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Misconceptions When Advertising a Business For Sale

Many business owners approach the process of selling a business as they would a piece of land or a building. The reality is that the process is much more convoluted and open to subjectivity for some parts of the sale. That being said, what is absolutely not subjective is the fact that a business is only worth what a buyer is willing to pay for it. Using the previous statement as a lense, the following article will examine some common misconceptions when advertising a small business for sale.

Accountant advised that the business was worth X
While accountants can be a valuable resource to assist you sell your business, not all professional accountants are well versed with the principles of business valuation. Accounting book value differs significantly from market value and using accounting standards alone to assign a business value can be an erroneous methodology. The ideal person you should turn to is a chartered business valuator (CBV). A CBV in Canada is a professional that specializes in the art and science of valuing a business. Many times they are accountants with additional training, but not always. You can also turn to an experienced business broker for their input. Business brokers talk to business buyers and sellers everyday and have a keen sense of where the market is.

List the business at a high price and expect buyers to negotiate it down
A common strategy with business owners is to list their business for sale and expect buyers to offer a price that will be equal or greater than market price. This is a flawed strategy. If a business is overpriced then many buyers in the market to buy simply will not even call to inquire about it. The listing will miss out on all of the prospective buyers that would have called at a more reasonable price but decided against it at the higher level. The much better strategy is to list a business at closer to market levels and generate a higher level of interest from the outset.

Thinking that selling a business is a waiting game
Some business sellers believe that it is only a matter of time until their business sells. This could not be further from the truth. The main drivers behind the sale of a business is having a company that is profitable, where the goodwill is transferable and one that is priced properly. Time really has nothing to do with it. Quite the contrary. If a business for sale is overpriced it will usually languish on the market and the listing will most certainly get stale. The Toronto, Ontario marketplace is a good example of one where many businesses are listed privately at completely unreasonable price expectations.

Have unclaimed cash sales counted towards revenue
If a business is on the market and has significant unclaimed cash sales, these businesses are very difficult to sell. Buyers typically do not accept the cash sales as verified revenues and it raised many questions about the ethics of the seller. Banks also will not accept undeclared sales so it makes acquisition financing more difficult to obtain.

The above points are only a few examples of some misconceptions present with business owners thinking of selling their businesses. Talk to your accountant, lawyer or a reputable business brokerage about assistance with the sale.

Preparing Your Business For Sale

There is an essential element of business ownership that frequently gets forgotten by many seasoned business owners – preparing their business for sale.

Why do you want to be prepared to sell your business? Simply, being prepared adds tens of thousands of dollars to the value of your business. Lets take a look at a few simple things you can do today that will, over time, increase the value (and saleability) of your business.

How dependent is the company on you personally?

Can your business function without you? Do customers ask for you personally? Great value is added to a business who’s operation is not dependent upon the owner both from a buyers perspective and from a lenders perspective should buyer financing be required.

How do you remove yourself from being integral to the business? There are several solutions from delegation of duties, creating processes and procedures to hiring a sales team and administrative staff. Start working at promoting the business and remove yourself from being integral to the day to day operation of the business.

Do you have a business plan and marketing plan?

Both Business and Marketing plans are critical documents to any business. These documents do not have to be complex. Unfortunately few businesses have these documents and even fewer actively maintain these documents.

The business plan is commonly thought of when financing is required however it should be a document that is frequently reviewed. Software is available that can help you create and maintain a Business Plan.

The marketing plan is essential to every business. Indeed, marketing can easily be a full time job in itself. I’ve seen businesses of all sizes with no marketing plan, all suffering from the illusion that customers and clients will simply pour through the door for product and or service. This attitude is typically the down fall for many a business. Do not underestimate the power of the marketing plan. Consider structuring your business to include an expert who can help you in this area.

Do you have an operations / procedures manual?

I was in a restaurant the other day and in the kitchen was a monitor above the prep table. Anyone in the business, could make a meal by pulling up the step by step instructions on the monitor – which included photos! The point is consistency even if key staff are absent.
Start creating an operations / procedures manual from the perspective of how to run your business, (based on the above example of preparing a meal, step by step). Your manual will then allow your staff complete mission critical activities consistently by following step by step instructions.

Your Employees

You need to ask yourself some tough questions regarding your employees. If you do not, a savvy buyer will. Are all your employees critical to the operation of the business? Are they all pulling their weight? Certainly if there are one or two that are not, it is better to address these issues now before the sale of the business starts.

Start cross training your employees, creating traditions and even implementing a long term incentive program. Each of these areas creates loyalty, significantly improves employer / employee relationships but most importantly, increases the value of your business.

Financial Statements

Accountant prepared financial statements are important to have on hand. For any potential buyer, do take the time to explain any abnormal occurrences such as drops in revenue and any increases in specific expense items.

Having your accountant prepare Notice to Reader financial statements are acceptable for some businesses but if you are considering selling, I would recommend your accountant prepare a Review Engagement financial statement instead. The reason is a Review engagement is viewed as being more credible than Notice to Reader financial statements. Certainly in this day and age, should a buyer be in need of financing, many lenders will only approve loans based on Review Engagement financial statements.