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As you look to sell your business, it’s important that you take the time to consider all of the questions and answers. With this free checklist by Vault Consulting Group, you’ll have 12 key steps clearly outlined before making a decision on whether or not to proceed with selling your company.
When you are selling a product or service, it is important to ask the right questions. This article provides 12 questions that you should ask your customers when selling a product. It also includes an answer and a free checklist for you. Read more in detail here: questions to ask customers when selling a product.
Selling a company is a complicated process that encompasses everything from planning to appraisal to closure. Almost every company owner has a number of questions along the road. To assist you, we’ve compiled a list of the top 12 questions you’ll most likely have throughout the company selling process.
If you want to sell your firm effectively, you’ll need to know the answers to the following questions. We’ve provided a free checklist for you to download so you can make sure you ask each one throughout the sales process.
The following are the 12 questions you should ask before selling your business:
1. What Should I Do Before Looking for a Buyer?
When it comes to selling a company, planning is essential. You’ll need to pay off as much debt as possible, assemble all of your critical financial paperwork for prospective purchasers to review, and identify any flaws. This will assist you in increasing the total worth of your company and expediting the selling process.
Resolve Your Business Debt
The less debt you have, the better your financial situation will seem to prospective purchasers. Having debt on your books may deter many individuals from ever considering your company. Those that are interested in the firm despite the debt will usually give you a lesser buying price than if the debt weren’t there.
You’ll almost certainly be requested by the buyer to pay off any debts with the profits from the sale, so you may as well do it now. It may make cash tight until you sell, but this is really a good thing since it will drive you to tighten your firm’s budget, raise your working capital, and therefore enhance the total value of the company, offsetting much of the cash used to pay down the debt.
Organize your financial data
Before they look at your firm, experienced buyers want to see that you’re ready to sell. You’ll need to keep your books tidy and presentable. You should also provide estimates for the next three to five years, demonstrating potential prospects for the company to flourish. They’ll likely move on to the next chance if you can’t offer them the financial information they need or acquire it for them soon.
Jock Purtle, the founder of Business Exits, says:
“Before you look for a buyer, have your finances in order. This includes having your most current company tax returns prepared and readily accessible. Not having strong bookkeeping or accounting is the number one deal killer today.”
Many organizations create an online data room where prospective purchasers may see all of the company’s financial information in a safe environment. This allows you to keep all of your data structured and accessible to prospective purchasers in a matter of minutes. All you have to do now is give them permission to enter the room.
Recognize Your Weaknesses
Every company has flaws, which prospective purchasers will be ready to point out. The best approach to handle them is to strengthen them before selling. If you can’t, you’ll need to be honest about any possible flaws and lay out a strategy for dealing with them.
Attempting to conceal flaws will only cause purchasers anxiety if they are uncovered. Furthermore, if your prospective purchasers aren’t familiar with the business, they may not know how to resolve these challenges. Dealing with these concerns early on, or giving a strategy for resolving them, will increase consumer trust in your company.
2. How Long Does It Take to Sell a Business?
Every company transaction is unique, and it’s difficult to predict how long it will take to sell yours. Starting from the moment you actively begin searching for a buyer, companies typically take at least 6-9 months to sell. A good rule of thumb is to allow a year from the start of the process to the completion of the sale of your company.
According to a recent poll by BizBuySell, 54 percent of brokers saw firms sell in 6-11 months between 2007 and 2016. The amount of time it takes to locate a suitable buyer isn’t always proportional to the amount of time it takes to find one. According to business brokers, more than half of prospective purchasers are qualified and capable of closing the deal, according to the same report. It’s just a question of finding the perfect buyer for your company, which might take up to a year on average.
Keep in mind that the time it takes to sell your company may vary depending on a variety of factors. While 6-9 months is a decent estimate in general, your industry, location, financial performance, and current economic circumstances will all play a role in a buyer’s decision to acquire.
3. Should I Consider Providing Seller Financing?
Owner-financed businesses nearly usually sell better than those that aren’t. Furthermore, firms that provide seller financing often sell for 10-15% more than those that do not, despite the fact that it is more about closing the transaction than truly creating value.
You may anticipate to finance 60-70 percent of the sales price via seller financing, with the remainder as an upfront payment. The average term is 5-7 years, with an interest rate of 6-10 percent. When you provide seller finance, you’re putting your faith in the new buyer’s capacity to manage the firm efficiently and repay the debt.
Check out our seller financing guide for additional information on how it works and how you may provide it.
4. What is the value of my company?
The approach of multiplying your seller’s discretionary earnings (SDE) by your industry multiplier is the best way to assess the worth of your firm. These industry multipliers usually vary from 2 to 5 times or more, depending on the industry you work in. The multiplier increases as an industry’s opportunity grows.
Founder of the company brokerage Business Exits, Jock Purtle, says:
“Overall, a company’s valuation is a mix of the firm’s potential to generate future cash flow and the market value for the industry or product in which the company operates.”
You may learn more by reading our article on how to value a business, or you can use our business valuation calculator to attempt to value your own company.
Contact a reputable company valuation firm like Guidant to get this job done for you in a precise and accurate way. For $495, you’ll get an estimated business value, a finance analysis, an in-depth industry research, and a dedicated valuation consultant to assist you sell your company for the best possible price.
Pay a visit to Guidant.
5. Do I Need to Show Potential Buyers Any Documents?
These are high-level financial records that provide prospective purchasers an idea of your performance and inform them right away whether or not they should invest in your company. Because you don’t want to provide too much confidential information until you know the buyer is qualified, you should restrict this information to just a few critical papers.
Here are the five most important papers to have on hand to present prospective purchasers first:
Income Statement for the Year To Date
The income statement for the year to date (YTD) illustrates your company’s revenues, costs of goods sold (COGS), operating expenditures, operating profits, and net profits. When measuring profitability and valuing the firm using industry multipliers, this is the document that prospective purchasers will look at.
Balance Sheet for the Year To Date
The year-to-date (YTD) balance sheet separates your company’s assets (equipment, cash on hand, and goodwill) from its obligations (loans, debts, liens, other money business owes). This document provides your purchasers with a one-stop shop for seeing the company’s assets and liabilities.
Cash Flow Statement for the Year To Date
Your cash flow statement is a summary of all the money that enters and exits your organization, including net gain. You’ll be able to view your company’s operating, investment, and financing cash flow, which may help you answer a lot of possible buyer queries. It also shows the buyer how much operating capital the company has each month, which is the most important factor.
Returns from the previous three years
Buyers will want to see proof that you have filed and paid your company taxes. They’ll also examine revenue, net income, and tax payment figures to ensure that the financial facts you submitted with your financial statements are accurate.
Your Company’s Summary Book
All of the aforementioned material should be compiled into a transaction summary deck or book by you or your business broker. You should include a business description and explanation, as well as a list of how you compare to your competitors. Anything that enhances the appearance of your company should be included.
6. What documents should I provide prospective buyers when they begin their due diligence?
When you have a buyer that has progressed to the due diligence stage, you will be obliged to open your records and present them with the remaining financial data. You shouldn’t be concerned about handing out this information as long as the buyer has signed a Non-Disclosure Accord (NDA). The information sought during due diligence varies depending on the buyer, industry, and the specific issues of each company.
The following are the most critical papers to have on hand for due diligence:
During the transaction, you may not have access to all of these papers. If that’s the case, you’ll need to be ready to explain why to any possible purchasers.
7. Should I hire a broker or try to sell the company on my own?
This is a difficult question to answer. A competent business broker may be quite beneficial. Business brokers, on the other hand, may be expensive, and you might be able to find a buyer on your own. When to utilize a broker is mostly determined by your own knowledge, the complexity of your company, and the amount you can afford to pay a broker.
When Should You Hire a Broker?
If you don’t mind paying a broker out of your selling earnings, employing a broker is often an excellent option. As long as you can afford it, we suggest using a broker like VNB Business Brokers. This is usually calculated by adding your broker’s charge to your outstanding company debts and removing that amount from your possible sales price.
Brokerage fees vary, but are typically approximately 10% of the ultimate transaction price. While this may seem to be a high charge, the business broker makes money by assisting you in obtaining a price that you would not be able to get on your own. Furthermore, they have contacts with possible purchasers that you do not. Paying a portion of the selling price is a much better choice than failing to sell the company at all.
VNB Business Brokers, in particular, can assist you in determining the worth of your company, maximizing the selling price, and expediting the process. They ensure that critical stages like as locating and verifying purchasers, structuring your contract with the buyer, drafting documentation, negotiating terms, and so on aren’t ignored, allowing you to prevent expensive errors.
Here are four situations in which you should engage a broker:
- If you have no notion where to look for possible purchasers.
- If you don’t know how much your company is worth.
- If you don’t have a large business network.
- If the additional time it takes to sell the firm would cause it to suffer, don’t do it.
A business broker can assist you with the full transaction. While selling your company yourself is a possibility, it is not recommended unless you are a seasoned dealmaker. Your broker is likely to have years of expertise identifying eligible purchasers and handling any issues that may arise, allowing you to earn the maximum money at closing. To explore whether VNB Company Brokers is the ideal fit to help you sell your business, fill out the form below to schedule a free consultation.
VNB Business Brokers is a great place to start.
When to Avoid Using a Broker
You may not need a broker if you have a buyer lined up or if you already have an organization, such as a franchisor or an industry group, that will assist you in finding a buyer. In these rare cases, it’s important to use the expertise of other transaction experts, such as solicitors, to safeguard your interests.
The following are some of the reasons why you may not need to engage a broker:
- If you’re a franchisee, your franchisor may be able to assist you in finding a buyer.
- If you’re well-connected in your sector and have a list of possible purchasers ready to go.
- If you’re able to shop your company while still running it.
- If you don’t want to pay the broker 10% or more of the selling price of your company.
The business broker is usually always paid by the seller. On successful transactions, business brokers often charge a fee of 10% or more. Let’s imagine your company sells for $175,000 dollars. You should expect to pay $17,500 or more in broker fees if you utilize a broker. However, if you don’t use a broker, you may not be able to obtain the sale at all.
8. Is There Anyone Else Who Can Assist Me in Selling My Business?
Regardless of whether or not you hire a broker, you certainly do not want to be doing everything on your own. At a minimum, you’ll likely need both a financial a legal expert to help protect your personal interests in the transaction. You may also want to hire Bankers that specialize in investment banking or M&A Consultants if your business is making over $1 million in profit every year.
CPA (Chartered Public Accountant)
CPAs play a key role in the business-to-business sales team. Make sure you employ an accountant who is familiar with your industry or has prior experience preparing a company for sale. A professional CPA will assist you in organizing all of your company financials and navigating all of the financial components of the procedure.
Attorney
As you manage all of the legal aspects of selling a company, an experienced attorney will be a useful asset. You won’t have to worry about creating contracts and agreements if you employ a knowledgeable attorney. They take care of all the legal drafting for you, always looking out for your best interests.
Bankers that specialize in investment banking
If you’re a larger company with yearly earnings of $1 million or more, you may need to engage an investment banker instead of a business broker. These are deal experts with a track record of locating large-scale purchasers in a stealthy manner. They usually manage the whole process, including all buyer talks.
Consultants
Consultants like M&A intermediaries can help you with any aspect of the sale process. They help you through each step of the process as you work towards closing with a potential buyer. From deciding on a sale price to drafting the closing documentation, they can hold your hand through everything related to selling your business.
9. How Do I Determine a Buyer’s Qualifications?
Before you attempt to clinch the deal with a possible buyer, you’ll probably want to measure their interest and financial capabilities. We’ve put up three methods for weeding out those with simply a passing interest. If a customer gets beyond them, there’s a larger chance he’ll be interested in your company.
Sign a Non-Disclosure Accord.
A Non-Disclosure Accord is a legal contract signed by both the seller and the buyer that states that both parties promise to keep each other’s private and financial information secret. A customer who is willing to sign this contract is at the very least interested in your company enough to sign a legally binding contract.
Inquire about the buyer’s personal financial situation and credit score.
This should deter non-serious buyers if the nondisclosure agreement does not. If a buyer is prepared to provide you critical personal financial information, he or she is definitely more interested in your company than a passing interest. This will help sort out any prospective purchasers who are just interested in pitching the firm to other buyers for a fee rather than owning it.
Set deadlines for yourself and stick to them.
If a buyer is serious about purchasing the company, they will be more than happy to establish timeframes for things like making an offer, signing documents, and finishing the purchase. You shouldn’t spend your time concentrating on them if they can’t keep to deadlines like these since they’re far less likely to really seal the transaction.
10. Do Buyers Have to Sign Any Agreements or Contracts?
Different sectors may need various agreements or contracts. At the very least, you’ll need to start with a Non-Disclosure Accord (NDA) for possible purchasers and prepare a Purchase Contract to seal the deal. You may be required to prepare the following contracts:
- Non-Disclosure Accord
- Initial Letter of Intent
- Purchase Contract
- Leasing Assignments
- Licensing Assignment
- Agreement on Seller Financing
- Employee Benefit Plan Succession Agreements
- Patents, trademarks, copyrights, and other intellectual property are all transferable.
- Agreement on Seller Consultation
- Statement of Asset Acquisition
- Contracts are transferred.
You’ll also need to write non-contract papers, such as your closing details sheet, which both the buyer and seller must sign before closing.
11. When I find a buyer, how long does it take to close?
The time it takes to close is determined on your buyer, the complexity of your firm, and the length of your negotiations. In general, due diligence takes 30-90 days, negotiations take 30-60 days, and the deal takes another 30-60 days to prepare the documents and close.
A firm seldom closes in fewer than 90 days overall. Instead, it might take anywhere from 90 to 210 days to see your deal through. Your sale might take a year or more if your firm is difficult or you’re in a hazardous field.
12. What Happens After I Sell My Business?
The owner’s work does not end with the sale of a small firm in many cases. Frequently, the buyer may request that you stay on for a period of time to assist him or her in taking over the new firm and becoming acquainted with its processes. This may be accomplished in one of two ways.
The owner continues to work as a business employee.
You continue on as a company employee for a certain amount of time under this approach. If you want to assist transition the company while still having access to corporate benefits like insurance, 401(k), pay, and so on, you should see if you can work out a contract like this.
The most usual transition is this one. Typically, the owner will continue on as an employee for up to 2 years, with extra bonuses or equity to entice them to do so. The reason for this is because most firms have complex operations that only the owner understands. The two years are frequently used to transmit information and make the move more smooth.
As an independent business consultant, the owner gets compensated.
Another option for a small company transition is for the buyer to pay the seller an independent consulting fee for a certain length of time. In this case, you get paid a predetermined monthly price regardless of how often you are really called upon to assist. You commit to deliver a specified number of hours of consultancy every month in exchange. Transitions might take anything from a month to a year in this situation.
You could find a buyer who is interested in owning the firm but not operating it in certain unusual situations. They may expect you to go on as if nothing has changed, save for who is in control at the end of the day. Finally, any agreement should be negotiated before to closing, and both you and the buyer’s specific expectations should be written down.
Financial Planning and Tax Events
You’ll get a flat amount of money regardless of what you decide to do with the company when it closes. You should be aware of the tax ramifications, and you should plan ahead for what you will do with your money once you get it.
When you sell your firm, the proceeds will be used to pay off any remaining obligations that the buyer refused to accept, leaving you with a profit. That profit will be a capital gain on your personal tax return, and it will be taxable income. If you’ve held the firm for more than a year, you’ll most likely be subject to a 15% tax; but, if you’re in the highest tax rate, the tax will rise to 20%. Before you close, consult a CPA to plan for this tax.
The selling of a firm might result in a substantial profit upon closure. If that’s the case, you should be prepared to save or invest the money in accounts that will help you achieve your long-term financial objectives. By investing the money at closing or putting it aside in tax-advantaged savings or retirement accounts, a financial planner or CPA may help you reach those objectives.
Conclusion
Selling a company is a time-consuming process that might take months to accomplish. If you do it wrong, you can have a hard time finding the proper buyer or you might waste time and money. Knowing the correct answers to the most often asked questions will help you avoid making such errors.
The “questions to ask a potential acquirer” is an article that provides 12 questions that should be asked when selling a business. The article also includes the answers and a free checklist.
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