When you have a successful business, it is sometimes difficult to make the decision to sell. You have devoted your time, money, and energy to building, running, and operating your business. People become attached to businesses and love them like they are their children or family. There comes a time, however, in every business for a change of ownership.
People sell businesses for various reasons, some of which are disputes, health, retirement, stress or burnout, trading up, relocation, and financial hardship. Obviously, the best time to sell a business is when it is profitable and growing!
It is wise to select a professional business broker to help you through the process; and, after some discussion with that broker, you may decide it is best to wait a few years to sell. If that happens, the broker can guide you through the proper steps to take to prepare for the sale. Throughout the years, the most common problem I have seen is the lack of accurate financials. Sometimes owners have pocketed cash, which cannot be shown as income or profit when they decide to sell. Even though an owner thinks a buyer will understand when he/she explains the situation, it is a risk to tell anyone you have not been paying taxes on part of your earnings. If you discuss this with a potential buyer, the broker will definitely not want to be present when it is discussed. The only thing that can be used when calculating the value of a business is provable income, which comes from your income tax returns. That being said, there are definite expenses you can write off as a business owner, which will be added back, increasing the cash flow and the value of your business. Your business broker will help you with that.
Okay, you have decided it is time to sell your business and have selected a professional business broker to help you. The broker evaluated your business, helped you determine a selling price that will sell in today’s market, prepared a marketing package and confidentially marketed your business to qualified buyers. In a normal situation, a qualified buyer will meet with you, make an offer, and go through the due diligence process and closing, with your business broker helping you handle any problems that may arise.
You would expect everything to go smoothly, as the seller wants to sell and the buyer wants to purchase the business. The broker wants a win-win situation that will lead to the seller getting the highest possible price for the business on acceptable terms and the buyer getting a good value for his/her money, making the business grow.
It is unusual for a seller to back out of a closing, but I want to give you an example that actually happened. DO NOT LET THIS HAPPEN TO YOU WHEN SELLING YOUR BUSINESS.
I had a business listed that was going to be difficult to sell. It was a machine shop several miles out of a city, and machine shops were not selling well at that time. The machine shop was located in the back section of a metal building, with a door leading directly into the front part of the building, which was a beautifully decorated home. A nice couple owned the business and lived there. The husband did the machine shop work, and the wife kept the books. It was all in prime condition and very clean. They wanted to retire and move to a location about two hundred miles away. It was delightful to work with them, and I was excited when I finally got a perfectly matched qualified buyer interested in the business. The showing went well, the offer was good, and everyone was happy. As he felt confident through the due diligence process that everything was as presented, the buyer purchased some expensive equipment to add to the business so he would be ready for his increased plans for the business after closing. Much to everyone’s surprise, the owner decided just before closing that he didn’t like the seller or what he was going to do with his business; so he refused to sell. There was no way the seller could be convinced to sell; and he ended up moving, never selling, and losing all that money. He simply could not accept the fact that this buyer was going to make his business better.
It broke my heart to see this couple make such a tragic mistake. If you are thinking of selling, be ready to close the deal and cherish the fact that someone appreciates your business enough to increase what you started.
