Listing and Selling Businesses – Now or Never?

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now-or-laterIs it a good time to list and sell a business?

Yes, if you follow a few simple steps. First, you need to have an understanding of the business industry. If you want to list a dry cleaning business, take time to really familiarize yourself with the business culture and language. I’d recommend selecting an industry that you’ve worked in or have an interest in. If it’s an area you don’t know much about, again, do your homework. If you don’t prepare for a listing appointment adequately, you will appear less than confident and have trouble earning the business owner’s respect.

You want to offer the business owner an irresistible reason to meet with you and that can be the opportunity to discover what his business is worth. You’ll need a resource that provides basic rule-of-thumb business valuation data. The resource most used by business brokers for this purpose is the Business Reference Guide produced by Tom West of the Business Brokerage Press. This book is full of valuable information spanning a broad range of industries. You could also order a business valuation report supported by sold data from the bizbuysell.com website for less than $60.

Businesses Must Pass 3 Tests

Preparing to list a business also requires you to be willing to walk away if the business doesn’t pass 3 specific tests.

1. The first test involves the business owner. Is she willing and able to help you arrive at a closing table? Some business owners place unreasonable demands on you such as a short listing period or refusal to execute an exclusive listing agreement. The business owner may have been in financial trouble for an extended period of time. He may have created circumstances that simply make a transfer of the business next to impossible. You must have a motivated and cooperative seller to earn a success fee.

2. The next test requires value and price to be close to the same number. Listing a business with an inflated price will get you nowhere. You’ll be criticized by your fellow business brokers, lenders and prospective buyers. Most business owners want to believe their business is worth more than it is which requires you to educate them and constructively bring them to the realization of correct business value. An intelligent approach to valuation will provide the necessary supporting data and allow you to prevail.

3. The final test involves the necessary books and records to prove any and all representations. You make initial claims about sales, expenses and net that, during due diligence, must be proven. Some business owners seem to think that a buyer will accept a hand written journal or verbal claims about business performance.

However, intelligent buyers require tax returns, income statements and balance sheets along with monthly invoices that support business performance claims. Lenders also require detailed information if funding is to be approved. A business worth listing will be willing and able to provide this information. 

Do you have some tips to share too?

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3 Responses to “Listing and Selling Businesses – Now or Never?”

  1. conyersom Says:

    Listening to the experts- they say this economy IS the time to start a new business and Metro Brokers are the agents with the know-how. Thanks, Dan

  2. Paul Cross Says:

    Great article! Very informative. I hope all agents are reading the MetroBrokers blog. Keep up the good work. I enjoy reading them daily.

  3. Monique Mills Says:

    Great article! Prospective buyers of businesses want full transparency from the current owners. Without transparency chances are there will be no transaction. Sellers should have their paperwork organized and ready to go for interested buyers if they really want to sell their business.

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