What a “Business For Sale” Really Means
Having a business for sale can mean a lot of things – more than people might think. How does one business value compare to another, and how to arrive at that value? Because there are many types of businesses that exist for many different industries, it stands to reason there are numerous ways of approaching the process to find the value.
There are the three main approaches to value, which are the income approach, the market approach, and the asset approach. There are variations of these approaches, and combinations of them, and things which must be looked at because each and every business will have variations of what gives the business worth, and some of these differences are substantial.
First we must identify the type of sale: stock sale or asset sale. A stock sale is the sale of the company stock; the buyer is buying the company based upon the value of its stock, which represents everything in the business: earning power, equipment, goodwill, liabilities, etc. In an asset sale, the buyer is buying the company assets and capital which enable the company to make profits, but is not necessarily assuming any liabilities with the purchase. Most small businesses for sale are sold as an “asset sale”.
Our question, when selling a business or buying a business, is this: what are the assets considered to arrive at an accurate value? Here we will look at some of the most common.
1. FF and E: This abbreviation stands for furniture, fixtures, and equipment. These are the tangible assets used by the business to operate and make money. All businesses (with a few exceptions) will have some amount of FF&E. The value of these can vary greatly, but in most cases the value is included in the value as determined by the income.
2. Leaseholds: the leasehold is the lease agreement between the owner of the property and the business that rents the property. The agreed upon leased space typically goes with the sale of the business. This can be a significant value, especially if there is an under market rate currently charged and the lessor is obligated to continue with the current terms.
3. Contract rights: many businesses do business based on ongoing contracts, agreements with other entities to do certain things for certain periods of time. There can be immense value in these agreements, and when someone buys a business he or she is buying the rights to these agreements.
4. Licenses: in certain business sales, licenses do not apply; in others, there can be no business without them. Building contracting is one of them. So is accounting. For a buyer to buy a business, his purchase includes either buying the license to the company or the license to the individual. Often times, the buyer will require the access or availability of the license as a contingent element of the sale.
5. Goodwill: Goodwill is the earnings of a business above and beyond the fair market return of its net tangible assets. In other words, whatever the business makes in excess of its identifiable assets is considered “goodwill” income, where there exists a synergy of all of the assets together. This one can be tricky. Most business owners assume they have goodwill in their business, but goodwill is not always positive; there is such things as “negative” goodwill. If the business makes less than the sum total of its identifiable assets, there exists negative goodwill.
6. Trade secrets: some businesses are all about secrets. The reason the business is in operation may be because of a trade secret, some aspect of a product or service that sets it apart and gives it a market. In a business purchase, these secrets have value and go with the sale.
7. Trade names, telephone numbers, websites, and domain names: some businesses generate business simply because of its name and identifiable aspects. If those were to change, so would the profits. So in buying a business, the buyer will have need of those names and numbers to continue on in business. Of course, in some cases these things would not matter at all, and that is why each one must be approached individually.
8. Works in progress: a construction company may have a multi-million dollar job going on at the time of the sale, which can take months to complete. In case such as this, the buyer would have need of continuing on in the particular job the company was engaged in; for money and for reputation. This is considered a work in progress and has value and therefore is considered an asset and made part of the sale.
9. Business records: the history of a business detailed in documents and spreadsheets must necessarily become part of the business sale. The new owner can make use of records in identifying progress, tracking increased or decreased sales, adjusting expenditures and depreciation rates, etc. When someone purchases a business, they are buying the current operation and all the details that led to it.
10. Real estate: the seller-owned property on which the business does its business is inherent to the operation and therefore the value. There are times when the new buyer needs to move the business to purchase it, but more often the real estate is viewed as a major aspect of the business value, especially if there is equipment attached to the property and buildings suited specifically to the business.
When a business for sale is valued by a professional appraiser, a business broker, or a business owner, more than just the income is considered. Assets, economic values used by the business to produce revenue and profits, are weighed heavily to determine the worth of the business. And they must be considered to understand what a “business for sale” really means to a buyer.
Buying a Business for Sale – Get These 3 Essential Tips to Decrease Your Risk
Let’s face it – In today’s economy there is a lot of risk associated with doing business. It seems like every week you hear a story on the news or from a friend about some new business going bankrupt. We are surrounded by people who are being shattered by this economy.
So, what are we supposed to do?
As entrepreneurs/business owners, how can we ensure our own financial security in this time of hardship? How can we be sure that buying a business for sale won’t be just another in a line of business failures?
Well, today I would like to talk to you about 3 ways you can ensure that you are running a competitive business. Specifically, I’d like to talk to you about business acquisition and how to do it the right way so that you are taking much LESS risk, instead of more.
3 Tips to Decrease Risk When Buying a Business for Sale
Tip #1. Be Patient
Just because you’ve decided that you’d like to buy a business for sale doesn’t mean you have to go out and commit to a purchase tomorrow.
Take several weeks or even several months to monitor the listings in your area. Try to develop an eye for which businesses seem to be going up for sale because they’re losing money and no longer viable, and which businesses are going up for sale simply because the owner/management no longer has the time or desire to commit to their business.
Obviously, we would like to find the latter.
If you rush into this acquisition you’re liable to make a stupid decision, or to perceive something the wrong way, which down the road could cost you your success.
Tip #2. Study Cause and Effect of Promotion Strategies
One of the huge advantages of buying a business for sale over starting your own is that you have an opportunity to see what that business has done to promote itself, and how it had an impact on that business. In other words, you can observe a promotional campaign and judge its ROI without having spent any of your own time or money on doing so.
This is immensely powerful, and not something to be skipped over lightly.
Once you have a business in mind that you think you might be interested in, it’s important that you talk to the owner about what promotional strategies they tried in the past and what kind of results they seem to. Comparing promotional campaigns to financial data is one of the most powerful ways to pre-judge the current and future success of a business before you buy, and if possible I advise you try to find a way to do so.
Tip #3. Embrace the Brand, Don’t Shake the Brand
Many people who acquire a new business think that the only way they’re going to be able to make it successful is if they put their own “personal touch” into it. In other words, they believe that their own personal branding is going to be what makes or breaks a business’ profits.
However, this is nothing more than a romantic ideal that many entrepreneurs can’t seem to separate themselves from, and in the end it causes them to lose money.
When you buy a business for sale, don’t immediately try to take things in a radical new direction. Do more of the same and make small tweaks one at a time so you can see their effects. This is the secret to taking an already profitable business and turning it into a truly booming success.
I really hope that these 3 tips have helped shed some light on what you should be doing as a potential business buyer to ensure that you see a good return on your investment, both time wise and money wise.
Starting a brand new business in this economic climate is almost like committing financial suicide, that’s true. However, buying a business for sale that has a proven track record of success that you plan to further build upon and expand is NOT financial suicide…Not at all. It’s good business in an economy where you can’t afford bad business.
If nothing else, I encourage you to at least browse some of the local listings of businesses for sale in your area. I think you’ll be pleasantly surprised by some of the things you find.
Is Your Internet Business For Sale, 5 Things You Can Do To Get It In “Salable” Shape
The best way to get your business in shape is to put it up for sale. Or at least act like you are selling it.
What do you do when you are selling your house? You put in new mulch, and clean up the basement and paint the kids’ rooms. Once you’ve done this it helps to sell your house. Although after you fixed it all up you might start thinking you don’t really want to move.
The best way to spruce up your web site is to act like your Internet business for sale. What would you have to do to sell your business? Assuming you really wanted to sell your business what would you have to do to get it into shape so that somebody on the outside looking in would say “I gotta have that?”
Here are 5 things you can do:
1. Get more traffic: Traffic can come from many sources including article marketing, pay per click, banner ads, and joint ventures. If you bring more traffic to your site and are able to convert those numbers into sales your market value goes up. Potential buyers will look at your site and know you’re doing something right.
2. Get a logo or update your logo. Are you still using that logo you created in Microsoft paint in 2003? If you upgrade your logo you are telling your visitors and subscribers that you’re excited about going forward and making their experience on your site better all the time. This in turn may create more visitors and conversions and then create a higher value for your business.
3. Better Content: This is a simple one. If you keep saying the same thing over and over in different ways people get tired of it. If your goal is to have turnover and only bring in new customers and churn them until finished with them then this an acceptable plan. But if your plan is to cultivate visitors and subscribers you have and turn them into long-term paying customers then you must continually upgrade what it is you do. This means creating value at every turn. How? Read, investigate, learn and put your unique spin on your area of ability. You are obviously good at something that’s why you started a site in first place. Remember what it is and go after it.
4. Go Further into your niche: This is one I like because you get to work in an area that you already love. Take your services further. If you give search engine optimization for people new to internet marketing you could also provide product development services. Doing this could convert more visitors to subscribers and make existing subscribers more loyal.
5. Give of yourself: Allow your visitors to see more of the real you. I am a firm believer in letting the customer know who you are and what you are all about. Some will love you some will hate you but there are many fish in the sea. Life is too short to muddle around and try to be something you’re not.
These 5 things, if done properly, will increase the value of your Internet business for sale and undoubtedly attract more potential buyers. The problem though is after you’ve done all of this you probably will not want to sell.
It’s a funny thing isn’t it. Banks wont loan you money until you prove you don’t need it and your business wont sell unless you want to keep it.
Internet Business For Sale By Owner – Making a Safe Purchase
When looking into an internet business for sale by owner, there are a number of things that you can do to minimize your risk. A lot of people make the mistake of thinking that because they are not buying a physical location that the risk of running into problems is minimal. The truth is that because a majority of your purchase is digital, your risk is actually much higher. Fortunately, there are a number of steps that you can do to make the entire purchase process much safer. If you are interested in purchasing an internet business for sale by owner, then here are a few things to consider.
1. Gathering Pre-Sale Data
The first thing that you need to think about is how you are going to gather data. It doesn’t matter if you are purchasing a single website or an entire network of inter-linked sites, the numbers always set the price. In order to make a safe purchase, it is essential that you are allowed to access all of the data that you need. This can be problematic when trying to buy an internet business for sale by the owner. Some will try to simply give you the information that you request, however you need to be able to verify it. The only way to do this is by getting direct access to it. If the owner won’t let you see the same information that they see, it will be impossible for you to get the full picture of the situation, which leaves you at a terrible disadvantage.
2. Always Consult a Lawyer
Another thing to consider is using a lawyer. In order to make your purchase as safe as possible, it is a huge benefit to have your own lawyer throughout the entire process. This not only scares away anyone who intentionally misrepresents what they are selling, but it also ensures that you receive everything that you need. Business lawyers, especially ones with experience in internet business sales, already know what you should be receiving in terms of digital and intellectual property. They can also ensure that all of the correct paperwork and documentation is signed at the time of sale. Even if you don’t want to pay a lawyer to be at your side through the entire process, you should at least have one look over all of the final paperwork before the transaction is completed.
3. Use an Online Business Broker
There are a growing number of companies that focus solely on brokering deals related to online businesses. Just because you see a listing entitled “Internet Business For Sale By Owner” doesn’t mean that you will necessarily be dealing with the owner. They could use these types of brokerages to do everything for them. These agents act very similar to a real estate agent and will make the sale on behalf of the owner. In the perfect scenario, you will deal with both a business broker as well as your own attorney.
There are a number of different ways that you can minimize your risk when purchasing an internet business directly from the owner. By relying on accurate data and utilizing either a lawyer or an online business brokerage, your risk will be next to zero. There is no reason to fear opportunities labeled as “internet business for sale by owner” as long as you protect yourself throughout the process.
Listing a Business For Sale
Listing your business for sale is an experience that most business owners are unprepared for. Too many small business owners liken the experience of selling a business to that of selling a piece of property. Any experienced business broker can tell you differently though. This article will touch on some of the key factors that suggest a prudent move is to properly plan before you list your business for sale.
Business Performance Needs to Show Improvement
If your business has been stagnating and the profitability declining then a buyer may not be very interested in purchasing it. Spend the months (or years) it takes to show a prosperous and growing company. If sales are on the decline determine why. Perhaps you must refocus your sales efforts or add new products to your mix. If your margins are retreating then examine all of your expenses to determine if there are any savings that can be realized.
Get Your Financial Information in Order
Spend the time and money it takes to have accountant prepared financial statements. Do not look at this exercise as an added expense but, rather, an investment. When it comes time to sell your business then you will have better luck with the buyers and they will have greater traction with the bank when they go for the acquisition financing.
Documenting Processes Takes Time
A business where the success is dependent largely on one person has what is referred to as key person risk. These are businesses where the enterprise will suffer if the key person walks away from the company. These types of organizations sell at a discount since a buyer may have challenges to transferring the company goodwill to themselves after the sale. Try to eliminate this situation if it applies to your company. Document procedures and train your customers that there are other people and resources in the business that they can turn to.
Get Machinery Up to Date
Keep track of all of your equipment maintenance. Repair or replace broken or obsolete equipment. If you would not be interested in buying it ask yourself if a prospective purchaser would?
Clean Out Unsalable Inventory
Go through your inventory and so a thorough count to get an accurate amount. If you have obsolete or inventory that is damaged or unsalable then dispose of it.
Tax and Legal Planning
Talk to your professionals to get proper tax guidance before you list. The way you structure your business for sale may have a large impact on your net tax payable after the sale. Also work with your attorney. If you have any legal issues pending such as lawsuits or employee disputes then try to have them resolved before you list.
These are but a few factors to consider before you actually start the process of selling your company. There are certainly more, as every business is unique. Work with a business broker and other professionals to talk about the things you can do immediately that will help pave the way to a successful sale.
How to Handle Small Business For Sale
When handling a small business for sale, as seller should work on understanding the needs of a buyer and learn how to make that buyer a prospect. This process is called the buyer behavior study, through this; the buyer can be approached and analyzed from differed angles and under different circumstances.
Know facts – what are the things that motivate the buyer, why does he shift interest from one shop to another or from one brand to the other, how does he react to new products introduced to the market or delivered to him? Such questions are essential in knowing the things that interest the buyer. And through the information gathered here, a seller would create and product and promotion strategies.
However, it should also be understood that there is no real defined and tested theory of buyer behavior. Some ideas came from economics, psychology and other theories on social sciences. Many business firms and companies are continually researching on the buyer behavior to increase the possibly of sales with buyers. Yet, any seller would agree that buyers really are some kind of riddles. Despite efforts on selling even small business for sale, one cannot guarantee that a buyer who has first taken interest on it would push through the sale.
Buyers have innumerable desires and needs; all these also vary according to their security and aesthetic needs. And buyers have their own incorruptible way of meeting their needs and desires, just as long as it is within his or her means. If a buyer thinks that what a seller is offering is way far beyond his reach, a sale is then impossible to realize
Marketing Your Business For Sale
Selling your business is an arduous and very demanding task; it is time consuming, stressful and often emotionally draining. Naturally the sale will dominate the owners thoughts and resources during this period and it is very easy for an owner to take their eye of the ball. The key to a successful sale is planning and preparation. Founders should build an exit strategy into their initial business plans, and this strategy should contain information on how the business will be advertised and marketed once the time has come for it to be sold.
Owners who have not been through the process of selling a business before often underestimate how important it is to market, and package their business so that it appears attractive to potential buyers.
As with all things pre-sale, the marketing must be thoroughly planned and executed perfectly. The aim of the marketing period is to drum up enough interest among qualified and motivated buyers to increase the chances of you business being sold for a premium. As many owners, business brokers and intermediaries will testify this is easier said than done.
When attempting to market your business the first place you should start as an owner is your own market or industry. You will know your market better than any business broker or intermediary, and as a result you will know which individuals, companies or organizations will deem your business to be an attractive proposition. If you have decided to market and sell your business without the use of a professional you will have to find the balance between reaching the widest audience possible and keeping the fact you are selling away from those who do not need to know. Marketing your business is a delicate task, if you do not reach enough buyers you risk entering negotiations at a disadvantage, however if you market to aggressively you may end up alerting vendors, creditors, customers and key members of staff. The fact you are selling, may, in their eyes be an indication that something is wrong, and your business may turn south at the worst possible time. Therefore the marketing of your business must be carried out with the least possible disruption to the day to day running of the business. Once you have identified a list of suitable candidates you would be interested in speaking to you need to draw up a non-disclosure agreement, and following that the chief marketing tool which is the sales memorandum.
There are hundreds of businesses for sale at any given time. To make your business stand out, you need to provide potential buyers with information that will help them to make an informed decision. A descriptive and well-organized sales memorandum will help in the sale process. The sales memorandum is a document which is used to present your company in the best possible light and motivate prospective buyers into making a solid enquiry. The sales memorandum can be prepared by a business broker, an accountant or by the owner of the company. This document will highlight all the positive things about the business and will help whet the appetite of potential buyers.
The sales memorandum contains information on areas of possible growth and expansions, information on the unique value proposition of the business, its current assets, and key financial figures such as profit, cash flow, and total debt.
This document should be tailored to the individual or group you are in negotiations with as different aspects of your business will appeal to different types of buyers. If you are talking to a company that offers a similar product, or serves a similar customer base as your own, your marketing efforts should be tailored to present your company as one which has a large and loyal customer base, in doing so you will increase the appeal of your company in the eyes of the buyer, and this will help you achieve a better deal during negotiations. If the buyer is part of a large conglomerate which is more interested in acquiring the skills of your workforce or the technology your business runs on, then these are the things which will need to be stressed within any marketing material you produce and put before them.
During the sale process sellers must make sure that the business’ physical state is in good condition. The premises should be clean, the inventory current, and the equipment in good working order. It is very easy to overlook this during the marketing process, so you should ensure that your office, factory or shop is well kept, as a neglected workspace is often a red flag to many buyers. It is important to sell or dispose of any unused or outdated stock, apply a lick of paint to the premises, and check that all machinery and equipment is up to date and working, as many buyers will factor the cost of replacing or fixing damaged machinery into their offers. Doing this will create the impression of a well organized business and this inspires confidence in prospective buyers.
Many owner managers do little, if any marketing once they have decided to put their business up for sale and as a result they can end up leaving money on the table when they eventually sell their business. Marketing, when done effectively can increase the amount the owner finally receives as there is nothing which drives up the price of a business then a room full of motivated buyers bidding on the business.