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Answers To Common Business Sale Questions
The average time to sell a business is about 7 months. This can vary depending on the difficulty in marketing and finding a buyer but for planning purposes we always tell people plan for 1 year minimum from the time you decide to sell until you put money in the bank.
Here are the main costs for selling a business.
- Broker fees
- Legal fees to draft & review agreements.
- Outside reviews by accountants or other specialists
- Closing fees for ensuring that taxes and other items are allocated and paid properly for both sides
In total these should be less than 15% of the business sale price.
The fair market value of your business is calculated based on your business size, industry, profitability, operational strengths, comparable transactions, and various other factors. Outside factors may also affect the value of the business including interest rates, industry trends and other factors.
The best time to sell your business is when you are profitable, things are running well, and you are on a solid growth trajectory. Another reason to sell may be that the next phase of growth will require more capital and/or experience that the current owner does not possess.
Get yourself (and any other owners leaving) out of the business as much as possible. If all owners can go on vacation for at least 2 weeks without an interruption that is best.
Tax or legal issues are at the top of the list. Large drops in revenue without a bottom in sight will also kill a deal.
The average sale success rate for all businesses put on the market is about 25%. 75%+ of businesses put on the market are not sold.
At Exit Your Way our success rate is over 95%. This higher success rate is due to a combination of working with clients to prepare for the sale and our processes for marketing businesses for sale to a wider audience.
All public information is scrubbed for any information that could identify the company specifically. We only allow people to review information once they have completed a non-disclosure agreement and been screened. We also control access to information by providing view only access to the company’s detailed confidential information memorandum (CIM).
We do not recommend telling employees until the deal is nearly completed. Key employee(s) may need to know earlier based on their roles in the sale preparation and diligence.
Most business sale proceeds are subject to capital gains taxes. This is something to consult with our tax advisor for proper planning.
There are 4 common types of business buyers:
- Private buyers – someone who wants to buy a business in your industry.
- Strategic buyers – existing businesses that want to buy your business to expand.
- Investment Buyers – buyers who want to buy business, increase the value and/or take returns over time to provide a return on their investment
- Search Fund buyers – Search fund buyers are a CEO-led buying group with investment funding backing them. they have similar goals to the investment buyers, but CEO gives them more flexibility in the companies they choose to invest in.
Knowing your business buyer is key in preparing and understanding the requirements of your business buyer.
The main steps are highlighted below & covered in more detail on our Sell Your Business page.
- Information gathering
- Marketing the business for sale
- Buyer screening and gathering offers.
- Negotiating an acceptable offer.
- Company due diligence.
- Deal funding.
- Deal closing.
Exit Your Way utilizes a multi-faceted approach to business sales that drastically improves the results. It starts with a deep understanding of the ideal buyers for a business. Then the combination of targeted direct outreach to potential buyers, broadcasting to our 100,000+ followers on social media platforms and listing on premium business sale listing sites, we reach buyers others simply won’t.
This is one of the first questions you should ask yourself. It really depends on 2 things. Your experience & time or making the right financial decision. In larger businesses the complexity of the business sale process and demands of running the business often make it right to use a business sale advisor.
If you are not involved in the business and have deal experience you might be able to handle the sale.
In small main street businesses it might be the best financial decision because minimum fees of $10,000 or more may eat into the proceeds from the sale of the company to a point where you should try selling the company yourself first.
Buyers are constantly coming into and leaving the market. Buyer databases are not that useful because of this fact and each business is unique and would only be interesting to a select few on the list.
Targeted outreach mitigates the need to be “connected” to buyers. A system for reaching the right buyers for each opportunity is the key to matching businesses to the right buyers.
The common reasons businesses don’t sell are well documented.
- Unrealistic price expectations of the seller.
- Seller(s) key to the business.
- Customer, supplier, market, employee risks, or other factors hindering M&A activity.
The 2 most common terms of a business sale are:
- Cash at close – how much money you get when you transfer ownership.
- Seller note – a loan the seller give to the buyer so they can pay a portion of the sale price over time.
The ways to make your business attractive to buyers are simple.
- Get the company growing.
- Get owners out of the business.
- Reduce customer, supplier, and employee risks.
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