How to Sell Your Small Business

You’ve worked incredibly hard to build up your business and, when the time comes to move on, you want to get the absolute best price for it. However, the market for a small business is extremely illiquid, that is, it is very difficult to unite potential buyers with the business. You must be proactive and reach out to the potential buyers and have the information they will want in order to make their decision. Be prepared to work as hard to sell your business as you did to build it and go into the process with the same sense of adventure and enterprise.

Big Dollars For My Biz Take the Initiative

The fact that you have a valuable business for sale, something millions dream about but never get around to doing, means that you are the type of person that takes charge and gets things done. So don’t stop now, merely hanging a “For Sale” sign on your door, or even hiring a broker, and then sitting back and waiting for things to happen isn’t going to cut it when it comes to selling your precious asset, you will have to go out there and make this happen. Start by thinking of who you’re potential buyer will be. A-list blogger and online entrepreneur Yaro Starak sold his first web business to some of his best customers, who loved his business so much that they didn’t want to risk it falling into less friendly hands.

Think about your competitors, about business owners in the same industry who may wish to expand into your industry, and businesses in parallel industries that could find useful synergies with your own. For example, if you have a camping supply store then a synergy might be someone selling adventure travel and vacations; the two have a significant overlap in customers and could try to cross-sell their customers. Don’t forget to market to trade and professional organizations, if they’re appropriate to your business. I know that the AICPA (Bean Counters of America Association) has a special area on the web site for CPA practices for sale. In case you’re wondering, I’m going to build my own up to the eight figure neighborhood before I put it up for sale.

Importance of Financial Records and Other Information

When you sell a pound of alpaca wool or a barrel of North Sea Brent Crude the exchange is pretty easy; the buyer knows what she is getting and what the current price for it is. Your business, however, is not something that you can drop on your foot, but rather a process or a system that (hopefully) generates cash and profits for its owner. To show prospective buyers what the value of the business is you will need a narrative, which is a one page summary of what your business does to make money, and some supporting numbers, usually in the form of financial statements and tax returns.

If you have traditional financial statements then that’s great but you also want to put together a summary of several years statements (if indeed you’ve been in business that long) in a tabular format so that any prospective buyer can easily see what the trend for your business is. Also, in many industries, such as with a website or online store, you will have important non-financial numbers to compile and include in your summary. For example, if your web site is an important element of your business then a number of metrics, such as unique visitors, become important to the businesses potential value to a buyer. Remember that many potential buyers will already be in your business and will by looking for synergies with their own businesses that may increase the value of what you have to offer, so don’t make them have to hunt for this information, tailor your approach to your potential buyer. SCORE has an excellent check list on what you’ll have to prepare before you sell.

Brokers, Accountants, and Lawyers

Your accountant absolutely must be informed of your intent to sell, the earlier in the process the better, and be kept up-to-date at all times. The timing and structuring of the sale can have enormous tax consequences. Remember, due to taxes a $50,000 sale isn’t really worth 50 grand to you; sometimes it’s worth much, much less. Your lawyer needs to be brought in once you have an interested buyer and before you begin to discuss terms. Your lawyer’s job is to structure the sale so as to protect you as much as possible from fraud, default, and negligence from your buyer and to limit your liability during any interim period. The use of a broker will vary depending on the industry and the expected price of the sale. Whether you use a broker or not, don’t expect to be able to just hand the job off to them and then forget about it. From my experience and from what I have been told the majority of businesses get sold through good luck, good timing, or the owner’s hard work.

Online Marketplaces

In the new global age you can buy or sell almost anything online, including your small business and a number of sites have come up to help you connect to a buyer. The online option isn’t just for online businesses, according to the general manager of one of the largest online marketplaces, bizbuysell.com, restaurants were actually the single largest category of business that they sell. Other larger players are imergeadvisors.com and bizquest.com. The market is still relatively young and fragmented, so you might peruse all three to get an idea of their individual strengths and specializations. Also, it is great fun and enormously beneficial to see what the owners of similar businesses are asking and what information they are providing.

eBay also has a section for selling businesses and websites and, as of today, it had 17 thousand businesses listed, although 12 thousand of those were web sites. My suspicion is that eBay’s format would be inadequate to sell a more complex business, in which communication between the owners, the sellers, and their supporting professionals is essential, but it does make for some interesting comparisons. Plus it is really fun to look at some of the remarkable stuff that people are trying to sell.

Be Prepared to Negotiate

The old saw in business negotiations is “I’ll let you name your price if you let me name my terms.” What this means is that the structure of the sale is as important as the price of the sale. If you are only interested in cash up front then be very clear and firm on this to potential buyers. When one of my first and best clients, my Dad, passed away he had a number of valuable assets that my mother was not able to or interested in running. I was living in a foreign country at the time but managed to come back for a month and half to help settle things and helped my mother sell off some of these assets, mostly real estate related at a time when real estate was still very hot. It was fascinating and eye opening to listen to the pitches of some of the potential buyers and creativity of some of the terms that they offered.

One of the most popular propositions was that one of the assets be put into a partnership owned by my mother and the buyer and then the “buyer” (Mom’s new partner) would contribute their labor and expertise to convert the asset into a more lucrative form (i.e. subdivide or build a building for lease, what Dad had already planned to do with it) and then would share the profits with Mom. The chances are that you are going to get offers that are a combination of cash and credit and in some cases may require your continued involvement. Don’t hesitate to bump up the price if the terms aren’t to your convenience and do not hesitate to walk (run) away from any deal that might put you into business with someone of questionable moral character.

Apply For Business Credit Cards Without Personal Guarantee

When it comes to business credit and the terminology used, it might be a good idea to get a bit of background information. You might be surprised to know that that the business you own has a credit score. It may also surprise you that you can use that score to secure financing like business credit cards without a personal guarantee. However, before you can go out and get new loans or lines of credit, it is worth mentioning that your business credit shares many of the same characteristics as a personal credit score. That means that you will need payment history as well as time for that score to be firmly established. The bottom line is that applying for credit with your businesses tax id number or EIN as opposed to your personal social security number can take some time.

An Industry Based on Business Credit

There is no shortage of information when it comes to building business credit. If you need proof, just go online and do a general search. You will find all sorts of e-books, and advertisements for companies that say they can help you build your business credit. The only problem is that you could end up lining their pockets and not helping your business credit one bit. You see, the entire business credit industry has changed dramatically over just the past two years. What worked then does not work today. Unless these companies and publications have stayed current in the industry, their information and services may add up to a big fat zero for you.

What They Won’t Tell You

You need to understand that a business credit is also called a Paydex score. This score is perhaps the most widely used and is issued by Dunn & Bradstreet; often regarded as the Experian of business credit bureaus. Now DNB does offer a program that will quickly build your businesses Paydex score to 80, which is roughly equivalent to a FICO of 680. This is the rub, however, and it is something that not even a well-respected bureau like Dunn & Bradstreet will tell you. That a Paydex score of 80 is not going to be enough to make a huge difference in getting cash lines of credit or other sorts of financing. The real player is the DNB Recommended Creditor Amount, and this is the real determinate in getting a line of credit. It can mean the difference in barely qualifying for a $100 office supply store card, or a $20,000 line of credit.

Yes, there are plenty of smaller businesses that can benefit from what certain credit building programs or services have to offer, but in most cases, it will just cost a business money and offer little to no results. While some would lead you to believe that an 80 Paydex rating or an Intelliscore are the bread and butter of business credit, the DNB Recommended Credit amount is what is going to get you your financing approval.

The reality is that there is so much misleading information regarding personal & business credit cards without personal guarantee, most of which is propagated by some companies that claim they can get your business the 80 Paydex score. While a creditor like an office supply store might offer you a respectable credit line, normally below $1000, you can forget about anyone offering your business a cash line of credit.

The bottom line that this magical Paydex score of 80 is fools gold. It will do nothing substantial for your businesses credit. The real test is your businesses recommended amount. It is the only thing that will have a substantial effect on your businesses ability to get credit and truly determine to creditors that your business is ready to stand on its own two feet. This is coming from experience because it is what our business does and has done time and time again.

Hire a Professional or Go it alone?

Now that you know that business credit is excellent means to provide your business with the proper cash flow, the decision now comes down to manner that your use to build your businesses credit rating.

The DIY Approach to Business Credit

You can do what we did. Search for the quality information that is all over the Web. This can be time consuming but with trusted resources like e-books, various reputable services and a fair bit of money, you should be able to improve your business credit score in a meaningful way. However, an easier way to do so is to simply purchase a guide to building business credit yourself for as little as $247.

The Professional Service

Having the experience that we have, you can easily sort out the services that you can trust and those that you cannot. What we look for in a service are three very important things. Firstly you will want a credit building service that has an impeccable BBB rating. Secondly, you will want a long list of satisfied clients. Lastly, you will want a solid guarantee that they will do as they have promised.

While many business credit-building services exist, we have only found one service that can meet and exceed these lofty expectations. In fact, we have never received anything other than glowing reports regarding this company’s service. This type of service is not cheap, but considering that they will guarantee that a $2000 investment will correlate to $150,000 in unsecured credit lines it is pretty much a no brainer and that sort of credit worthiness will help you to play with the big boys.