Selling a Business

Buying or Selling a Business: The External View

There is the oft-told story about Ray Kroc, the founder of McDonalds. Before he approached the McDonald brothers at their California hamburger restaurant, he spent quite a few days sitting in his car watching the business. Only when he was convinced that the business and the concept worked, did he make an offer that the brothers could not refuse. The rest, as they say, is history.

The point, however, for both buyer and seller, is that it is important for both to sit across the proverbial street and watch the business. Buyers will get a lot of important information. For example, the buyer will learn about the customer base. How many customers does the business serve? How often? When are customers served? What is the make-up of the customer base? What are the busy days and times?

The owner, as well, can sometimes gain new insights on his or her business by taking a look at the business from the perspective of a potential seller, by taking an “across the street look.”

Both owners and potential buyers can learn about the customer service, etc., by having a family member or close friend patronize the business.

Interestingly, these methods are now being used by business owners, franchisors and others. When used by these people, they are called mystery shoppers. They are increasingly being used by franchisors to check their franchisees on customer service and other operations of the business. Potential sellers might also want to have this service performed prior to putting their business up for sale.

Burnout: An Ever-Present Threat

Burnout is an often-used reason for an owner selling his or her business. Potential buyers may have trouble accepting this as a valid reason for sale. However, burnout is a valid reason for selling one’s business.

A business owner can experience burnout even with a business that’s successful and growing. Many independent business owners feel they’ve worked hard, made their money, and now is a good time to cash out and move on, before burnout endangers the health of the business.

The following warning signs should remind a business owner that cashing out beats burning out:

You are overwhelmed on a daily basis.

When a business owner is a one-man show, even small tasks and minor decisions can seem bigger than Mount Everest. These owners have been shouldering the burden alone for too long, and the isolation has taken its toll.

You sense a failure of imagination.

Burnt-out owners are so close to their work that they lose perspective. Prioritizing becomes a major daily challenge, and problem solving sometimes goes no further than the application of business Band-Aids that cost money in the long run rather than increasing profits.

The joy is gone.

Although owning a business is hard work, it should also provide a good measure of enjoyment. When the work day begins with dread or boredom, the owner probably needs a change of scenery and a new challenge.

You are simply exhausted.

Being “just too tired” is a complaint heard just as often from the owner of the successful business as from the business that’s struggling to survive. In fact, a business that is growing will create increased demands of time and energy.

No matter what the status of the operation, the sheer work of keeping a business going day after day, year after year, is enough to encourage a business owner to make a change. This kind of schedule is not for everyone; in fact, statistics show that it’s hardly for anyone on a long-term basis.

Key Items Necessary for Selling a Business

What Makes a Business Unique

Most business owners think that their business is unique. There are obviously many different attributes that can make a business stand out from others. However, there are some key factors that make a business both unique and, at the same time, make it more valuable in the marketplace and more desirable by prospective purchasers. Just as importantly, these unique factors also need to be generally transferable to a new owner. Here are some key ones:

Intangible Assets
One example of an intangible asset could be a long-term lease for a great location that is transferable to a new owner. Other examples include a mailing list of current and past customers, a popular franchise relationship, a well-known product line such as Hallmark, or a well-established mailing program designed to attract new customers or clients. Trademarks and copyrights are some other examples of intangible assets.

Difficulty of Replication
For example, in most jurisdictions, liquor licenses are doled out by population or on some other limited basis. One can not just decide to rent some space and open a liquor store. Franchises often limit the number of units in a geographical area. Selling certain brand collectibles is a license not granted to just any store.

Proprietary Products, Services or Technology
A business owner may have developed, or have had developed, software unique to their business which is a key to its success. Or the proprietary item could be something as simple as a secret recipe for a food item, sauce or other food product unique to a restaurant.

Reputation
There is the pharmacy that is known all over town for delivering prescriptions or other medical needs. And there is the hardware store that will still sharpen knives or fix screens. Then there are the local businesses that have “just what you need” or that special something that makes them known all over town. While these characteristics make these businesses unique, it is up to a new owner to continue them.

When looking at businesses to buy, buyers should look beyond the numbers for the unique qualities that separate a particular business from the pack.

Are You Serious?

There are three good questions to consider before selling your business.

First, “Do you really want to sell this business?” If you’re really serious about selling and have a solid reason (or reasons) why you want to sell, it will most likely happen.

Second, “Do you have reasonable expectations?” You increase your chances of selling if you can answer “yes” to this second question. This can include your expectations about the selling price, the time it will take to sell your business, and the amount of seller financing you are willing to offer.

Third, “What will you do once your business sells?” The time to consider this is before you place your business on the market. This may seem obvious, but many transactions fall through because the business owner did not consider what he or she would do once the business was sold.

A “yes” answer to the first two questions plus having an answer to the third question (other than “I don’t know”) means you are serious about selling.