Around the Web: A Month in Summary
A recent article from Divestopedia entitled “When is the Best Time to Sell My Business” explains that a business owner who is looking to sell should begin preparing for the sale three years before they plan to list their business on the market.
The state of the market matters when listing your business, but what you can’t control this as a business owner. What you can control, however, is the state of your financial records, whether the business has any litigation outstanding, and the overall appearance and wellbeing of the business. In order to sell your business at the highest value possible, there are certain things that need to be taken care of before listing. By giving yourself about three years (the number of years of clean, verifiable financial statements you should have) to prepare your business for sale, you are giving yourself and your business the best chance on the market.
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A recent article from Inc.com entitled “Small-Business Financing 102: The Latest Updates and Options Available for Funding a Business Venture” explains what each type of startup funding entails and how it’s affecting both buyers and sellers. Currently the ways to fund a new business or to purchase an existing one include:
- SBA Acquisition loans
- Peer-to-Peer lenders
- 401(k) business financing
- Crowdfunding and angel investors
Each option presents its own set of obstacles and requirements that need to be met by the buyer, just as they each provide their own benefits. The increasing number of ways in which an aspiring entrepreneur can acquire the capital to start or buy a business is great news for sellers because it means more buyers on the market.
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A recent article from Exit Promise entitled “Top Seven Important Deal Terms When Selling a Business” highlights the main factors, other than price, that influence a seller’s decision when considering an offer on their business. While price matters, business owners care about their businesses and generally want the best for both themselves and their business, therefore they consider these factors in the sale as well as price:
- Speed of the sale
- An all cash offer vs. a financed one
- The compatibility of the potential new owner with their vision for their business
- % of the business the new owner wishes to purchase (most prefer to sell 100%)
- Whether or not there’s an earnout clause written into the deal
- The tax consequences associated with the deal
- Confidentiality of the sale
In the end, sale price is generally the primary focus of negotiations between a seller and a buyer. However, it is not uncommon for a buyer to choose to accept a lower offer, for example, if it’s a complete cash sale to a buyer whose business plan aligns well with the current owner’s dream for the company’s future.
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A recent article from FinSMEs entitled “Raising funds to Buy a Business; What Are The Different Options?” explains the different ways to fund a business acquisition, how to approach each way and who it’s best for. The options explained include:
- Savings
- Traditional lenders
- Borrowing from family and friends
- Crowdfunding
- Investors
Each of these options comes with its own obstacles and upsides, and some may be better options than others. Whichever option you choose to go with, be sure to do your research and prepare yourself for meeting the demands of each source of funding.
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A recent article from Exit Promise entitled “Business Broker Fees and Other Selling a Business Expenses” explains the typical fees and expenses that a business owner can expect to come across during the process of selling their business.
Business Broker Fees:
- Small Business: Typical fees include a 10% commission of final sale price and upfront $1000- $2500 to market, value and sell the business.
- Large business: Typical fees include 3-10% commission of the final sale price and upfront fees ranging from $2,500 to $25,000+.
These fees can vary from broker to broker depending on their expertise and services offered. They can also vary depending on the size of the business and specific services and time needed from your broker. It is always recommended to get multiple quotes from qualified brokers who specialize in your industry and the services you need.
Legal costs:
- Small Businesses ( $1MM or less) : total legal fees are typically between $5,000 and $12,500
- Large Businesses ($1MM and up): total legal fees can range from $10,000 to $50,000+.
Your broker can recommend attorneys that are experts in business sales and negotiating with your buyer’s lawyer, protecting your interests and keeping legal fees from becoming excessive.
Other hidden fees can include severance payments to employees not retained by the buyer, prepayment penalties associated with paying off indebtedness of the seller, taxes, appraisals if necessary and a CPA.
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