Selling Your Business

Understand Your Customer

A shrewd salesman puts themselves in the shoes of their customer. By better understanding your customer, the potential buyer, you are more likely to complete the sale of your business more quickly.

In the small business world, the owner is the ultimate representative of their business, regardless of any broker representation or service that you hire to put between yourself and the buyers. The buyer is taking a lot of financial and emotional risk and is likely spending the bulk of his lifetime savings to purchase your business. He will want to be extremely comfortable with your business and unless he has a deep experience in running a business like yours, he will want to be extremely comfortable with you. As the owner of this business, you must be prepared and have the right frame of mind if you wish to move the business off the market quickly.

Keep in mind that most small business owners are hands on people. They are intricately involved in most every aspect of their business. In many cases, it is difficult to determine where the owner ends and business begins. Many potential buyers may be looking at a small business in your industry for the first time. They may be coming from large corporate environments and/or from different industries all together. When buyers are evaluating businesses for sale, they need to learn as much as possible about this unfamiliar situation before plunking down their life savings to buy it. For this reason, buyers need to evaluate the business and the owner.

With larger businesses, with long histories of proven profitability and established management teams this need for deep insight is somewhat less. The buyers are better financed and are targeting particular types of businesses. But many smaller businesses have none of these traits and buyers are not likely to commit to purchasing a business for sale under these conditions.

Potential buyers are excited about your business. They are contacting you because they can picture themselves running your business. At the same time, they are afraid that they do not have enough insight to make a good decision. You can perpetuate their vision and alleviate their fears by feeding them accurate, detailed information. Following the steps outlined below you can give potential buyers of your business for sale comfort in an effective and efficient manner.

Price Your Business To What the Market Bear

Selling your business is somewhat like selling your house. If similar houses are selling for $250,000 in the neighborhood and you price yours at $1,000,000, it will not sell, regardless of anything special in its construction. This applies to businesses as well. If comparable businesses are receiving a multiple of three to four on net income at closing, then you will not be able to command a multiple of ten on net income, regardless of any special characteristics. In other words, you must price your business to what the market will bear.

Homes that are priced beyond the market will not sell for a very long time, if ever. In most cases, weary homeowners will begin to drop the price in order to attract buyers in the market. By that time, the home becomes “shopped” and those buyers with initial interests for the right reasons will have moved on. Finally, anxious to exit, the homeowners will sell the house well below market value and well below what they could have originally received for the house. Many owners of businesses for sale follow the same path with their businesses. They overprice the business, scaring off the most interested buyers. Then the business sits on the market for a year or more. Finally, the owner must decide to keep and run the business or drastically lower the price. With homes and businesses, lowering the price sends negative signals out to the marketplace and since the original interested buyers have moved on, you are likely to attract bargain hunters. Bargain hunters will “low ball” the business, or offer a ridiculously low price, in hopes of getting a good deal, regardless of the condition of the business.

Price Your Business Right the First Time

Although the market information about businesses and their values is not as accessible as it is in the housing market, the information is available. Knowledgeable, qualified buyers will be quickly turned off by an overpriced business for sale and move on. It is for this reason that many businesses never sell. Sellers often take the advice of external valuation sources, brokers, etc. in determining price. Once again, the seller must be careful. While a business owner would like to be optimistic about their business and its value, they must also be aware that overpricing the business may result in the business never selling at all.

Pricing your business appropriately will attract buyers and they will want to learn more about your business. In order for you to be able to come up with your price for your business for sale, you will need to gather several important pieces of financial information about your business. In a nut shell, you will want to price your business as a “multiple” of its net income. This means that buyers will look at what amount of money your business earns on average and pay you between one and five times those earnings. For example, if you can prove that your business earns $500,000 per years on average, a buyer will consider purchasing the business for somewhere between $1.5 million and $2.5 million.

We will discuss the specifics required in detail below, however it is imperative that you have these numbers close at hand as you move through the sales process. Interested potential buyers of your business will want to determine how you arrived at the price. Demonstrate that your price is based on the financial aspects of the business and your very knowledge of these facts of the business for sale will only encourage the buyer to learn more. Remember, most buyers will not waste their time dealing with unreasonable or unknowledgeable business owners. This lays the foundation for achieving the two critical goals, getting the buyer comfortable with your business and you. Your business and you, the owner, appear to be competent and professional.

Silly Ways to Price a Business That Scare Off Buyers

Many owners will price their business based on what they need to take away from the experience, to cover debt or to maintain a certain lifestyle. I would offer a clear word of caution. If your business value is not tied to some multiple of a provable net income, you will lose that buyer’s interest immediately. The buyer does not care that you want $100,000 per year for the next ten years to maintain some lifestyle choice, etc. Once he has determined that your sales price has nothing to do with the business, he will have nothing more to do with you.

As an example, I looked at a publishing business in the south. Actually, the business was quite intriguing. The owner of this business for sale had a fairly simple business model and as a result his books were well organized. He agreed that his business should be priced around $400,000, but insisted that based on his life expectancy and lifestyle choices he was looking for $950,000. “Why bother?” I wondered. Since at the time we spoke he planned to live another ten years, I asked to call me when he only expected to live four more years. In this way his formula would be equivalent to the multiple of net income I was willing to pay. I guess six years from now I will get a call.

In another silly example, I spoke to an owner of a business that was a distributor for traffic control devices in North America. The owner had the business listed for $1.5 million. After some discussion, it turned out that the owner lived on a pension and had never earned any money at all in the business. “How did you ever arrive at this price?” I asked. The owner of this business for sale indicated that he had been running the business for 15 years and had never made any money. As he figured it, “it was time to recover those lost earnings.” I concluded the man was insane. Why should anyone compensate this fool for mismanaging a failing business for 15 years? The answer is that no one will. He is wasting his time and that of every buyer that comes in contact with him.

I cannot emphasize enough that the seller must establish the right price, based on the right, verifiable data. When a business lists for sale, there will be a wave of initial interest from buyers hungry to pounce on new listings. If the seller has the business priced too high or the price has no relationship to the financial fundamentals of the business, their best opportunities to sell the business will evaporate after a single telephone conversation.

I Don’t Like That Price

Many business owners may declare, “I think my business should be worth more than the multiple of net formula shows!” If you gather the right financial data, as illustrated below, and apply the formula and you are uncomfortable with final number, you have three choices. First, you can price it however you like and waste countless hours talking to buyers who never make a purchase, on the ultra-slim chance that you will find an emotional buyer with lots of extra money. Second, you can actually take the time to analyze your business and determine if there are ways to improve its performance and/or improve the way you handle the business’ finances. Perhaps it is worth taking the next three years to make a concentrated effort to manage and grow the business. If you can double the average annual net income over the next three years, you can double your price. You may be able to increase the price beyond double if you can demonstrate a pattern of growth. Thirdly, you can accept the fact that the business is worth the calculated multiple of current net income and get the business sold at its current value.

Establish and Maintain Credibility With The Buyer

At this point, if you, as the seller, have demonstrated to the prospective buyer that you have a reasonable, educated approach to the selling the business, the buyer will continue to be interested. Now it is important to establish credibility. If the buyer believes that you are reasonable and knowledgeable about the financial aspects of your business and that you are credible, he will likely pursue more advanced due diligence with you. This seems pretty obvious, but a vast majority of the opportunities I have reviewed do not qualify as credible. Establishing credibility is simple, but yet so few sellers manage to achieve it. As the seller, once you have organized your financial and operational information, ensure its validity and stick with the facts. Embellishing the facts, omitting information or being vague about important details will damage your cause. If a seller is inconsistent in the details of the business, the buyer will immediately begin to lose interest, because he assume that all of the information is suspect and the amount of time necessary to get an accurate picture of the business may take more time than his interest warrants.

This means that your books should match your tax returns. Buyers should be able to look at your bank statements and see that the amount of money deposited in the bank matches your revenue numbers. He should also be able to look at your check register and validate your expenses. Be sure that you have walked through this process yourself. Make sure that your books, bank statements, tax returns, invoices, etc. match. A lot of small business owners will claim that they don’t keep good records, but the business does well. Without verifiable proof, these claims are worthless. More importantly, it makes the seller of the business for sale look unprofessional and dishonest. The buyer gets scared and moves on. If you want to sell your business, you are going to have to organize your records to support your price and the underlying financials used to reach that price.

Keep in mind that there are a lot of businesses for sale. Many buyers have the opportunity to participate in many other types of investments as well. Ultimately, they will spend their money where they think that they can earn the most, with the least amount of risk. Remember that the business that you are trying to sell is just one of more than a thousand choices the buyer is evaluating. Some of those choices require almost no due diligence and are very well recorded. For example, mutual funds and other market related investments have very well documented performances and the buyer has to do little to invest in these opportunities. Buying a business is a very time consuming and risky proposition. If the seller makes it more challenging by presenting inaccurate or poorly organized information, the buyer is likely to take a path of lower resistance and choose another investment vehicle.

I liken it to building a fire. When building a fire you must be sure that you have plenty of small, dry kindling about to nurture the spark into a flame. In the event that the flame begins to grow, you continue to place more dry wood on to the flame. If you throw some green or moist wood on to a small flame, you will extinguish it. The potential buyer’s interest in your business must be nurtured with plenty of detailed, verifiable information. As his interest grows, you can expect to fan his enthusiasm with even more detailed information in a well organized, complete manner.

Preparation and organization are the keys to creating a comprehensive, verifiable, well organized picture of your business. By doing your preparation upfront, you will make the best use of your time and that of the potential buyers. More critically, your likelihood of selling your business in a shorter period of time increases dramatically. This does not mean that every buyer will be interested in your business, because criteria vary, but it does mean that you can rapidly disqualify buyers without spending much time and you can really hone in on those buyers whose criteria are a real fit for what you have to offer.

Defining Your Business for the Buyer

A good buyer is prepared to do plenty of research for an opportunity that interests him. He will research the macro-environment, the industry, trends affecting the customers, etc. In short, the buyer expects to research everything outside of the business. However, the buyer expects the seller to have deep, detailed information about the performance and operation of the business itself. This means that the owner has detailed financial information about his operation for the last five years. This includes his revenues, gross profits, expenses, payables and receivables. The owner of the business for sale should have these numbers at their fingertips, both from an annual and monthly perspective. In addition, the seller should be able to articulate the number of customers, suppliers and competitors and the impact the largest in each category has on his business. Finally, he should be able to list the employees and describe how each contributes to the business. If you are selling your business, you should have a chart in front of you that details this information every time you talk to a buyer. This is the result of your preparations to sell.

Most of my initial conversations with buyers are vague and annoying. They cannot verify the simplest details about their business. They have to “pull together” information and/or indicate that their “accountant” has all “that information”. I can’t tell you enough how discouraging this is to a potential buyer. If I am a buyer, and I already know that your company manufactures paper tubes, why would we need to cover the basics? I am calling for the details. Within a few minutes I can determine if this business has the financial metrics necessary to meet my criteria. If the seller of this paper tube manufacturer cannot articulate a single detailed financial fact about the business, I am assuming that this business for sale is poorly run and its performance is not worth remembering. The seller must remember that first and foremost, most buyers want assurance that they will not be wasting their life savings. If the seller cannot speak to any facts about the business, the buyer will vanish.

You wouldn’t take a test without studying? Would you approach a customer with any information about your products or services? Would you take a vacation without any planning? Preparation is key to most every process in life, and especially critical when selling something expensive and complicated, such as your business?

What Information Should I Gather For Prospective Buyers?

The tables below outline the specific information that your potential buyers will be looking for. All of the information in Table 1 comes from your business tax returns. The chart includes the line items and descriptions of the items you will want to take from your business tax returns. Make a simple chart and fill in the information, by year, for the last 5 years. Keep this chart handy when you talk to buyers about your business for sale. Let them know that this information is directly from your tax returns. This builds credibility while providing a fairly detailed financial overview of the business. This information illustrates key financials for you business, including revenue and how much money you make from that revenue. Finally, this information will give the buyer an idea of whether your business is growing or shrinking.

Table 1

Information Where To find the information

Total Assets Section D referenced at the top right of Form 1120

Revenue Line 1c (Gross receipts less allowances)

Interest Income Line 5

Gross Profit Line 3 (Gross Profit)

Total Income Line 11

Officer Compensation Line 12

Salaries and wages Line 13

Interest Expense Line 18

Depreciation Line 21b

Taxable Income Line 30

Table 2 includes other valuable data that you should be ready to provide regarding your business for sale. Most of the information is pretty basic, but you will need to do some analysis to determine how many customers, suppliers and competitors your business has. Potential buyers will also want to know the impact of each on your business. In other words, does your largest customer account for 50% of your revenues? Do you purchase all of your inventory from a single supplier? How much business do you lose or gain from your largest competitor? How large is your biggest competitor? Do you sell or buy anything overseas and how much of your product or service do you import or export from international markets?

Table 2

Information Description

City and State of main location City and state of your main office

Number of locations How many offices does your company have?

Type of Business Manufacturing, distribution, service, consumer, web-based business, utility related

Years in Business How many years has this business been in operation under the current tax id?

Years under your ownership How long have you owned this business

Business structure How is your company organized? Corporation, S Corporation, Partnership, Sole Proprietorship?

Unique point of differentiation What is one thing that distinguishes this business from your competitors?

Number of Customers How many customers do you have currently? What percentage of your revenue does your largest customer contribute If your largest customer left, how much revenue would you lose, as a percentage of revenue?

Number of suppliers How many suppliers do you have that contribute to your core product or service? This is does not include ancillary services like maintenance, janitorial, etc.

What percentage of your total supply does you largest supplier contribute How much business does your largest supplier do with you?

Number of competitors How many significant competitors do you have? Your ranking in size among your competitors

If you were to rank your competitors from big to small, where would rank in comparison? Geographic scope Do you serve a city, state, region, country or globe

Percentage of revenue from overseas As a percentage, how much of your total business is done with customers outside your country of residence?

Is this business relocatable Can this business be moved to another location easily? Yes or No?

Number of employees How many employees do you currently have? Average monthly payroll Check your payroll reports for the last few months and take an average of monthly payroll.

Finally, it doesn’t hurt to put together a succinct description for your business. This doesn’t mean, “this is a really great deal for the lucky buyer.” You are not selling lottery tickets. You are selling your business. A short description provides and overview to the prospective buyer of your business for sale what products and/or services you sell and to whom and whether the business is growing and/or profitable. For example, “Tennessee Tube sells paper tubes to Fortune 1000 consumer packaged goods companies in the Southeast United States. Our average annual sales are approximately $5 million over the pas three years with an average of $500,000 in annual net income. Tennessee Tube has grown 5% per year for the last 5 years and is priced at $2 million.” Although brief, the specificity of the information will provide a credible big picture for the buyer. Be sure that your numbers are accurate and verifiable.

A more comprehensive description would detail all the information in the two tables above as well a more detailed description of the products, services, customers, suppliers and competitors. This information can be summarized in a few pages and will further fuel the buyer’s enthusiasm for your business for sale.

The Specifics of Computing Business Value

Unless you happen to own a multi-divisional, multi-national conglomerate, valuation is a pretty simple thing to compute. In short, you can take the average taxable net income on the last three to five year’s business tax return and assign a multiplier. The multiplier is simply is a number, usually between one and five, that is multiplied by the average taxable net income. In service related businesses, you can expect a multiplier of one to two times the average taxable income and in manufacturing, distribution and consumer businesses you can expect a multiple somewhere between three and five times the average taxable net income. This is commonly referred to as a “multiple of net” value.

These multiples represent the average payback for the buyer. If he continues to run the business exactly as the previous owner then he can expect to recover his investment or pay off debt associated with the purchase in that amount of time. If the buyer purchases a business earning an average taxable net income of $500,000 and he pays a multiple of 4 on the business, then he can expect to recover his $2,000,000 purchase price in 4 years. If the buyer takes on debt to finance the purchase, then he can expect to pay off the majority of the debt in the same amount of time (the interest and charges on the debt may skew this number).

For manufacturing, distribution and consumer businesses with annual net income under $1 million, valuation is basically a multiple somewhere in the neighborhood of 2.5 to 5 times net income. As a business owner, you should look at your business tax returns, identify the reported income to the government, add back amortization, depreciation and officer’s compensation and multiply the result by 4. This is a good indicator of sales price. Businesses that have shown impressive growth year over year should expect to sell for a bit more than that multiple of net income of four. Businesses showing stable or declining performance should expect to sell for a bit less than that multiple of net income of four.

There are exceptions to this general rule of thumb. For example, service businesses typically garner approximately 1 to 2 times net income. Web based businesses should sell for no more than 1 to 2 times net income. These exceptions are based more or less on the nature of the business and how quickly the market changes around that business.

Beyond Net Income

There are at least three factors to consider in determining the value of a business for sale. One is the growth trend of the business. Another is called “add-backs.” Finally, the business’ value will be influenced by cash in the bank, debt, customer receivables and outstanding payables.

If your company has grown 25% per year for the last 3 years, then you are expected to project continued growth. In this example you would multiply your 3 year average of taxable income and multiply by 1.25 before multiplying again by the multiple in the range of three to five.

“Add backs” are the most troubling part of small business evaluation. Add backs are expenses that are typically used to reduce the income tax of the business. The most typical examples of this are amortization and depreciation. Both are non-cash expenses that the government allows a business to deduct from their net income before assessing taxes. Both can be found on the business tax returns. One can take the taxable income and add back the total depreciation and amortization to reach EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). Similar adjustments can be made with interest income and interest expense, especially if the purchase price is paying off any existing debt in the business for sale. The final allowable add back is the owner’s salary. If the buyer is planning to operate the business the salary of the existing owner will likely become their new salary. In the event that the buyer has to staff the former owner’s role, the seller cannot expect to add back that salary. This is often a point of contention for buyer and seller.

Unfortunately, with small businesses that is not usually the end of the “add backs.” This is the area of greatest due diligence efforts for both the buyer and seller of the business for sale. Many business owners, keen to reduce his taxable liability, will expense just about anything they can loosely justify as a business expense. This may include vehicles, mobile phones, mom’s medicine, son’s salaries, horses, trailers, food, etc. The difficult part for buyers is determining which of the seller’s other “add-backs” are legitimately personal or business expenses. The impact on net income can be substantial. One can assume that cars, phones, medical insurance, office supplies, etc. are legitimate business expenses and should not be added back. Most buyers assume that all of those things were required to run the business in the past and will likely still be required in the future. In other words, those expenses will continue regardless of who owns the business and cannot be added back. These categories are the single largest headache in valuing small businesses. The seller typically has taken an aggressive expense position to lower their taxable income and the buyers feel most comfortable with the reported tax return numbers. On the other hand, the seller of the business for sale knows that they have pushed through a plethora of completely unrelated expenses and now their business value ifs being penalized for this.

Add-backs are important indicators of how a business is being operated. If the business’ books are muddy and there are excessive add-backs, then one can assume the business itself is not run in a well organized fashion. Sellers, with the help of brokers and other valuation advisors may attempt to establish “recast” financials based on the add-backs. This is what makes due diligence in small companies difficult. Buyers, sellers and brokers will have to pass a lot of information back and forth to determine the legitimacy and nature of the add backs. Throughout the process, buyers tend to lose confidence in the process and the chance of selling the business drops.

The best approach for the seller is to separate their personal and professional books for three to five years prior to the sale. In this way, they can avoid the difficulties and lost sales associated with disputing valuation based on discretionary expenses.

In fact, I would suggest that “clean books” is the single greatest factor in establishing credibility with potential buyers and selling you business for more money more quickly. “Clean books” refers to businesses whose internal accounting records match the numbers presented to the government in their business tax returns, without the complication of any questionable add-backs. Unfortunately, few businesses have “clean books” and brokers and business valuation advisors will attempt to add back just about every expense the business has to establish higher net incomes, and thus higher price. This destroy credibility and the sale.

The third factor to consider in valuing a business is the outstanding debt or accounts payable. Aged receivables, bad debt and short and long term liabilities all need to be deducted from the total calculated multiple on average net income.

Many times, sellers will attempt to establish value for their equipment and inventory instead for the actual income those assets deliver. This is usually a clear indication that the business is not performing well. Both the equipment and inventory is typically only useful within the currently operating business and will have substantially less value in the open market. Finished goods inventory, if substantial, may have value and could be added to the calculated multiple on net income. Unless you are selling a valuable gems or other precious commodity, most buyers only care to see what income is generated from those assets.

Why is Multiple of Net a Common Way to Value a Business?

Using a multiple on net income is a common way to value a business, because it usually establishes a payback period for the buyer. In other words, if the business for sale continues to perform at the same level and is purchased for a multiple of four on net income, then the buyer can recover his investment in four years. After the initial investment is recovered, the buyer can use the income to grow the business or owner’s compensation. This applies to cases where the buyer borrows the money to buy the business. The lender and the buyer both are going to want to establish a reasonable time frame to pay down the note. The multiple itself can establish that, regardless of whether the actual payback period on the note matches the multiple.

Business cycles continue to shorten throughout the economy and many businesses will outlive their usefulness in 5 years or less. As a result, most businesses are assigned a multiple between three and five. During the heady days of the Internet boom, many technology businesses had multiples of 10 or more, because the buyers felt that their growth would be exponential, even if the cycle was short. In most cases the multiples followed the same range of 3 to 5 times net income, but the growth projections were very strong since some of the businesses grew at 200% per year.

Certain businesses carry lower multiples because the industry cycles are extremely short or the businesses simply have little or no growth potential. Web based retailers carry no multiple and many service business sell for between one and two times their annual net income.

An Example

Here is an example to ties some of these concepts together. The example includes some information from 5 years of tax returns from Jebs Car Vacuums Inc. I put this example together to illustrate a few different points. In Table 3, I have included the tax return information.

Table 3 2003 2002 2001 2000 1999 Revenue 1,500,000 1,400,000 1,100,000 1,000,000 850,000 Gross Profit 975,000 910,000 715,000 650,000 552,500 total Income 525,000 490,000 385,000 350,000 297,500 Officers Compensation 100,000 100,000 100,000 100,000 100,000 Salaries and Wages 230,000 170,000 150,000 75,000 50,000 Interest Expense 50,000 50,000 50,000 50,000 50,000 Depreciation 75,000 75,000 75,000 75,000 75,000 Taxable Income 25,000 60,000 75,000 35,000 17,500

Wow. At first glance, this business has nearly doubled in size in the last five years. I can see the broker summary of it now. “This stellar business has doubled its sales in just five short years. Grab of a hold of this explosive opportunity. Free stick of gum with purchase!” But close examination reveals the bottom line in this business is well below 100,000 per year. The average taxable income in this example is 42,500. This business doesn’t seem to trend up or down, although the most recent year shows much worse performance than the previous year.

Apparently, Jeb’s business is heavily reliant on labor, since his wages and salaries increases almost in proportion to his sales growth. He has some equipment and there is depreciation associated with it. He is clearly carrying some debt of some kind since he has interest expense, but at the same time he must have carried a little cash in the bank, because he has some interest income.

To calculate the business’ value is this simple manufacturing business, I would take the average taxable income of $42,500 and add back officer’s compensation of 100,000, depreciation of 75,000 and interest expense of 50,000 (assuming the existing note is not going to be assumed by the buyer). That results in $267,000. Applying a multiple range of three to five times the average adjusted net income brings the business value anywhere from $800,000 to $1.33 million.

As it turns out, about half of this business’ 400,000 in accounts receivables are over 90 days and there are outstanding payables of 200,000. Any existing debt will be covered by the sales price. Any existing cash in the business will be taken by the seller. I would deduct both of these amounts from the range. Thus, the final range would be between $400,000 and $930,000. Jeb ought to list the business for $668,000, which is a multiple of four times the adjusted taxable income.

The Business Plan

So you have done a fantastic job in summarizing the financial and operational history of your business for sale. You have current monthly number for all significant expenses, payables, receivables, etc. The buyer is very comfortable with the internal workings of your business for sale and your forthright, comprehensive, detailed overview has him seriously considering your business. The next critical element in the sales process is presenting the future of the business via a business plan.

For most businesses, planning is an ongoing effort where you evaluate industry conditions and determine how best to position your business to avoid threats and capitalize on opportunities. Within the small business community many businesses do not take the time to develop and maintain a written plan. However, this analysis can be instrumental in helping your potential buyers over the hurdles associated with running your business on their own.

By answering the following questions, you can create a skeleton of a business plan.

1. What do you think revenues will be over the next three years and why?

2. What will you have to do to generate those revenues over the next three years and how much will those efforts cost you?

3. When it comes to your major expense categories, what changes do you see if any? Will your core materials or employees become more or less expensive? Will you need more or less of these to sustain or increase your revenue projections?

4. What will your competitors be doing over the next three years?

5. What will your suppliers be doing over the next three years?

6. What are your greatest strengths and do you see an opportunities in the marketplace that you can take advantage of?

7. What are your greatest weaknesses and do you see any threats in the marketplace that you can avoid or overcome?

8. What sales process would be best to meet those sales projections? What specific sales efforts would you undertake and what do they cost?

9. What marketing process would be best to meet those sales projections? What specific marketing efforts would you undertake and what do they cost?

If your plan includes activities that you do not currently perform within your current business model, clearly describe why it makes sense to do them in the future. You are trying to pave the way for your buyer. Ideally, your business plan would be a continuation of your existing efforts and thus you will have detailed information about each aspect of it. The buyer will be pleased that you are running your business to a plan and will be relieved that he has a clear plan of action the day he takes over.

A business plan does not need to be more than a few pages of bullet points. It is not sufficient, however, to simply say “establish a web presence” for a marketing approach. Usually that is the extent of the business planning I have seen with most small businesses. They usually say that the new will need sell and market more to grow the business, especially over the web. The first question the buyer asks is, “how come you are not doing that?” There are no good answers. Instead, it makes more sense to specifically detail how your current efforts can be applied to the future to maintain and/or extend the business.

Conclusion

If you want to sell your business, you must do several things. First, you must try to understand the risk averse nature of qualified buyers for your business for sale. Second, you must create a detailed, verifiable financial historical summary of your business. Third, you must create an appropriate, factually based value for your business. Fourth, you should create a detailed, action oriented business plan for your business for sale. Following these steps will enable you to capture the interest of qualified buyers and complete your sale quickly. MBA Business Brokers can help walk sellers and buyers through this process.