Business For Sale
Business First of Louisville - by Terry Boyd
You went into the business world, you saw, you conquered, and now you're ready to move on to a new business or maybe to the golf course.
If you've decided you want to sell your small business, the natural first question is, "How much is it worth?"
For the sake of discussion, let's assume you've built a profitable operation. Yet businesses, like children, all are different, even if they belong to the same "family" of classifications, i.e. industrial, service, high-tech or retail.
Broadly speaking, brokering-industry publications set out the following valuation guidelines: Businesses with low growth potential typically bring a multiple of two times or three times net earnings. High-potential business, such as software companies, might bring a multiple of 15 or 20.
Those who've been there say that value probably is one the last things you're going to know with certainty.
That's not to say you should not have a rough idea of what you believe your business is worth as a point of departure, said John Hamilton, partner in charge of the Louisville offices of national accounting firm Crowe Chizek and Co. LLP.
But the price you get for your small business rests on dozens of variables, and the more of those you can control, the more likely you'll be to find a buyer and a fair market price.
Aside from the selling price, looking ahead pays when you anticipate what the buyer's concerns are going to be and address them before the buyer does, said Rolston Steenrod, a partner at Stites & Harbison law firm.
Business sellers have to solve any possible sale impediments -- from environmental contamination to bookkeeping irregularities -- before going into the market, Steenrod said.
Steenrod and others say business owners can go it alone, but the more advice you get toward getting your business' financial house in order, the more thorough your sale preparation is going to be, the faster the sale will be and the higher the price.
Of course, how much you spend on that advice is a function of how much you expect to make.
Prospective sellers generally have an accountant, an attorney and a broker, said Fred Grimm, president of Fred Grimm & Associates, a Louisville business brokerage.
Brokers are responsible for multiple tasks, from marketing to negotiating to helping arrange financing for prospective buyers, he said.
Accountants help get books in order and can help with valuation, then attorneys draft the sale documents.
One thing is certain -- selling your business is not going to be inexpensive. Attorneys charge about $150 hour, accountants about the same.
Brokers will get as much as 10 percent of the value of the transaction.
Usually, the broker's fee is due upon sale, though some may ask for money up front to cover initial expenses, according to The Small Business Knowledge Base, a small-business resource Web site at http://www.bizmove.com.
Grimm said a broker's up-front expenses can be hefty, and his company may spend weeks and as much as $25,000 on marketing, advertising and promotional packages.
If you decide to assemble a team, your first instinct might be to use your trusted accountant or attorney.
That might not be wise, said Dick Peterson, a director with Louisville accounting firm Deming, Malone, Livesay & Ostroff.
Your accountant might be superb at deed work and your lawyer a whiz when it comes to sensitive personnel issues, Peterson said. But neither probably does much transactional work, he said, "and would you go to a hand surgeon for heart surgery?"
Peterson suggests finding someone to handle the transaction who is experienced in selling businesses.
Once you assemble your team, it's time to think about what the buyer wants, and when it comes to financial details, that would be everything, said Peterson, Grimm and other experts queried for this story.
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