Things to consider when selling a business
As the economy in northern Nevada continues to improve, opportunities for local entrepreneurs and small business owners are beginning to pop up all over the landscape. With exciting news such as Tesla coming to town and Amazon’s new warehouse, the area is buzzing with optimism about our economic future. This has spurred many to seek new opportunities as more business floods into our community.
Tracking along with this trend is the increased number of businesses bought and sold not only in northern Nevada, but across the country as well. According to the data published by BizBuySell, business sales and acquisitions are up 55 percent from the recession period of 2010-2012.
As many know, small businesses form the backbone of any strong economy and the sales and acquisitions of these entities is a major indicator of overall economic health and growth.
This trend stands as an incredible opportunity for those who want to own their own business, expand their current operations or cash out and enjoy the fruits of their labor. Never before has the market looked so good for both buyers and sellers and for those in the know, now is the time to buy and sell.
For those not in the know (which is most of us), the process of buying or selling a business is not only unknown, but seemingly terrifying. Where do you begin? How much is my business worth? How do I transition into or out of the business after a sale?
The process is not as scary as it seems and is often an exciting and rewarding experience. Below is a simple explanation of what this process looks like for a business owner looking to sell.
For the seller
Despite the increasing number of businesses being sold in the U.S., many business owners have no idea how to go about selling their companies. Fortunately, there is help out there, usually in the form of a licensed business broker. Think of them as real estate agents, except instead of helping clients buy and sell homes, they help clients buy and sell businesses.
We are fortunate in Nevada as we are one of only two states that requires business brokers to obtain both a real estate license as well as a business broker permit. This ensures that only licensed and trained professionals will be handling the transaction.
Typically, the first step in selling a business is to put a value on it. Most brokers will ask for the last 3-5 years of financial information, such as a profit or loss statements and federal tax returns. They will then use some form of valuation method to arrive at a marketable price for the business.
If this valuation is acceptable to the seller, a broker agreement is then signed just like you would when listing a home for sale with a real estate agent. Business brokers also work for commission and typically don’t get paid until the business sells.
The broker then will create a listing and market the business confidentially. The key word here is confidentially. Most owners do not want the general public to know that they are for sale for fear of repercussions from competition, customers and employees.
The methods for marketing a business confidentially will vary from broker to broker so be sure to ask that question before listing.
Next, it is time to wait for a buyer. A good broker will vett any potential buyer to ensure they not only have the capital to purchase the business, but the motivation to do so as well. There are a lot of tire-kickers out there and the benefit of working with a broker is that you don’t have to deal with all the looky-loos.
Once a buyer comes to the table with an offer, the broker will then write it up on a purchase agreement and present it to the seller. If acceptable, the business moves into escrow.
The paperwork is then turned over to an escrow attorney. They act like a title company would for a home as they handle all of the behind-the-scenes paperwork to make the deal legal. The escrow attorney is an invaluable resource. At this stage in the process they can add a great deal of peace of mind to both the buyer and seller.
Once both parties sign on the dotted line at the close of escrow, the deal is complete! The business changes hands over night and the new owner starts operations and making money the very next day.
In theory, the process is quite simple. In practice, it is often anything but. This is why having a business broker with you to walk you through every step is an invaluable resource.
They can navigate the uncertain waters of business sales and help you get the price you want for your business.
If you have ever thought about selling your business, the market is extremely favorable with new buyers pouring into the area every day. The economy is improving and there is no better way to capitalize on your hard work than to sell your business in a thriving market.
Trevor Anderson, MBA, is a business broker with The Liberty Group of Nevada. He can be reached at firstname.lastname@example.org.