The following article presents some considerations to a business resale. There is a sales angle built into it by its authors but the facts presented are solid and industry wide. Needless to say, a fact check and careful investigation of those local professional service providers you are considering is always in order and should constitute the corner stone of your education process. The article is presented to us by VR Business Brokers. For more information, they may be found on the web at www.vrsandiego.com.
Creating the Right Exit Strategy for Reselling Your Business
People that own a business own more than just an establishment with four walls; they own a dream. For several owners, their business is an aspiration that just recently came true when they bought it. For others that have seen their businesses grow, they are pursuits that have been enjoyed and valued for years if not decades.
However, dreams inevitably end; and owners have the option of either continuing to develop their businesses or passing them on to someone who hasn’t yet experienced the fruits of ownership. When that moment comes, regardless if it’s because of burnout, retirement or desire to do something else; be sure to do it right and get the optimal sales price. Most of the time, when contemplating, planning or pursuing the opportunity to sell your business; you discover that the process doesn’t give the flexibility required to make the best deal. This is why you need to have VR facilitate your resale process. We will help you obtain not only the best value but the most qualified buyer in the market.
Understanding the Critical Elements of the Resale Process
When you’re going to go through the process of reselling your business, you don’t need to be afraid, feel that you're going to be manipulated by it or that you have to do it on your own. If you decide to sell your business before you actually intend to, it will be easier to identify the critical elements of the resale process that will allow you to have some control over them in the future.
You will be able to understand the business transaction that includes what your needs are, putting you in a better position to develop a strategy to make it through the resale process in the most efficient and profitable manner.
Confronting the Obstacles - You will want to be familiar with some of the major obstacles that you will generally encounter when doing a business resale.
Positioning Your Business for Resale
This starts the day that you buy your business. Think about building value for the long term as well as making money in the short term. Throughout the whole existence of the business, you want to keep comprehensive and thorough records of finances, permits, licenses, equipment and inventory – this becomes crucial when you’re going to sell.
If per say your business is a franchised unit, you will benefit the most from learning the franchisor’s requirements for transfers. These requirements are listed most often in the franchise contract, but also include unwritten requirements embedded in organizational culture, resale history and the culture of the franchisor.
Knowing How to Price a Business by Using VR
When pricing a business, there are several methods that you can use. The most common include:
• Multiple of cash flow – Typically 1 to 3 times annual cash flow that’s dependent on the type and size of the business;
• Value of equipment and inventory – This will include one year’s cash flow;
• Gross sales from by the quarter up to annual – Depending on the type of business; book value of assets.
Many factors will affect the price such as financial terms, non-compete clause, general attractiveness of the business, future potential, how the business fits with the buyer’s strategic plan, the size of the business (larger businesses bring a higher multiple), rarity of the business, whether the business is a service one tied to the seller’s relationships with customers or a retail or other type of business with a skilled staff in place.
A VR business intermediary will best serve you in facilitating this process through our solid reputation, comprehensive knowledge of the marketplace, the variety of methods that we use for a multitude of business types and a large database of comparable sales. While some accountants, attorneys and realtors will offer an opinion of price, their offer employs only one or two pricing methods with no comparable sales available to access. Therefore, make the right choice by working with VR.
Maintaining Business Operations
The one thing that you don’t want to do as an owner is neglect your business during the resale process. You can spend too much time and effort personally attending to matters associated with selling that your business will suffer as a result. This will lead to a deterioration of revenue and ultimately the resale value.
Your business will benefit the most by maintaining inventory, maintenance, advertising and customer service levels that give you the best offers. Therefore, a VR business intermediary can help you find qualified buyers as you concentrate on managing your business to maintain the maximum resale value.
Important to Find the Qualified Buyer in the Resale Process
Just because you receive many potential buyers looking for a business, doesn’t mean they’re qualified to run yours.
Today, buyers are using many sources to buy businesses such as word of mouth, local newspapers, national publications and the Internet. A VR business intermediary will help you utilize all these to find the most qualified buyer. If a buyer contacts one of our VR business brokers for a business, they will match you up with them regardless of the industry because it will come down to if it’s a right fit.
With a small fraction of buyers buying the business that they contact and even fewer of that number buying in the same industry that they call on, this could be the difference between selling to the best buyer or not at all.
Determining a Qualified Buyer
Here are some helpful factors to filter out the qualified buyers from the rest:
1. Buyer’s capital and its source;
2. Buyer’s motivation that includes needs and expectations;
3. Buyer’s background and skills.
An in-depth interview that includes all the pertinent questions with the buyer will be imperative to a successful transaction. As said previously, a VR business intermediary will be able to develop creative and responsible terms that will both help successfully complete the transaction and ensure that interests for both the seller and the buyer are met.
Article courtesy of VR Business Brokers®.
