When you stop and consider all of the different factors that lead to the success of selling a business, no one single aspect is more important than the price. You have probably heard the old saying “you make your money in real estate when you buy.” Well, a similar statement can be made about successfully selling your business …

“The success of selling your business is determined when you price it.”

I believe there are three ways to price a business – unfortunately two of them are disastrous for the seller. Price the business too high, and buyers will steer away from the listing. Price the business too low, and you don’t get the full value you deserve. But if a value for your company can be generated using proven methods and applicable research, then the ultimate of goal of pricing the business fairly and correctly can be achieved.

So how do you generate this value? If I was guessing, I would say that you have probably heard of ways to value your business – from a CPA, another business owner or from a book or website. Although some of these “tips” may be relevant, a true professional opinion of value is the only way to give yourself the piece of mind that your business has been valued correctly.

The Huntington Professional Business Valuation is a tool that combines the most relevant valuation models used today, along with industry research and business analysis, to produce a fair market value for your company. We don’t just consider one valuation technique – we utilize several ways of looking at your business and evaluate which carry the most weight.

This valuation is an invaluable tool for all parties involved in a transaction – we are able to determine the marketability of your business, you are able to determine if this is the right time to sell based on understanding how your business is priced, and buyers enjoy the confidence of knowing the price they are considering has a substantial amount of research and analysis backing it up.

Don’t leave such an important aspect of selling your business to chance. When it comes to establishing your asking price, make sure you have the analysis and methodology behind the value to support it. In the end, this type of diligent attention paid to your valuation will pay off in a faster, smoother and less-frustrating transaction.

Jeremy Furtick is a Senior Business Intermediary with Huntington Business Group Inc. a VR Business Sales firm in Dallas (www.vrbigd.com).

VR Huntington Business Group, located in the heart of the DFW Metroplex, serves the entire Dallas-Fort Worth Metro area as well as North Texas. The company specializes in Business Brokerage, Mergers & Acquisitions, Business Valuation and Consulting services focusing on small businesses and mid-market companies.

I hear it said over and over, IF I am going to finance the sale of my business “How Do I Know if They Have the Experience to Run the Business?” This particular reason for not seller financing your business can be asked in a number of different ways but the message is virtually the same: how can I be sure I’ve found the right buyer for the right company at the right time?

One resounding way in which I hear this same complaint translated sounds a lot like, “I don’t know what ‘that’ guy is going to do to my company after the sale.” Well, again, this concern can certainly be mitigated by paying closer attention to how exactly you find the right buyer.

If you’re not being very discriminating during your screening process then, yes, I can agree with this statement (to a certain extent) – particularly if you are selling the company to “Joe Bob,” You know….Joe, the customer or employee who keeps making comments pertaining to the fact that he wishes he could own “a company like yours” one day.

But with an investment like this, you wouldn’t dare be so indiscriminate with your buyers, now would you?

Getting Paid Is More Important Than Selling Price

There are ways to make sure you find the right buyer for the right company at the right time. And the way we overcome this issue every time is by doing a good job when it comes to due diligence by scouting out the right buyer for your company “The RIGHT Company”. Candidly speaking, even if we are being mercenary, you are looking for much more than just the buyer that is the highest bidder for your business!

There is much more to selling a business than the total price; anyone can offer big numbers in an offer to purchase and, perhaps, even back them up (for a little while). The real brass ring for anyone seller financing their business is, of course, actually GETTING PAID! Not just getting paid today but tomorrow and through the term of the loan.

It doesn’t matter if you get $10 million for your $2 million business or $100 million for your $20 million company. If you will never get paid a dime of that money, what difference does the selling price make? (Well, besides the bragging rights while playing golf with your buddies or having coffee with friends, that is.)

At the end of the day, it’s all about getting paid. Therefore, you need to make sure that you are using a reputable intermediary or business brokerage professional to ensure that you have not only a qualified buyer but one who is committed to paying you throughout the term of the commitment.

You’ll need an intermediary or business brokerage firm, for instance, that is not just out for the one-time commission but is particular about the buyer that they attract and has a history of doing so successfully for his or her clientele – one that is discriminating about who they even talk to about your business.

Customer Relations Don’t End Once the Business Is Sold

Screening through a professional business brokerage firm or intermediary is essential to finding the right buyer at the right time for the right company and, what’s more, finding the right buyer, who will not only pay their bills but also succeed in running your company successfully (so they can continue to pay their bills).

It’s a little like being a millionaire matchmaker: you can’t just go out and find your client the prettiest, tallest, blondest girlfriend (even if that’s what he “thinks” he wants at the moment).

No, you’ve got to consider dozens of other variables, like how they’ll get along, what her interests are that he shares, how they’ll mature together, what they’ll talk about and will she love him…for him? Or just his money? You even want to screen her to see if she’ll treat the help well because, let’s face it, that’s an indication of how she’ll treat her husband (someday).

The same is true of finding you the right buyer for your company. You may think this is bad, but I have actually told buyers that they can’t even look at the business because they were rude to my staff. WHY? Because these are the types of buyers that will be rude to your employees and clients as well; these are the types of buyers that will burn bridges and bury your business.

You know the employee that is going to give you inside information? Well, it’s kind of hard to find out this information when that employee has stormed out because of this RUDE new BOSS who wasn’t screened properly by your professional intermediary. BUT you must make sure that the buyer is not a jerk…or an idiot.

I say this casually, of course, but it is no casual matter. If you want to get paid, you need to make sure that you’ve done your due diligence in finding the right buyer.

Scot Cockroft is the owner and President of Huntington Business Group Inc. a VR Business Sales firm in Dallas (www.vrbigd.com).

VR Huntington Business Group, located in the heart of the DFW Metroplex, serves the entire Dallas-Fort Worth Metro area as well as North Texas. The company specializes in Business Brokerage, Mergers & Acquisitions, Business Valuation and Consulting services focusing on small businesses and mid-market companies.

As a business owner, have you ever wondered whether or not you were doing the right thing by not reporting all of the revenue that your business is making? Not just from a legal or tax stand point but how it might actually effect the overall value of your business? Well, business brokers do think about it. In fact, as brokers we know that buyers will only pay for what can be proven. What does that mean to you as a business owner? It means that if you think you might sell your business in the future, the sale price will be a lot lower than you anticipated because of the reduced amount of documented revenue and profits from your business.

The question is how much lower will the sale price be as a result?

Here’s why this can be a problem

Jack is the owner of the “Good Books” company that is earning a little over $750,000 in annual revenue resulting in a cash flow slightly over $120,000. Remember, cash flow is the owner’s salary plus EBITDA or Earnings Before Interest, Taxes, Depreciation and Amortization.

John is the owner of the “Bad Books” company – the twin to “Good Books” – and is earning the exact same revenues and has the same expenses.

Both businesses have been performing about the same for the last four years that Jack and John have owned them.

Let’s assume that John has gotten bold over the years gradually taking $200 every week from the cash register in his first year; $400 a week the second year; $600 a week the third year; and $1,000 a week the fourth year.

So what exactly did John do and how did it affect his bottom line?

1. While taking some of “his” money out of the cash register, he also took the sales taxes that he had collected from his customers on behalf of the state;

2. He also has held back the percentage of gross sales that his insurance company charges for worker’s compensation coverage.

These two items would have been deductable; therefore, John’s taxable profits were reduced by something less than the amount that he took from the Cash Register. Let’s also assume that John pays 40% combined state and federal taxes on these profits.

John’s Doing

If you combine the capital that John took out of the sales tax account, the money he would have paid the insurance company and the taxes he “saved”; his “take” was $50,430. At first look, John is ahead of Jack by a little over $50,000 for the four years despite both having identical businesses primarily due to the taxes that he has been able to avoid so far.


What does John Lose When He Sells His Business?


When Jack sells his business, he receives a sale price at the midpoint of the recommended price range that is based on generally accepted business valuation methods. On the other hand, John receives a sale price that is about $67,000 less than Jack’s. The sale price is also at the midpoint of the price range for his business but because of the reduced cash flow, the business is valued less.


While John was able to “pocket” about $50,000 over a four-year period with risk, it resulted in a net loss of over $16,000 when he finally sold his business. This is not counting the potential future risk of an IRS audit that can come even after the business has been sold.


My simple point – it is better to report and pay taxes than to dip into the Cash Register no matter if you can get away with it because you will lose in the end when it comes time to sell your business. Keeping good books will keep you in the black and away from IRS scrutiny, no matter how tempting it is to take a little cash off the top. If you are planning to sale your business in the next few years….Report the correct numbers (you may pay a little more in taxes) and benefit at the closing table by the buyer. Yes, you are literally being reimbursed from the buyer for your “extra” taxes, PLUS put more $$$ in your pocket!

Obviously there are a number of factors to consider. Let’s first look OUTWARD.

How does the economy effect selling a business?

Stock Market: This month, November 2009, the stock market is hovering around 10,000. This is a magic number but does it affect the economy? Not really but it does affect people’s mindset. From a buyers stand point, many who had heavily invested their retirement funds in the stock market can now at their portfolios and realize that they are certainly not as bad looking as what they were a year ago.

Unemployment: Right now the unemployment rate is at the highest it’s been in literally in 25 years. Every month, hundreds of thousands of people are being laid off. It’s getting worse, not getting better, from a stand point of unemployment. Yet our stock market is on the rise and in some ways it doesn’t make sense. However this helps you, the small business owner. Why? Because when upper level executives lose their job and they typically are unable to locate a new one that can provide them with the level of income they are use to earning. What do they do? They begin looking to start or buy their own business.

Entrepreneurialism rises when unemployment rises. In fact, this may be exactly where you are currently at as a business owner – a place in your life where you are considering the sale of your business so you can pursue another business idea. You may be an entrepreneur looking simply to do something different. Can it be the perfect time to do that? ABSOLUTELY. Even if you’re looking to retire!

If we are to consider the timing of selling a business, we would be remiss if we did not mention the issues and the criteria need that are more INWARD. The characteristics of the business itself.

Systems: I am not talking about the idea of your business having so many systems that you could create a franchise. But you should have a system in place (even if not written) for how things get done. In fact, things should get done when you are not THERE. If you are the only person doing the work or it requires you to be there 100% of the time in order to get ANY thing done, maybe this is not the time to sale. Are you able to leave without the business falling apart?

Business: Is business going well or are you almost bankrupt? 90% of all small businesses are down in 2009. There is a difference if your business is down and if you want to sell because you can’t stay afloat. If this is the case, it is possible that you may need to keep the business a little longer to insure viability. If your business is only off a 10% to 20%, then it is still possible to sell in 2009/2010.

So IS IT the right time to sell your business?

You put your blood, sweat and tears into your business. Only you can determine if the right time to sell is NOW. Typically it takes 6 to 12 months to sell a business. If you believe the timing to sell your business is right around the corner, NOW may be the time to start the process. You can find the right advocate for you. Someone who can help you get the right deal so you can move forward, taking this investment – called your business – and turn it into a retirement fund, or capital for a new venture, or into whatever you want to do in the next stage of your life. This can be the perfect time to sell your business.

FOR IMMEDIATE RELEASE


Dallas, Texas – VR Huntington Business Group is pleased to announce the strategic sale of Wash-A-Go-Go Car Wash in Arlington, Texas, to George Kramerov a local entrepreneur. Terms of the transaction were not disclosed.

“Huntington Business Group was very knowledgeable about the sales process and my business…” said Randy Fisher former owner of Wash-A-Go-Go. “They made me feel very comfortable with the entire process - from finding a qualified buyer to helping secure financing and then working to close the deal. I was able to focus on my business because they kept me fully informed about what was going on throughout the entire transaction.”

“Car washes and similiar types of “absentee-run” businesses are typically very popular with buyers,” said Mike Cockroft, Senior Business Broker with VR Huntington Business Group. “However, in today’s down economy we’re finding more and more buyers are looking for these types of businesses because they require very little management and are a great way to earn supplemental income.”

VR Huntington Business Group is Texas’ largest and most successful VR office. HBG specializes in assisting the owners of private companies to value, market and sell their businesses and has been in operation since 1979. For more information about VR Huntington Business Group visit our website at www.vrbigd.com or call us at 972.792.0100.