I speak to real estate agents every day about listing and selling Main Street businesses. By Main Street I mean businesses that sell for less than $1 million. Initial challenges can be found in reaching out to enough business owners each day to generate a sufficient number of listing appointments. Then, you soon discover that scheduling a listing appointment certainly does not assure you of obtaining a good listing. There are three listing obstacles in particular that can be significant and simply block the opportunity to secure a listing.
Value of a Business
The first obstacle is related to value. Most small business owners usually have a pre-conceived notion of what he/she believes the business is worth. This notion is rarely based on factual data but rather on what the owner wants to believe the business is worth.
There are of course a number of systematic methods available to determine value, however, once applied, they tend to leave the owner confused and disappointed. So value must be determined and the business owner willing to accept an asking price that closely resembles accurate value. If you’re in front of a business tax return that reflects or exceeds industry average sales and profitability, you can check off the first of the three listing requirements.
The second obstacle is related to the seller. You have to determine if the owner is really committed to selling the business and if he/she is willing to help you get to the closing table. Often, you find business owners that are only willing to sell if the asking price is considerably higher than the real value. Other times, the owner places unreasonable demands or conditions on the listing.
Accepting a listing under this pretense will only cause you to be embarrassed and disappointed when confronted by your fellow business brokers and/or prospective purchasers. If you’ve found a willing and cooperative seller, you’re ready to tackle the third listing obstacle.
Books and Records
The final listing obstacle is related to adequate books and records. When you list a business, the business owner makes specific performance claims. Sales, expenses and net are represented to the prospective purchaser and must be proven during the due diligence process.
Here again, you will meet business owners that want you to “trust” them when asked about books and records. You have to be careful to educate the business owner at this point concerning the requirements that will be associated with this burden of proof.
The simple truth is that what you see on the business tax return and the available records that back up the return is all you have to work with. If you have the necessary books and records to prove seller representations you’re ready to list the business.
Look for the three business listing requirements and when one or more fail to pass muster, excuse yourself and get on to your next appointment. Just remember that a business listing is only a good listing if it can be sold. Anyone have more suggestions they’d like to add?