How quickly can I sell my business? This is one of the questions that comes up in every meeting with every seller and it’s almost without exception in the first meeting. Once a business owner decides it’s time to sell their business they generally want to start the process and get the business sold as soon as possible. Unfortunately there are many variables that affect how quickly a business will sell. Here’s what’s happened in real transactions when looking at the question of “How quickly will my business sell?”
Selling a business is complicated
Without exception, the process is more complicated than sellers expect. For a buyer to invest their time and take the process seriously they want all the information up front and disclosed as quickly and as soon as possible.
I’m currently working one transaction that started just on three years ago. To get the business to market it required the office manager employed by the sellers to get the necessary information to me. The office manager was not motivated to see the sellers sell and so simply delayed getting documents to me. Without the right documents there is no point going to market as the buyer will have questions and if those questions are unable to be answered then the transaction will simply come to a grinding halt; frustrating all parties.
Sell a business from a position of strength which means being totally organized and anticipating as many buyer questions as possible. You can’t anticipate all questions but if there is a good foundation of knowledge, it’s easy to answer unexpected questions quickly and easily to keep the buyer engaged.
In another transaction the buyer and seller exchanged Letters of Intent. The Letter of Intent was used as it was not binding and allowed both parties to scope out the main points of the deal. In this particular transaction there were 22 Letters Of Intent over a period of many months. Yes; the deal did close but it took patience and perseverance.
What are you selling and why does that matter?
What are you selling? This may seem a silly question but very basic to the successful sale of a business. Why does it matter? The majority of a healthy business being sold is goodwill. Sure it includes some hard assets such as fixtures, furniture and equipment and it may be a business with physical inventory. However, the sale of a business also includes phone numbers, possibly a lease, employees, processes and procedures, legal agreements and more which don’t have any physical value but they do have intangible value. How is that value measured? The value is measured from the cash flow of the business.
The cash flow of the business is shown with the financial statements of the business including profit and loss statements, balance sheets and most importantly, tax returns. If the business cannot produce a set of quality financial statements then the cash flow cannot be shown, no lender will lend against the business and a buyer will be unwilling to close the sale.
Quality financial statements matter
Recently I tried to sell a medical practice and its sales exploded. In fact the practice grew so fast the owners didn’t have time to hire the right Chief Financial Officer and so made mistakes with the quality of their financial statements. When they finally understood the documents they were producing were inaccurate, it was too late as the payroll tax being paid to the IRS was not correct and this meant the owners paying unnecessary fines and penalties and in fact, putting the success of their practice in jeopardy. What was even worse is that there were 2 buyers ready to make offers but the sale had to be put on hold while the financial statements were corrected.
Do you really want to sell?
It’s been my privilege to work with some wonderful doctors to sell their practice who would like to retire. Being a doctor is a life time vocation that requires continuous learning, changing with new medical and computer technologies, constant changes in government laws and regulations and more. If you are able to qualify to be a doctor and wish to then run a practice, it is not for the faint-hearted. Deciding to sell presents its own challenges as it requires letting go of what you’ve done including the personal interactions you’ve had with your patients over the years.
One of the first questions a seller needs to know is what they will do once they have sold. This is a fundamental question and if not answered, will present a final decision being made to sell to a buyer; even after months of work and negotiations.
From The Desk of BizON
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This article was originally created by Andrew Rogerson of Rogerson Business Services. For the original article please click here.