DealFlowCircle

Pricing your Business right

Welcome back to Deal Flow Circle. In our Business Exit Strategy series, we help you navigate the complexities of selling your business. Today we're tackling a critical question for every business owner: How do you price your business for a successful sale? It’s a delicate balance; you want to get what your business is worth but also attract serious buyers. In this episode, we'll explore the key elements of pricing your business right, ensuring you don't leave money on the table while still attracting a buyer. Many business owners struggle with pricing because of emotional attachment or a lack of understanding of valuation methods. This episode will help you look at your business from a buyer's perspective and determine the price that will attract buyers and meet your financial goals.We’ll begin by emphasizing the need to get your financial statements in order. If your business records are informal, it's essential to work with a bookkeeper or accountant to prepare formal records for the current year and the previous three years, if your business is that old. We’ll review the importance of having an accurate income statement showing your gross revenue, costs, and profits or losses each year, as well as a balance sheet that shows the net worth of your business.Next, we'll explain the need to list and price all physical assets of your business, including furnishings, fixtures, equipment, and inventory. The worth of tangible assets is important to buyers, who will require a complete asset list with purchase prices and current market values. If the value of your tangible assets is close to the likely sale price, you may decide that liquidation is a better option. Then, we will dive into the concept of seller's discretionary earnings (SDE), also called annual earnings or cash flow. This is a recast income statement that reflects the true earnings of your business. The SDE is a primary factor in pricing your business, and we will discuss how to calculate it by making adjustments to net income. We will also cover the use of an earnings multiple in business valuation. Most small businesses sell based on a multiple of 1-4 times the annual SDE, with the multiple determined by the attractiveness of the business. We will discuss factors that affect the earnings multiple including: ●Recent performance of the business over the past 2-3 years ●Ease of transition for a new owner ●The quality of your financial records ●The strength and diversity of your clientele ●The strength of your staffing ●The quality and location of your facilities We'll also explore how to estimate your purchase price by multiplying your SDE by the estimated earnings multiple and comparing it to prices of similar businesses. We will emphasize the importance of doing some price checking on sites like www.bizbuysell.com and through industry contacts. We will also emphasize that your asking price will need to account for the fact that buyers negotiate downward.Finally, we’ll touch on the importance of understanding that the purchase price is usually less than the asking price and the subject of seller-buyer negotiations. In fact, businesses usually sell for around 90% of their asking price. By the end of this episode, you'll have a solid understanding of how to price your business effectively, using a combination of tangible assets, discretionary earnings, and market comparisons, ensuring you get what you deserve without losing buyers because of an unrealistic asking price. So, if you're ready to learn how to price your business for a successful sale, join us. This episode is for you.

Prepping for a Big Sale

Welcome back to Deal Flow Circle. In our Business Exit Strategy series, we equip you with the knowledge and tools you need for a successful business sale. Today, we're diving into a critical phase of the selling process: preparing your business for sale. Don't let a weak spot scare off potential buyers. In this episode, we’ll show you how to identify and address your business's shortcomings and assemble the necessary documentation for a smooth sale. Many business owners feel hesitant about selling their business because they are aware of its weaknesses. However, it's important to realize that every business has areas that can be improved. The key is to identify these areas and address them before offering your business for sale. This episode will guide you through the process of assessing your business, making necessary improvements, and assembling the documentation that buyers will expect to see. We'll begin by discussing how to assess the condition of your business as a sale prospect. Is your business financially solvent, able to consistently cover costs and expenses from sales revenue? Does your business offer distinct and superior products or services1? Does your business have modern facilities and equipment, and are leases long-term and transferable? Do you have a staff that customers or clients know and trust, and are there employee contracts to ensure a smooth transition? Is your staffing policy outlined in an employment manual? Does your business have a long-standing and loyal clientele? Is your business known and well-regarded? We’ll help you use a checklist to identify areas of your business that are strong, adequate, or in need of improvement. Next, we’ll discuss how to flag the areas of your business in need of improvement. We'll guide you through a series of questions to determine if each weakness is significant enough to warrant action: ●Is the weakness in an area of high importance to the success of your business? ●Is the weakness likely to lessen a buyer’s interest or affect the price a buyer is likely to offer? ●Is the cost of improving the condition likely to be less than the price concession the weakness is likely to force? ●Can you implement necessary changes within the timeframe of your sale goal? Once you’ve identified your weaknesses, we will explore how to create a pre-sale action plan and timeline. For each weakness, you'll need to list the specific improvements necessary, and the resources you'll commit to the effort79. Then we'll help you create a timeline for completing improvements prior to launching your marketing campaign9.Then, we’ll discuss the importance of gathering necessary documentation. Buyers will expect to see "just the facts" about your business. You'll need to be ready to provide a range of documents that demonstrate the health and value of your business. We'll guide you through assembling the following kinds of documents: ●Legal Documents ●Financial Documents ●Operational Documents Finally, we’ll discuss the need for confidentiality throughout the pre-sale preparation process. It's important to share your sale intentions with key staff and outside consultants only as necessary and only when the news is accompanied by a non-disclosure or confidentiality agreement. If word gets out that you plan to sell your business, you risk creating uncertainty among employees, customers, and suppliers, which can devalue your business. By the end of this episode, you'll have a comprehensive plan for addressing your business’s shortcomings and assembling the necessary documents, so you can confidently move forward with the sale of your business. So, if you’re ready to prepare your business for a successful sale, join us. This episode is for you.

Setting your sale outcome

Welcome back to Deal Flow Circle. In our Business Exit Strategy series, we guide you through every phase of selling your business. Today we're focusing on a crucial step that sets the stage for a successful sale: defining your ideal sale outcome. What do you really want from this deal? This episode will help you establish clear goals that will steer you through the entire sales process. Many business owners begin the sales process without a clear vision of what they hope to achieve. As a result, they often react to offers rather than proactively pursuing their desired result. It’s important to define your ideal outcome before you begin marketing your business for sale. This episode will help you focus on your priorities, and develop a plan that aligns with your personal and professional goals. We’ll begin by emphasizing the importance of creating a statement of your desired sale outcome. Do you want to sell your business in part and remain involved with its operation? Do you want to sell your business in full and remain involved? Or do you want to sell your business in full and end all involvement? These are crucial questions that need to be addressed before proceeding with any sale plans. Next, we'll discuss the importance of setting a timeline objective. Do you want an immediate sale (0-6 months), or are you comfortable with a timeline within a year, or perhaps within 1-3 years? Your desired timeline will affect how you approach preparing your business for sale and how you market your business. We’ll also explore the need to define your financial outcome objectives. How much can you realistically ask for your business, given its current condition? Most businesses sell at a multiple of 1-4 times annual earnings, also called cash flow or seller’s discretionary earnings, with the multiple based on business condition and attractiveness to buyers. Are you prepared to accept a lower pricing multiple due to the current condition of your business, or are you willing to commit time and effort to strengthen your business to improve its likely pricing multiple? Also, are you willing to provide a seller-financed loan for a portion of the sale price, or do you require an all-cash payoff at closing? Then we'll explore your sale approach objectives. Have you already defined your likely buyer, or are you interested in selling to any qualified buyer, whether a business or an individual? Do you prefer or are you obligated to sell to a partner, key employee, employee group, or family member? Are you targeting a specific kind of buyer such as a supplier, competitor, or strategic business buyer? Or do you seek to sell to any buyer who has the financial and managerial capability to buy your business? Your answers will affect how you market your business. We’ll also discuss your after-sale objectives both for yourself and for your business. Do you want to stay involved with your business in a managerial capacity after its sale, or are you willing to remain involved over a post-sale transition period of 3-12 months? Do you prefer to sell to a buyer who plans to retain employees and cause little disruption in their lives, or are you willing to sell to a buyer with plans to merge, move, or significantly alter the business? Finally, we'll emphasize that while you may end up adjusting some of your objectives along the way, the outcome of this step puts your sale goal into words and sets your sale effort in the right direction. By the end of this episode, you'll have a clear understanding of how to define your ideal sale outcome and set specific, measurable goals that will guide you through every step of the sales process. So, if you're ready to take control of your business sale and achieve your ideal outcome, join us. This episode is for you.

Wants vs. Needs when selling: Quick Sale or Top Dollar?

Welcome back to Deal Flow Circle. In our Business Exit Strategy series, we help you navigate the complex world of selling your business. Today we're diving into a crucial aspect of the sale process: prioritizing your motivations. It's not always possible to get everything you want from a sale, and understanding your needs versus your wants is essential to a successful exit. Many business owners enter the sale process with a variety of goals, from an immediate departure to maximizing their financial return, but these objectives can often conflict with each other. This episode will help you understand these conflicts and how to avoid them. As the guide points out, if you want a quick sale and a high selling price, but your business isn’t in top shape for a sale, you’ll have to concede on either timing or price. We’ll begin by exploring the common motivations behind selling a business. Are you seeking an immediate departure, or are you open to a 3-12 month post-sale transition period? Is your primary goal a high sale price, or is a quick and easy sale your main objective? Do you require an all-cash payoff at closing, or are you willing to consider seller financing? Perhaps your main objective is maintaining post-sale involvement with your business. We will also discuss the importance of understanding what you want for your business after the sale. Is it essential that your business remains in its current location to minimize disruption to your clients and staff? Is there a key employee or family member to whom you’d prefer to sell your business? Are there any competitors, suppliers, or other businesses you’d prefer to avoid selling to? Next, we’ll examine how these various sale objectives conflict with one another. We’ll explore why an immediate sale may conflict with achieving a high price, and how an all-cash payoff can slow the sale process. We will also discuss how a desire for a rapid departure from your business might lower offers from buyers. We'll also delve into why seller financing typically supports a higher selling price, and how your desire to keep the business in its current location can narrow the buyer pool and affect pricing. Finally, we will help you prioritize your motivations, as you must realize that you cannot have it all. Are you seeking the highest price possible, or do you value an immediate departure from the business? Is your main goal an all-cash payoff at closing, or are you seeking post-sale involvement with your business? Perhaps you are focused on post-sale priorities like minimizing disruption to clients and staff, or are you focused on pre-sale preparation followed by future sale? By the end of this episode, you’ll be able to define your priorities, resolve conflicts between your motivations, and make informed decisions that will guide your business sale towards your desired outcome. So, if you're struggling to balance your wants and needs in a business sale, tune in. This episode is for you.

Why are you selling now?

Welcome back to Deal Flow Circle. In our Business Exit Strategy series, we are dedicated to helping you successfully sell your business. Today we're tackling a sensitive yet crucial question: Why are you selling now? Your reasons for selling are more than just personal motivations; they significantly impact the timing, approach, and ultimately, the success of your business sale. Many business owners begin considering a sale for various reasons. Some motivations force quick action, while others allow for a more flexible timeline. It’s important to understand how your reasons for selling may be perceived by prospective buyers. This episode will help you explore your motivations and how they affect the selling process. We'll begin by examining common reasons business owners decide to sell, some of which may cause buyers concern. For example, are you bored with your business or feeling burned out? Do you want or need to move to a different geographic area? Are you facing health challenges, or is a pending divorce or family change prompting your need to sell? Maybe your business simply can't provide the income you need, or your business would benefit from increased investment and energy that you can no longer provide. Perhaps you're fed up with your partners, or all your net worth is tied up in your business, and you want to diversify. You may also be overwhelmed by financial problems, or simply want to retire. We will also discuss how these motivations can affect your sale. For instance, if you need an immediate exit, this can eliminate your opportunity to strengthen the attractiveness of your offering before listing it for sale. A need for an immediate sale and payoff can also preclude your ability to offer seller financing, which often supports a higher selling price. If you want or need to make a very prompt departure, this can shorten or eliminate a transition period, which may also force a lower offer from buyers. Next, we'll explore how your motivations influence the way you approach the sale. Do you want to sell your business and walk away? Or are you willing to remain involved during a 3-12 month post-sale transition? Do you want to remain at the managerial helm, or do you want to stay involved full-time as a partner or an employee? Or perhaps you'd like to remain as a part-time consultant or employee? It is also important to determine whether you need a full or significant payment at the time of sale closing. We’ll also discuss what you want for your business after the sale. Is it important that it remains in its current location, or are you okay with a merger, relocation, or significant alterations? Is there a key employee or family member to whom you would prefer to sell your business? Is there a key competitor, supplier, or other business you would prefer not to sell your business? Your answers to these questions will impact your approach to the sale. Finally, we'll emphasize the importance of honesty and transparency, as you will need to warrant the accuracy of all information you’ve provided before a sale closes. We’ll discuss how to present your reasons for selling in a way that builds trust with potential buyers. By the end of this episode, you'll have a clearer understanding of how your motivations can impact your sale, and how to position your reasons for selling in a way that supports your desired outcome. So, if you're wondering how your reasons for selling might affect your business sale, stay with us. This episode is for you.