeps bank accounts and receivables in the case of an asset sale. The inventory is priced separately in addition to the price of the company.
I have debt from equipment purchases that I am still paying on. Does the buyer pay it off?
A company is usually sold with all debts being satisfied at closing. Every deal is unique, and terms may include the buyer taking over certain debts as a part of the deal. Consult professionals to ensure your interest is protected If you will hold any debt as part of the transaction.
How much time do I need to plan an exit strategy?
Some say you should consider an exit strategy before starting your business. Your exit strategy should be considered long before you’re ready to exit. The better your business performs, the more ready it will be for sale at the highest price.
What are discretionary expenses?
Discretionary expenses are any charges that are not necessary for the normal operation of the business but provide a personal benefit to the owner. Discretionary expenses provide a legal “tax benefit” that has the effect of reducing taxable income. This has the unintended consequence of making a company look less valuable at the time of sale. Discretionary expenses are added back to earnings to reflect the company’s real value to buyers.
Do I need a lawyer and a CPA to sell my company?
Buying or selling a company is a complex transaction. You should consult professionals to protect your interest. A lawyer should be engaged at a minimum as part of your team. We can recommend professionals to join your team if you need it.
Keeping The Sale of Your Business Secret
Communicating with Buyers by Gmail
The first communication you will likely have with a buyer is by email. Set up a free Google Account, which gives you free access to a suite of free Google services. The services include Gmail, Google Docs, Google Sheets, Google Voice, and much more. After you sign up for a new Google Account, get a Gmail Account. This email will keep all your buyer leads and communication separate from your regular email and let the discussions be secret until you have a signed non-disclosure agreement. Choose an Email name that does not describe anything about you or the business. The idea here is to be anonymous until an NDA is signed.
Communicating with Buyers with Google Voice
You will also need a Google Voice account which is one of the services included in your Google Account. All Google Products are assigned to this account which makes a convenient way of staying organized during the process of selling your business. Select the free “personal account” with a local number. Google will give you a list of numbers, and choose the number you want. It doesn’t matter which number you choose if it’s an area code that is common to your area. This will allow you to get a free phone number that you can forward to your regular phone line.
Non-Disclosure Agreements
Get an online signature program like signNow which allows for sending non-disclosure agreements by email. The NDA is added to sign now as a template and can be sent out as often as possible with just a few keystrokes. After you send the NDA to a buyer for signature, sign now will send you a confirmation email with the signed form. This greatly speeds up the process and keeps digital records of the signed agreements. It is recommended not to share confidential information about the business with buyers unwilling to sign an NDA. Keeping the sale secret is important to protect the business.
Should I sell my business?
It is usually time to sell your business if you have hit a plateau and can no longer grow the company. A lack of growth can be due to the economy, industry, technology, or personal reasons. A company that isn’t growing will likely shrink and become less valuable and attractive to buyers. Companies that aren’t showing consistent growth put business owners at risk of losing significant money upon exit. The decision to sell a business is very personal; only you know the best answer for your situation, but waiting too long can hurt you financially.
Selling a Business Without a Business Broker
How to sell a small business without a broker can be done if you avoid the common mistakes many business owners make. By far, the biggest mistake is the lack of preparation. Buyers are demanding and expect your financial records and documents to be in order before any offer is made. Learn why 40% of businesses never sell by clicking here.