Thinking of Buying or Selling a Business and the Key Questions You Should be Asking
Understanding Business Intermediaries: What We Do and How We Help You Buy or Sell a Business
Buying or selling a business is a major event in anyone’s life, particularly for the seller. After dedicating 20-30 years of hard work to building a business, the decision to sell can be emotional and complex. For sellers, letting go of something they’ve nurtured for so long involves more than just the transfer of ownership—it requires careful planning, and understanding the mechanics involved is key.
So, how do you know if your business is ready to sell? Whether you’re a newer entrepreneur or someone who’s owned their business for a while, knowing what makes a business sellable is essential.
How Do You Know If Your Business is Sellable?
If you’ve been in business for a few years and are considering selling, you’re probably wondering if your business is attractive to buyers. The answer is yes, but it depends on a few important factors. First, your business needs to have assets and goodwill that can be easily transferred to a new owner. A potential buyer needs to know they can step in and make money, grow the business, and continue operations smoothly. This means your business should be built on solid, transferable foundations.
How Long Should You Be in Business Before Selling?
When determining a business’s value, we generally prefer to look at at least three years of financials. This includes tax returns, not just profit and loss statements. Lenders like the SBA, which may be involved in financing a sale, also require three years of financial history. Having this documentation ready is a key step in the process of selling your business.
What’s Included in the Sale of a Business?
When selling a business, it’s essential to understand what’s included in the sale. Typically, it encompasses both tangible and intangible assets—everything that’s necessary to run the business. Tangible assets are physical things like equipment, inventory, and property. Intangible assets, which are often just as valuable, include intellectual property such as trademarks, patents, and copyrights.
For example, I once had a business listing where the buyer wanted confirmation of ownership of the domain and website. While the seller owned the domain, there was confusion about the website’s ownership. It turned out that the seller didn’t own the website as they thought. This required some digging to resolve before the business could be sold. So, ensuring that all your intellectual property and other business assets are properly documented and transferable is crucial.
What Are Tangible and Intangible Assets?
Tangible assets are physical items like equipment, inventory, or even vehicles, which are straightforward to transfer. Intangible assets, such as intellectual property and domains, can be trickier. For instance, intellectual property might involve trademarks, patents, copyrights or trade secrets that have value and need to be properly transferred to the new owner. A trademark comprehensive search may be in order to determine who owns the brand and that no other brand is infringing on the trademark. For domain names, the buyer should confirm who owns the domain, website and that these assets are transferable.
During the due diligence process, buyers ask many questions to ensure everything is in order. We highly recommend sellers work with professionals to ensure they know what they own and that everything is in transferable condition. Proper preparation can make the process much smoother.
Why You Should Keep Good Records?
Even if you’re not planning on selling your business right now, maintaining proper records is vital. Everything from contracts to your website and domain ownership should be carefully documented and filed. When you’re ready to sell, having everything in order makes the process much easier. Sellers often find that preparing during the sale process can take longer than expected, so proactive preparation is key.
What Goes into Determining the Sale Price of a Business?
Valuing a business involves much more than just looking at assets—it’s about understanding how those assets generate revenue. We evaluate a business using methods like discretionary earnings (for smaller businesses) or EBITDA (for larger businesses), and look at industry benchmarks to establish a fair market value. The price is influenced by how much money the business generates, how well the assets are maintained, and how easily the new owner can continue operations.
How to Choose the Right Business to Buy?
When it comes to buying a business, one of the first questions we ask is, “What do you want your day-to-day life to look like?” This helps potential buyers assess whether the business is a good fit for their lifestyle. Do you want to manage the business full-time, or would you prefer something more hands-off? We also discuss financial considerations, location preferences, and whether the business can support the kind of life you want to live.
Location and lifestyle choices are critical. For example, a buyer may want to move to Florida but isn’t sure where they want to live. This means we’ll need to narrow the search and explore businesses in certain areas. Additionally, the support of employees is a big consideration. If you want a business that can run with minimal input from you, finding one with strong, reliable employees is crucial.
Key Factors to Consider Before Purchasing a Business
When we evaluate a business for a buyer, the most important factors include:
- Financials: Does the business meet the buyer’s financial goals? If the buyer needs $250,000 in earnings but the business only generates $70,000, it’s not a good fit.
- Hours and Operations: What kind of work is involved? Can the buyer manage this on their own, or do they need specific expertise or employees? For example, a cabinet shop might require specialized knowledge in cabinet installation, which not everyone has.
- Employees and Management: Having a team in place that can continue operations is essential for businesses where the owner wants to be semi-absent. A business with a skilled workforce is more valuable because it allows for a smoother transition.
The Emotional Side of Selling a Business
For many sellers, their business isn’t just a financial asset—it’s a deeply personal part of their life. This emotional attachment can make the sale challenging. We work with sellers to help them transition their thinking from “this is my baby” to “what’s next?” Helping sellers plan for life after the sale is crucial to the process. Many sellers find fulfillment in new hobbies, volunteer work, or personal projects. A good post-sale plan helps them look forward to new goals rather than feeling disconnected.
Why Use a Business Intermediary or Broker?
Trying to sell a business without professional help can be overwhelming. As a business intermediary, we handle the complexities of the sale, from valuing the business to marketing it, screening buyers, and managing the entire process. We take the burden off sellers so they can focus on running their business. That’s a trap that a lot of people can fall into; trying to sell your business rather than actually working in their business. When this happens the business can start to decline and therefore, the value of the business can start to go down.
Just like when selling a house, you wouldn’t want to do everything yourself—selling a business requires time, expertise, and a well-organized approach. We help streamline the sale, qualify buyers, and ensure that you’re getting the best deal possible. In the end, using an intermediary means a smoother transaction and better outcome for everyone involved.
Final Thoughts
Selling or buying a business involves more than just a transaction—it’s about ensuring the right people and assets are transferred successfully. Whether you’re looking to buy a business that fits your lifestyle or sell one that you’ve worked hard to build, working with a professional intermediary can help you navigate the complexities of the process and get the best outcome. If you’re thinking about buying or selling a business, let’s talk and explore how we can make the process as smooth and successful as possible.
