By Kaye Patchett
So you’ve just purchased a business.
It’s not too soon to think about selling.
“The moment you open your doors on Day One, you need to think of your exit strategy,” said Tucson business broker Leah Marquez-Peterson of The Business Source, 6959 E. Wild Canyon Place.
To sell, a business must be successful. “It all comes down to cash flow,” Marquez-Peterson said. “Have an eye to the future. Put money away for expansion; have a business plan.”
Selling also requires careful planning. “It can take six to 12 months to sell a business,” Marquez-Peterson said. “If you need to sell quickly, it will probably affect the price.”
If you don’t have a broker, chances are your buyer will, putting you at a disadvantage. A broker can determine how much your business is worth. Working through a third party helps to maintain confidentiality until you find a buyer, and saves time.
“People need to run their business,” said broker Tom Kiernan, of Kiernan & Associates, 3142 N. Swan Road. “Selling can take a lot of time away.”
When Bridget Monrad decided to sell Happy Tails Pet Services, she first invested a year building the pet-sitting business. Then she hired Kiernan, who screened potential buyers and handled the sale, allowing Monrad to focus on her clients.
“You have to keep up the profits,” Monrad said. “It’s the worst time to slack off. You have to keep your energy and stamina going up to the last minute.”
Following advice from business professionals, she did not tell her employees or clients she was selling until she found the right buyer, who has continued to build the business.
Sometimes a financial “cleanup” is needed before listing a business.
“Pay attention to accounts receivable,” Kiernan said. Long-uncollected accounts are a bad indicator of client quality. An overly large or outdated inventory is another red flag to potential purchasers.
Clean up your premises, too. Purchasers want to be able to “picture themselves sitting in that chair doing the same thing you do,” Kiernan said. Add a coat of paint, and replace burned-out bulbs or worn carpets. “Give it more sex appeal, more pizazz.”
An unattractive lease or high rent can impede a sale, as can a less-than-prominent location. Being in a mall may attract buyers because of accessibility, but it can also be a disadvantage for someone who prefers to set his own business hours.
Former Montana resident Ed Scheibl bought Hall’s Mobile Home Products in Tucson through a business broker in 1993. “The location could have been better,” but he was attracted to Hall’s because of its excellent financial papers and well-managed inventory. Purchasing a business from out of state would have been difficult without using a broker, he said.
Jerry Mitchell listed his Tucson automotive business – Desert Diesel – with a broker for two to three years without success.
“My business was quite specialized,” he said. Eventually, he was approached privately by an interested buyer, but the buyer had insufficient capital for the required down payment.
Sixty percent to 70 percent of business sales are owner-financed, Kiernan noted. Obtaining a good down payment is important. “If the person has little investment in the business, it’s easier to walk away.”
Mitchell spent a year working on the sale of his automotive business.
“I wore out more pencils and paper than you can imagine,” he said.
After satisfying himself that a deal could be worked out to the benefit of both parties, Mitchell consulted his CPA and an attorney. “You need to hire people to protect you from injuring yourself legally or financially.”
Initially he divided the business into two parts, selling only the automotive repair portion. Five years later, the buyer was able to purchase the remainder of the business.
Selling a business is a soul-searching process, Mitchell said.
“Some people have sold, taken a month’s vacation in Europe, and then they find that they’re bored to death. They really loved it (their business), but they were just worn out. Take a two-week vacation prior to making a decision to sell.”
Tips for sellers
* Make sure your financial documents are up to date and accurate. Even if your figures are poor, buyers are often attracted to potential.
* Be prepared to finance the deal yourself. Many buyers rely on financing help from the seller. Failure to offer it will reduce interest in the purchase.
* Do not try to sell the business yourself. A buyer has the advantage if the seller is going it alone while the prospective owner hires an army of professionals.
* Value your business with the help of professionals, even if you intend to sell it alone.
* Do not enter into the selling process if your business has outstanding problems. Correct them before you begin, being careful not to leave loose ends.
* Do not tell clients, employees or suppliers you are selling your business, to prevent negative attitudes and other issues from arising.
* If you can, build your business to an optimum point before selling. Alternatively, identify and make use of a favorable economic environment, such as good interest rates.
* When talking to buyers, be businesslike and stick to the point.