Sell Your Business Kit
Murphy Business has developed this kit to help small business owners by providing them with a system and all the tools that they need to have to sell their business by themselves or with a little bit of help. The XpressValu(TM) software tool will help determine a market price for the business.
The system outlined in our book will then take you step-by-step through the entire process including the forms needed along the way. They have included these necessary forms in both a CD and a separate forms book. Click to download the Sell My Own Business brochure and Order Form.
Selling a Business with a Marketing Strategy
Assuming you do not need to liquidate a business, it can be sold to either an outsider from whom you want the most value, or to an insider (family member or key employee) who your trust with the business but probably does not have the cash you need at closing. Buying a business without having the money to pay for it at closing is a common situation. Generally the deal is setup as an "earn-out". This means the buyer pays an agreed price for the business from the future profits generated by successfully running it. This puts a double tax burden on the deal as the buyer is taxed on their money earned and then the seller is taxed again on the money paid them. In either the Outside or Inside sale, the amounts the seller eventually received can be greatly improved with Exit Planning.
Determining the Value of a Business for Sale
Selling a Business is a special case of selling Property. The IRS and our Accounting industry has develop the concept of Fair Market Value (FMV) to help it determine how to calculate the income tax on the disposal of any Property. Over the years, FMV has become a standard used to focus price negotiations. The actual business valuation process is very complex and needs to be done by a CPA specialist if the business is over $750,000. Expect a full IRS complaint Valuation to be $15,000 to $30,000 or more. Limited Scope Valuations costing a fraction of this are generally sufficient if used solely to substantiate a selling price. Smaller businesses are often priced by a business broker with a Broker Opinion of Value (BOV) the XpressValu(TM) software tool described in the left column of this page.
Marketing the Business
Once a business value and marketing collateral has been developed, the next step is to determine if financing is available. SBA guaranteed loans are by far the most the most common business acquisition financing used. However, many deals are not suitable for any conventional lending and Seller financing needs to be considered. An alternative to Seller financing is a Lease To Own offering. This is becoming a favored method of business transfer, especially if done with management oversight by the Seller or Business broker.
Most businesses are sold through public business listing on internet business directories. It's been estimated that fewer than 20% of the listings on these directories actually sell. For details read 7 Critical Points Every Business Owner Must Know Before Selling Their Business. The primary reasons for this high failure rate are Unsubstantiated Values and Lack of Financing. How a Business for Sale is advertised is immaterial if these two fundamentals are not correct.
There are 3 general marketing methods. As mentioned, most individuals looking to buy a business are found through advertisements placed on internet directories. Unlike residential real estate, there is no central MLS for businesses for sale. This is a fragmented industry that requires managing listings in many places at once in order to be effective. A few of the popular directories that we always use include:
Closing a Deal
Once a prospect is found they must be convinced of the values being asked and then acceptable terms negotiated. Be prepared to answer Key Questions about Selling Your Business. Up to this point, the buyer has been working on information given to them by the seller (or their broker). An essential component of an Offer To Purchase or Letter or Intent is a Due Diligence requirement. Here the buyer is given access to the seller's time, assets, and records to verify that what is being sold is in fact what was represented. Once Due Diligence and other contingencies (such as lease negotiations and obtaining financing) are completed, the deal can close.
One difference between M & A, which is between two organizations, and Business Brokerage, which is generally between two individuals or small groups, is that the size of the smaller deals limits the amount that can be spent on legal advice. These are complex transactions that require good legal counsel. At a minimum, closing should be done with a transaction attorney who represents neither the buyer nor the seller, who will oversee the drafting and execution of all required documents. This transaction attorney can also act as the deal's escrow agent and will handle the deposits, payments, and disbursements involved in the deal.
Where to go from here
There are Do It Yourself resources in the left column of this page for those ready Sell a Business on their own. We cannot recommend a Personal Business Model Workshop enough if you are still undecided about what to to after the business sale. If you would like more information on professional valuation, marketing, financing, or representation, please complete the Contact Us form.