20 Questions to Ask When Selling a Business (Part 2)

March 19, 2008 | By | Reply More


Part 1: 20 Questions to Ask When Selling Your Business

11. Should you use a business broker?

Finding qualified buyers is not easy. You can choose to find buyers yourself by placing ads in local newspapers, trade magazines or online. You also need to evaluate potential buyers to find those seriously interested in the purchase of your business.

If this sounds too much work for you (and it is), find a competent business broker to help you. They can locate potential buyers for your business, while ensuring that your confidentiality is protected. Brokers can also help pre-qualify these potential business buyers so you don’t have to deal and waste your time with the merely curious.

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12. Where can you find qualified buyers?

Your qualified buyer will depend on the type of buyer you may want for your business. If you decide to hire a broker, discuss with the broker your ideal candidate. Look closely at your networks and determine if there are potential buyers from the people you associate with in your industry. Read newspapers and your trade industry magazines as well. Also talk to your suppliers, as they generally they know who has money and who doesn’t.

13. Can your financial statements withstand the scrutiny of potential buyers?

Buyers will scrutinize your financial statements. They will run a fine-tooth comb as they analyze your numbers. Financial statements give an indication of how well the business is doing, as well as future performance of the business. Hence, it is important for buyers to carefully examine the financials of the business.

To improve your bargaining position, it is best to have your financial statements audited. Some buyers will even require that you show them audited financial statements, as they have more confidence with audited numbers.

14. Have you done the due diligence process?

An important part of the due diligence process is ensuring that your financial information is accurate. Make sure that you have complete financial documentation. This should include the listed assets, book values, accounts to be considered, and all financial data of the business.

Also ensure that non-financial and legal documents of the business are in order. Part of the due diligence process include verifying the overall health of the business being sold. You need to look at the business conditions, the environment affecting your products or services, and even your competitors. Also check if all the legal contracts of the business are in order. Check the status of contracts, including that of your suppliers as well as manpower. Also go over the contract services including that of lease and equipment contracts.

15. How do you put a value on your business’ worth?

After you’ve gathered and verified all financial information about your business, the next step is determining the actual price you can ask when you sell the business. Determining the value of your business entails understanding myriad factors affecting your business, namely, the value of real estate, pricing of the new/used equipment, the condition of the business, among others.

16. What will the letter of intent and terms of sale specify?

The primary goal is to negotiating the best price possible. The terms of the deal can affect available cash reserves, tax rates, capital gains on investments, legal issues and the profitability of the business over a number of years.

Prior to the terms of sale, there is a pre-contractual document called letter of intent sent prior to the onset of negotiations. According to the book “How to Buy and/or Sell a Small Business for Maximum Profit, the key elements of the letter of intent include

  • The price of the business
  • The form of purchase and what is exactly being purchased
  • The structure of the purchase: cash, stock, non-compete agreements, earn-outs, and structured or seller financed options
  • Management contracts and/or agreements
  • Closing costs and the specific responsibilities of the buyer and seller for due-diligence expense and title searches
  • Representations and warranties
  • Brokerage fees
  • Timeline for closing and completion of sale
  • Insurance
  • Disposition of earnings prior to closing and any non-ordinary expenditures prior to closing
  • Access to books, records, financials, customers and employees prior to closing
  • Disclosure of any non-financial agreements or obligations
  • Stipulation of confidentiality
  • Seller agreement to remove the business from the market for a customary period of 45 to 60 days

17. Are you ready for the negotiations?

As a seller, you must be prepared to negotiate the terms. Be ready and know your limits. What can you accept? What can you live with, and what can you actually walk away? Know your limits, your situation and your resources as you discuss price, terms, demands and concessions.

18. Are you willing to finance any part of the sell?

Seller-financed deals are not uncommon, and some types of buyers may be expecting you to finance any, or all, part of the sale. Family and friends buying into the business oftentimes expect to get some financial assistance from the seller.

Determine if you are willing to finance the deal, and how this arrangement can affect your reasons for wanting out of the business in the first place. The drawback is that you may have a harder time cutting your ties with the business – after all, you are financially vested to see the business grow stronger with a new owner.

19. How are you going to handle the sales proceeds?

When money is involved, the taxman is not far behind. Thus, it is important to make tax and estate planning provisions prior to the sale to help ensure that you and your family get to keep as much of the sales proceeds.

If you received cash from the sale, you may want to diversify your portfolio and invest in stocks, bonds, money market, mutual funds, even real estate. If you received stocks from the sale, think of ways you can protect the value of your shares if the stock plummets.

It is best to consult a financial planner or tax advisor on the best options to protect the sales proceeds of your business.

20. Do you want to be involved with the business after the sale?

In some cases, the new buyers need the help of the previous owners during the transition phase as the new owners are still learning the rope of the business. Your knowledge and experience with the business makes you a tremendous asset to the new owner. You can choose to be a full time manager, part-time consultant, or simply walk away from the business altogether

But are you willing to remain with the new owners for a certain length of time? If you are the type who has difficulty in letting go, or seeing someone else controls the shots, then it may not be a good idea. Staying on will just lead to frustration and conflicts with the new business owner.

Selling a business is a very personal decision, and it is yours to make as the entrepreneur. But it is important to be prepared and understand the process before you embark on the long road of selling the business that you started.


Part 1: 20 Questions to Ask When Selling Your Business

Isabel Isidro

Isabel Isidro is the co-founder of PowerHomeBiz.com. A mom of three boys, avid vintage postcard collector, frustrated scrapbooker, she also manages Women Home Business, Starting Up Tips and Learning from Big Boys. Connect with her in Google +.

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Category: Business Management, Buying and Selling a Business

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