Covid 19 update 1st October 2020 – Covid has caused a massive disruption in business sales. Most people are sitting and waiting for the results of what the coronavirus will have on their business. Businesses that have not been affected by the virus are still selling very well for similar valuations to last year. Businesses impaired by the virus people have been taking off the market and people are being advised to re-list next year.
You have been building to sell your business that you’ve put a lot of time, effort, and equity into growing, and now you’re looking to sell. Your objective is to get maximum value when selling and you’re assessing steps to prepare for the sale. You are trying to get the maximum price for selling your business, getting the best terms and finding the right buyer or looking for the best broker to sell your business.
Make selling your business easy with these eight steps.
1. Determine what your business is worth
A business is generally worth a multiple of its profit. Depending on the size of the deal that can be 2-10 times profit. Smaller deals generally average 2-3 times profit (deals under $3m in price) medium deals 3-5 (deals $3m to $20m) and large deals 5-10 times profit ($20m and over)
2. Prepare your financials with your accountant
Because a business is valued on it profit then good financials required. Preparing an adjusted profit and loss statement is required to present to buyers.
3.Find a broker or investment banker
Depending on the size of your deal and whether you have an unsolicited offer on the table, most companies will garner a higher valuation when sold using a banker or broker.
4.Develop the executive summary of your business
This is the document that outlines what the business is, financials and frequently asked questions to help the buyer make an offer.
5.Put your business on the market
Market your business to buyers looking to acquire a company.
6. Field offers from potential buyers
Receive offers from buyers and negotiate the best one.
7. Let the buyer perform due diligence
Buyers generally get 60-120 days to verify the financials and validate they are getting what they are paying for.
8. Close the deal
Time to celebrate! Sign the final contracts and the handover process starts.
FAQ’s On Selling A Business
How much is my business worth – You can sell your business for what the market will pay. It is the buyer that determines the price of a business. As it the market that determines value. That being said. A business is generally worth a multiple of the earnings. That means a value applied to the profit of your business.
How do you price your business for sale? – You price your business for sale depending on how much money it makes. It you are making no money it is price on the value of assets. If it is making a little bit of money it is sellers discretionary earnings. If it is making a lot of money it is a multiple of EBIDTA.
How long does it take for a company to sell? – Generally the larger the deal, the longer the timeframe it takes to sell a business. At Business Exits we average about 7 months to close a deal.
How can you sell your business quickly? – You can sell your business quickly by having it priced correctly. Everything can be sold for the right price and terms. One of the best ways to sell your business quickly is to offer it to someone with no up-front payment and an earnout based on performance. This can be to your business partner, employees, competitors or someone in your network.
What type of business is the best to sell? – Businesses in all industries can be sold. However the differences is in the valuation across industries. Some of the most attractive industries receive much better valuations currently are service companies, Logistics and Transportation, Property Management, Home services, and Technology companies.
Who is the best broker to sell my business? – Depends on the size of the deal. Small deals (under $1,000,000 in revenue) best use a service like bizbuysell.com. for larger companies try businessexits.com they specilize in selling companies with $1,000,000 to $25,000,000 in yearly revenue.
We Analyzed 13,817 Business Sales: Here’s What We Found
We purchase the last 5 years sales data and analysed over 14,117 transactions between $50,000 and $100million. As you can see from the graph above we found some interesting things:
- Average multiple of profit sold for 2.59 times profit
- Average sales price was $595,000
- 90% of deals were valued below $5million sales price
You will see the term ‘multiple’ used a lot. A multiple can be applied to a number of financial metrics in a business (such as EBITDA, net earnings, gross revenue etc.) to determine how much the business will be worth at sale. We calculate the multiple for the business in question based on profit, using SDE — seller’s discretionary earnings for business.
Here’s how we calculate what the business is worth:
Total Sales – Cost of Goods Sold – Expenses + Owners Wage = TSDE (your profit)
So, when we say that a business was sold for a multiple of 2.44X, for example, it means that the amount paid for the business is a value of 2.44 times the profit.
For example, a business that is doing $300,000 in profit per year sold for at 2.44X would have a sale price of $732,000 ($300,000*2.44=$732,000). This works in reverse as well — if a business sold for $732,000 at 2.44X, then ($732,000/2.44) means the profit was $300,000.
Here are the types of businesses we’re going to analyze in this article.
What to prepare for selling your business
General information consists of the regular information and is usually the first thing potential buyers will be looking at if they are interested in your business and considering the asking price. Here is a short list of some of the things you will be expected to have ready:
- -Fact summary sheet, gives the most important information about the site all on one page
- -Programs that the site uses and how to work those specific programs
- -Security reports
- -Index of every single page
- -Media mentions, such as awards or publicity
- -List of employees
Marketing information is going to be a big part of the buyer’s decision.
– Overall marketing strategies used – Statistics within search engine rankings – Keyword research completed and keywords that have already been targeted – Visitor statistics, that includes their demographic information – Competitor information and research – Sales history and information regarding your conversion rates
The last section of information on how to sell my business you’re going to need is going to be legal documentation. They will be able to provide proof of ownership, transfers, history, and all other legal information your buyer might be interested in. Some of those documents are:
– Revenue documentation – cashflow analysis – Customer base analysis – Intellectual Property – Expense reports – profit reports – ROI analysis – Any appraisals – Any contact regarding the sale for prospective buyers
– Analysis of real estate
3 Best Brokers To Sell Your Business
Selling on your own as a business owner is best if you are selling your business to a family member or employee. Selling with a business broker is best if you want to attract multiple buyers and maximize the selling price.
Here are some suggestions for best business brokers to sell your business.
How long will it take to sell my business?
The average selling process takes to sell a business is 7 months. Simpler deals take shorter timeframes, more complex deals take longer timeframes. The range of timeframe is 3 – 12 months to sell a business. A business valuation should take a few days, in that process you may decide on an exit strategy to get your business prepared for sale. Interested buyers will then inquire from the business brokers marketing packet. Prospective business buyers will review tax returns, financial statements . Once they are ready to make an offer they will submit a letter of internet, that may include a down payment, Then you will negotiate the purchase agreement with your lawyers, in that is usually a non-compete. The transition to a new owner generally takes 3-6 months after the deal closes and the management team transitions.