As a business broker, I have been asked by business owners many times if they really have anything to sell since they have few assets. Of course, they are hoping they do since they called me. The answer is a definite yes. When you sell a business, you are actually selling the cash flow, which is used to determine the value of the business. The assets transfer to the purchaser as part of the sale. Of course, if the business doesn’t have cash flow large enough to justify the asking price, the market value of the assets becomes the asking price.
As a business owner of a business with few assets, you know there are many advantages. You don’t have to worry about replacing outdated, broken or worn equipment, which can eat away at your profits and possibly shut down operation while waiting for repairs. This allows you to use your cash flow to fund your debt service, provide a good living wage, and fund all operating expenses.
Service businesses that are for profit may be large or small, they must make a profit to stay in business, and they must have good financials that show proof of their profit. That would include profit and loss statements, balance sheets and tax returns for the past three years. A cash flow statement for those years should be included in the marketing packet prepared by the business broker. Financial institutions will loan to purchase service businesses, but an ideal situation is a seller who will carry the note. Hopefully, you have a business plan to follow in the operation of your business. Whether you do or not, buyers purchasing a business are encouraged to prepare a business plan. A well-written business plan shows the seller and financial institution that a buyer is serious and prepared to operate a profitable business. A business plan is a guide to follow.
Be prepared to answer lots of good questions from the prospective buyer. A business broker will help buyers understand the service business, but there will be questions for you. You want your buyer to enjoy the business and also make a good profit. If you started the business, built the customer base, and are very active in the business, your customers may think of you as the business. This is a positive thing, but a buyer will want precautions in place to protect the business after the sale. A non-compete agreement must be included in the closing documents. Included and very important is the area protected and the number of years you will not compete. This assures the buyer that you will not go down the street and start another business to compete with the one you are selling.
You will agree to train the buyer with no pay for a certain time period. Two weeks is long enough for most businesses. Depending on the business, however, it may take a longer training period, which would also be an introduction period. There are times when a buyer will pretend to be working for the seller for a period so customers and employees can get to know him/her before being introduced as the new owner. It is important to wait until after closing for any training, as you do not want anyone to know about the sale until after the closing. Change is tough on everyone, and you especially don’t want to frighten and confuse your employees. It is expected that the employees will remain with the business, but they are not required to do so. It is important to have a smooth transition and make the employees see they are important and secure in their jobs.
Yes, your profitable service business definitely can be sold!
