Five Common Questions Business Sellers Ask Business Brokers

Five Common Questions Business Sellers Ask Business Brokers

The three partners at Harvest Business Advisors – Greg Caruso, Eddie Davis and Richard Stopa – have helped hundreds of business owners sell their businesses. Each business sale process is unique – but the questions we are asked by the owners remain fairly consistent.

1. When should I sell my business?

Sometimes this question is in response to changes in the economy or the stock market. Or an owner is feeling discouraged about sales or challenges in the business.

The answer is “It Depends”. We do not have any special forecasting skills to help you make a decision. But we can tell you that business sales usually take 9-18 months, so selling is not a quick fix to a downturn.  While your business is on the market, you will need to continue to run your business, upgrade systems, keep an eye on profit opportunities, document processes and keep key employees engaged. It’s essential for the sale of the business.

Other times this question is in response to internal or personal changes. We hope you are not dealing with health issues, but if you are, the time to plan is now. If you are not as satisfied running your business, an exit planning session can help set goals so you know you have options, if and when you decide to sell your business.

 

2. How much money will I get?

This is another question without an easy answer. But realize that pricing is an art form – too high and all the buyers will be chased away, too low and you will not receive full value. It’s important to have a business valuation to establish a baseline value which will help you to determine how to price your business.

Be prepared for bargaining from buyers (that’s their role!). It’s not meant to demean your business, but it is part of the process.

 

3. Who would buy my business? How do I find buyers?

Usually, business owners think about competitor who might want to purchase their business. And we see that happen quite a bit. It’s an easy way for a business to expand their client base, their equipment and personnel. But that is certainly not the only option.

Business brokers try to look at complementary businesses who would grow their business in a new direction. An example would be a landscaping company who purchased an irrigation company. Or a law firm who acquired a consulting firm that could expand the services they provide their clients.

We also use professional associations to find businesses and business owners who are aligned. Sometimes there is an employee who is ready to be their own boss (sometimes that employee works for you!)

Business brokers, especially those who have been in the business for a few years, develop relationships with people looking for the “right” business and investors who are seeking profitable businesses to invest in. We also focus on finding more than one potential buyer, to develop an “auction” atmosphere (and a higher selling price).

4. What do I tell my employees? And when?

Long before you decide to sell your business, you should protect yourself by having your key employees sign Non-Disclosure Agreements (so they do not discuss the details of your business with anyone outside the business) and Non-Compete Agreements (so they cannot work for a competitor for a specified period of time). Both of these agreements can be customized to be fair and equitable to you and your employees.

We generally recommend not telling your employees the business is for sale until the sale is final, with the exception of key employees who may need to be involved in the due diligence process and meet with the prospective buyers. Guaranteed, your employees will know something is going on. The best you can do is present the business sale as a positive for them, an opportunity for growth.

5. What will I do after I sell my business?

There’s a question we cannot answer! After a transition period with the purchasers, most “former” business owners take some time getting used to their new normal. Some spend time improving their golf game or finding new places to fish. Others make up for lost time with their families. We’ve seen people buy an RV and hit the road – or discover a passion for giving back in their communities. The bottom line is, after your business is sold, you will decide what is next, what will make you fulfilled and happy.

 

If selling your business is on your mind, we’d be happy to talk to you about what to expect and the options and timing.  We can have a relaxed conversation by phone or over coffee to answer some of your questions. Feel free to reach out to us!


Clients choose Harvest Business Advisors for our sage advice on profitably growing their business, accurate business valuations, and when the time is right, a consistent ability to deliver a high price as part of a smooth exit transaction.

Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 877-838-4966 to discuss selling your business, ordering a business valuation or buying a business.

How are You Doing? Competitive Business Benchmarking

How are You Doing? Competitive Business Benchmarking

Previously, we discussed business benchmarking using internal measurements, tracking and analyzing 5-7 key indicators of your business’ growth and success.

Now, let’s focus on the second benchmarking measure – comparing yourself against your peers based on industry data.

The second form of benchmarking is to compare your business to industry data.

Industry data is available from many sources. The most available data is financial data from several companies that collect and sell the data to banks, accountants, and other advisors. Also, many industry trade associations collect and track much more detailed information. While not perfect, this data can provide a meaningful comparison for analysis on how you are doing. Often this data is sorted and available based on performance. For instance, companies can be sorted in the 25th, 50th, or 75th percentile of financial performance.

Since only half of all companies with revenues of $10 million to $50 million will sell, you want to compare yourself to companies in the 75th percentile or better. These are the companies that are performing well and are creating real value.

Your results will not mirror the industry data, but the data will be useful for comparison purposes.

For example, a drywall contractor may see that their cost of goods sold is 73% while the industry norm for companies in the 75th percentile is 70%. Yet overhead for the drywall contractor is 20% producing a 7% profit. The industry norm at the 75th percentile is 25% overhead and a 5% profit. In this case, profit is above industry norm.

Perhaps this contractor spends a little more on direct labor, but because they have better people they are able to perform with less oversight. If this is true, there is no reason to make a change based on the data. If not, perhaps the direct costs can be brought down. Perhaps better purchasing could reduce costs. Perhaps labor can be applied more efficiently. In all cases, do not use this data and analysis as a reason to rest on your laurels but as a process in order to find ways to improve.

Internal Benchmarking along with Competitive Benchmarking will help you adjust course to be as profitable as possible and identify areas for growth.

 


 

Clients choose Harvest Business Advisors for our sage advice on profitably growing their business, accurate business valuations, and when the time is right, a consistent ability to deliver a high price as part of a smooth exit transaction.
Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 877-838-4966 to discuss selling your business, ordering a business valuation or buying a business.

The Importance of Time Off – for You and Your Business

The Importance of Time Off – for You and Your Business

It’s mid-August and we have a question.

Did you take any time off this summer?

Did you step away from your business and not call or email in?

Many business owners would say “That’s impossible!”

But why? Research shows that real unplugged vacations are critical to people’s health  – allowing  you to return restored, refreshed, renewed. And ready to dive back in to running and improving your business.

As Andrea Callahan says in this Money article, “Vacations sharpen the sword”.

From a purely practical perspective, a business that runs on its own is far more valuable and easier to sell than one that demands every minute of an owner’s life.

Plus you’ll enjoy your business more if you step away from time to time.

How can you change your business so you can take time off?

Start small – take the afternoon off and do something for yourself or with your family. Promise yourself won’t check email after 6 p.m. (or before 7 a.m.) Ease into a long weekend – and truly “get-away”.

Identify tasks or processes that only you can do – and train someone else to take them on, while documenting the training. Distribute responsibility to those you trust. Look into automation for some tasks.

Soon, taking two weeks off for a dream vacation won’t be impossible. It will be do-able- and your business will be stronger because of your efforts.

Are you ready for a real vacation? Or maybe you are ready to sell your business for a permanent vacation!

We can help you plan and start the process. Connect with us (info@harvestbusiness.com or call 877-838-4966) today for a complimentary consultation.


Clients choose Harvest Business Advisors for our sage advice on profitably growing their business, accurate business valuations, and when the time is right, a consistent ability to deliver a high price as part of a smooth exit transaction.

Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 877-838-4966 to discuss selling your business, ordering a business valuation or buying a business.

The One Thing Most Buyers Don’t Do Before Buying a Business AND It Affects Business Value.

Most buyers are obsessively thorough in their approach to buying a business. They exhaustively analyze the opportunity. They meticulously comb through the financials. They create long lists of questions for the seller. But there is one thing most of them don’t do.

Most buyers don’t really think about the day-to-day tasks of the business.

Some businesses are sales oriented. Others have a service focus. Some are centered around production.

Buyers need to ask themselves “Does the focus of this business work for me day in and day out?” and “What will I actually be doing each day?”

The savvy buyer will ask to shadow a business owner as they go about a typical day.

One buyer met the owner of an electrical business at 7AM and jumped in the truck with him as the owner visited job sites and interacted with employees. He then accompanied the owner back to the office as he planned for the next day and completed administrative duties. Participating in this “ride along” with the electrical company owner assured the buyer that this was the business for him. He came away from the experience exhilarated and ready to make an offer.

Another buyer expressed interest in buying a bar because “bars have music and I like music”. We suggested that this buyer follow a bar owner around for one weekend to view firsthand how much music the owner enjoyed. The buyer quickly saw what being a bar owner really meant in terms of daily tasks and realized that there was more administration, more hands-on management and far less enjoyment of music then he’d expected. The buyer decided to pursue another type of business to purchase.

There are many, many elements to consider when purchasing a business. Just be sure not to overlook the one that is going to impact you every day once you are the business owner.

 


Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver a high price as part of a smooth exit transaction.
Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia.
Connect with us at info@harvestbusiness.com or 443.334.8000 to discuss selling your business, ordering a business valuation or buying a business.

Selling A Business; The Business Sales Process- How to Set an Asking Price For Your Business

All smart Business Brokers, Business Intermediaries, and Investment Bankers know, when a selling small business  you must have an asking price in order to get business sales activity.  Inexperienced Buyers absolutely want to know the business asking price.  If the asking price is too far from the business valuation pricing rules of thumb, they will tend to say they are not interested even if there hesitation really is because of price. Americans expect to negotiate, but only a little.  They tend not to want to insult the Seller by offering 50 cents on the dollar.  For this reason, it is important to price a business that is for sale correctly from the start.

Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.

It is very tempting to price a business high and wait for offers.  Business brokers have learned that they rarely come.  Often when buyers do appear for an overpriced listing it is from someone looking to steal a business on the cheap who puts in very low offers on many businesses waiting for a desperate business seller to accept their offer in frustration..  Believe me, once you commit to sell your business, the process of selling your business seems to take forever even when it is progressing well.  When no one is calling, it really drags out.  Don’t overprice your business and, later, fall victim to this low-ball business buyer strategy.

There are buyers for almost all profitable businesses but there may be only two or three in a given market area.  You need to get these buyers interested. Proper pricing will do that.  We recommend that you price the business no higher than 10% above the high end of reasonable. This will give you negotiating room while presenting an attractive offering that will encourage prospects to continue looking at your business.

If, after 90 days of proper marketing and prospecting (ads are appearing in the right websites, direct mail and selected calling to the right people), you do not have serious prospects working on an offer then you should seriously consider cutting the asking price.  The market is telling you something.

If you are in a hurry to sell, price the business near an average price based on your valuation. Make sure you still have some negotiating room in your asking price.  Buyers will almost always find a problem and the ability to give a little back solves many problems.  If possible, always keep a few chips in your pocket to use to solve problems all the way through settlement.

Under priced?

One of my first listings was a small daycare center.  The Seller had made her decision to sell and was now in a rush to get it done.  She had been marketing the business for the past two months herself.  She did not have a huge investment and just wanted out so, because she wanted a quick offer, she had priced the business at about 75% of the fair market value.  Her one prospect proceeded to negotiate her down to 60% of the fair market value and still chose not to close.  Prospects assumed something must be wrong with the business for it to be priced so low.  We immediately suggested raising the price to 95% of fair market value.  This was low enough to generate contacts from real prospects and gave us money with which to negotiate with.  The business was sold and settled at 85% of fair market value in 60 days.

Gregory R. Caruso, JD, CPA, CVA
Harvest Business Advisors
609-664-7955

gcaruso@harvestbusiness.com
www.harvestbusiness.com

Harvest Business Advisors works with contractors, engineers, distributors, manufactures, professional and service companies as  business brokers or intermediaries, valuation experts, and succession and exit strategy consultants in Maryland, Pennsylvania, New Jersey, and Virginia.

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