Selling a Business

• BUYERS WANT CASH FLOW

  Recasting financial statements will help you provide a potential buyer with a better view of cash flow.  Cash flow is not the same as profit.  All potential buyers will want to see the income tax returns, profit and loss statement, owner compensations, etc.

• LOOKS CAN MAKE A DIFFERENCE

  Just as you will need to do all that you can do to show a well organized, profitable business, you also will need to make sure that your facility is as aesthetically attractive as possible.  Anything that you do to increase sales, increases profits and adds to that important cash flow that buyers seek.

• ADD VALUE TO YOUR BUSINESS

  Don’t overlook the impact of a loyal customer lists, proprietary products, well-maintained equipment, special computer software programs, unique services or products and good employees will make when considering the value of your business.

• ELIMINATE SURPRISE

  If your business has any flaws, be open about them.  Do not allow legal, environmental or any other undisclosed problem to kell the deal.  You need to resolve any problem before you market your business for sale.

• ALWAYS SEEK PROFESSIONAL ADVICE

  The R. A. Kent Company, LL. Professionals are experienced, credentialed, and knowledgeable in helping buyers and sellers achieve their goals.  Call us today.

1. Your reason(s) for selling your business and your future goals need to be clear and well thought out before you try to market your business.  A prospective buyer will want to know why you are selling and may be curious about what you intend to do after the sale.
2. A poor economic climate and/or a peronal emotional dilemma can cause you to accept a deal that is not in best interest for you or for a buyer.  It is important to market your business for sale at a time when you are not under pressure to sell.
3. As soon as you have a firm objective to sell, gather key information to facilitate the marketing and divestiture process:
   • Three years of profit and loss statements.
   • Three years of Federal income tax returns for the business.
   • A complete list of business assets (fixtures and equipment).
   • All lease agreements and related documentation (property and equipment).
   • List of loan amounts and payment schedules.
   • Copy of franchise agreement (if applicable).
   • Total worth of the assets.
   • Names of outside advisors (accountant, attorney etc.).
4. When you decide to engage a professional to help guide you through the process of marketing and selling your business, you agree to become part of a team effort to make it happen.
5. Confidentiality will ebe emphasized by the professional as he works on your behalf to find a buyer just as you will maintain confidentiality about a pending Sale as you go about your day-to-day business operations.
6. It is very important that you look at your business as if you are a potential buyer.  What do you see?  This may help you determine what you need to work on or what you can do to improve a first impression.
7. As you navigate through the process of divestiture, keep the following in your focus:
   • Keep normal operating hours.
   • Keep your facility and your equipment in top condition.
   • Remove any superfluous items or items not included in the sale.
   • Spruce up the exterior and the interior of your property.
8. Engage a seasoned professional for the best possible results.  To parphrase David Gumpert, former Harvard Business Review associate editor, experienced lawyers know the necessity for some risk in negotiations, whereas inexperienced professionals are often reluctant to advise their clients to take any risk.
9. Flexibility and patience will pay off in the long run in getting the best deal.  The right buyer may be better than a higher price.  You have probably spent years building your business and yoiu certainly will want it to continue to be successful.
10. A successful deal is created when the transaction represents a win-win where all parties walk away happy.

Increasing the price of your products or services is, in most cases, the most difficult decision a business owner has to make. Looking at the negatives is easy.

•    Our business is too competitive to increase prices.
•    Our customers/clients are used to our pricing.
•    Customers are too price-conscious.
•    We won’t be able to get new customers/clients.
•    We are known for low prices.
•    We have a lot of repeat customers, they won’t pay more.

The list of reasons why prices shouldn’t increase could go on and on. The fear is always that people won’t pay the increase and profits will suffer.

Before considering a price increase, one must look at their current pricing method. Do you work on a cost plus a certain mark-up? If you use a mark-up percentage, are all items marked up by the same percentage? Do you try to maintain a price comparable to the competition? If you work on an hourly rate, for example consulting, when was your last increase? Have costs increased and have you increased prices to compensate for them?

Looking at the positives is also easy. Profits will increase; and the price of the business will increase based on the increase in sales and profits. Funds will be generated to do that advertising or promotion you have always wanted to do. With increased profits you can hire that extra salesperson you know will increase business; you can install the technology you know will increase service and lower costs.

As Ravi Mohammed said in his book, The Art of Pricing, “Let me ask you, will a 1% price increase really cause your customers to stop purchasing from you?” A 1% increase on a business doing $5,000,000 a year is $50,000 to the bottom line. On a business with sales of just $500,000, a price increase of only 2% would bring in $10,000 to the bottom line.

One does not need to increase prices across the board. On fast-selling items, increase the price more than on slow-moving items. By doing so, you can test the waters on increasing prices. As Ravi Mohammed also points out, “McDonald’s profit on hamburgers is marginal, but it has substantial profits on French fries and soft-drinks.”

You many decide not to increase your prices, but at least you have taken a look at your pricing policies.

When is the last time you reviewed the lease on your business premises? When you signed it years ago?  There are some important reasons that should prompt a business owner to revisit the terms of his lease. If you can’t assign your lease to a new owner, you may not be able to sell your business. A similar concern is that if you can’t assign the lease, it may cost you a lot of money. This means that the landlord may want what could be termed as a “transfer” fee; or the seller may have to reduce the price accordingly. Whether you are thinking of selling or not, it is a good idea to review your lease and the transfer of lease provisions.

It’s also a good idea to check what happens at the end of the lease. Is there an option to renew and if so, how soon before the termination of the lease do you have to notify the landlord? And, just as important, do you want to stay, or is it time to move on?

A recent article in the New York Times titled “Thinking Past Location in Finding Space” said: “With rent typically the second largest expense after salaries for small business, and with office occupancy costs up sharply in many markets, a simple miscalculation can cost an entrepreneur her business.”  An existing lease may make it difficult to negotiate a lower rent with the landlord, but it may be worth a try. If the rent is benchmarked with similar businesses, a landlord may be convinced to make some adjustments.  Landlords don’t like late rental payments and they especially don’t like going through the eviction process.

If you are just now looking for space for a new business or if it’s time to move into new space, here are a couple of things to keep in mind when reviewing a new lease.

• The first thing to do is to find an attorney who is experienced in leases—this will be an excellent investment.
• If the business requires a lot of space or if location is critical, engaging a commercial real estate broker who represents tenants is also an excellent investment.
• Keep in mind that landlords want to pass on as many of the costs of leasing property as they can. Taxes, landscape upkeep, parking lot maintenance, shopping center advertising and promotion—the list is endless. The good news is that if they are looking for tenants they may negotiate on some of the items.
• Always ask the landlord for enough free rent to pay for the move into the new facilities or ask to have the premises remodeled for your particular usage.
• Make sure the space works for your business requirements. Is the parking sufficient? If the premises are inside a building, do the hours it is open work for your business? Do the premises have the necessary hook-ups for your needs? And, most important, does the space under consideration allow you to expand, grow – meet new requirements, etc?

By following the points outlined above, your new business or your new space should allow you to build or grow your business. If you’re in an existing space, some of these strategies may allow you to renegotiate your existing lease, or make some beneficial changes when you renew it.