Time To Sell? The Most Difficult Decision For Business Owners

Starting a business is a huge part of any entrepreneur’s life.  Running the business is life for most business owners.  They pour their hearts and souls into doing everything they can to make their businesses successful.  Some succeed and some fail, but they all do everything they can to make it work.  They all live the business.

So when is it time to sell a business?  This can be a troubling and painful question for any business owner.

There are some widely different reasons for wanting to sell a business.

The company is not doing as well as intended.  It is time to cut losses and sell it.

–          It is an unfortunate reality that not all businesses are successful.

–          Can the business be turned around? Or would the owner be better off selling it and starting fresh with something else?

–          Can the business be sold for a reasonable sum despite its dire condition?

–          If the owner can get a decent amount for the business, it is probably a good idea to sell and use the money to fund other ventures.

The company is doing very well.  In fact, it is doing so well that it can be sold for a great deal of money.

–          How much money can the owner make from the sale of the business?

–          Compare this money to how much money the owner can make from running the business over a period of time.

–          Selling now and taking the money is a sure thing, but running the business further could result in more money.  However, this is risky in the new economy!

–          Owners should weigh their options carefully!

The company was always intended to be sold when the time was right.

–          But when is the right time?

–          Keep a close eye on the company’s worth and determine when the best time to sell will be.

–          Have a goal price in mind and don’t get greedy.  Waiting too long can result in disaster. Owners should weigh risk and reward!

The decision to sell a company can be the hardest decision in any business owner’s life, but it can also be one of the most beneficial.  Company owners should approach the idea of selling with a clear and level head, and perhaps seek professional advice about when to sell their companies.

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Preparing Well To Sell

Preparing to sell a business is a lot like preparing to sell a home.  The seller should work to highlight the good things about the property and hide the bad things as best they can.  They should ask for a little more than they want and be prepared to settle for a little less.  Most importantly, they should take stock of what they have working to their advantage and what they have working against them, and it never hurts to have professional help.

The new economy is hard on everyone, and business owners are no different.  In a time where everyone wants to sell, it can be difficult to make a business stand out and command a fair price.

So while business owners should be prepared to take a little less than they want for their businesses, they should also be wary of when they are being taken advantage of.  Selling a business for much less than it is worth can be devastating to the financial situation of the seller.

It is important to know the worth of the business, and to consistently demonstrate that worth to potential buyers.  Having professional assistance in this is especially helpful, as a trained professional can assure sellers that they have a business worth purchasing for a certain price.  From then on, it is easy to determine which buyers are trying to take advantage of a bad economy and desperate seller.

Sellers must work hard to make sure they are not being taken advantage of.  Sellers must also work to assure potential buyers that they are not trying to take advantage of those buyers.  The best way to do this is to actively demonstrate the best aspects of the business.

A business should always have its best foot forward, but when it is on the market this is especially important.  Potential buyers need to see the best a business has to offer.  Sellers should highlight the advantages of their businesses’ location, focus on unique ideas and techniques, and really demonstrate what makes their business worth the price of purchase.

The new economy makes it difficult to sell a business, but not impossible.  The solid principles behind running a business that have always applied still apply now.  If a business is well run and well presented, sellers should have little problem finding a buyer who will give them a good price.

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Determining Worth Is Important To Any Company

Many companies don’t do well.  Many companies fail, especially small start ups.  It is an unfortunate reality of today’s economy.  Companies that do manage to survive those first few trying years are by no means out of the woods, either.

Just because a start up manages to hack its way into some amount of success doesn’t mean that it won’t take skill to continue running it.  In fact, it means paying closer attention to the business as it grows, and keeping an eye on the value of the company.

Business owners cannot afford to delude themselves when it comes to the value of their companies.  That’s a fast way to lose a lot of money.  Companies that value themselves too high are going to have a very difficult time finding investors.  An overvalued company won’t be able find a buyer if the owner should ever decide to sell.

On the other side of things, an undervalued company can lose its owner just as much money.  Business owners that undervalue their companies give too much away for too little, and let someone else make money that could have been theirs.

It is important for the owner of a company to make an honest evaluation of what that company is worth.  What is the customer base? Is that base growing or shrinking?  What sets a company apart from its competitors, and how much is that worth.

There are dozens of questions that company owners should be asking when trying to evaluate the worth of their companies.  It is crucially important for anyone looking to sell a company to know what that company is worth.  What’s more, it is very important that the evaluation of a company’s worth be objective and honest.

It can be difficult for someone who owns a company to evaluate the worth of that company.  After all, they worked to build it, and they want to be proud of it.  It is a good idea to seek professional assistance when evaluating the worth of a company.

The outside opinion of a trained professional can be a valuable tool for company owners looking to sell their companies.  A reputable professional will give an honest and objective evaluation of the company’s worth.

This evaluation can be catalogued for later reference, or used immediately when looking for new investors or buyers for an existing company.

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Demonstrating Value Involves More Than Numbers On A Page

When a person is buying a product, what are the things on their mind?  They want to get value for their dollar, so they don’t want to pay too much.  But they also want to get a quality product, and might be willing to spend a little more to get it.  However, sometimes, the extra value just isn’t worth the extra price, and a product with fewer features might be chosen because it costs significantly less.

Cost is an important factor, but it isn’t the only one, and it gets balanced against other factors as the person weighs their decision.

The same thing can be said about the value of a business.  The financial angle is only one of many.  While it is probably the most important factor when determining the value of any business, other things do come into play.

A company with a strong bottom line and nothing else is going to be difficult to sell.  Selling a company isn’t about having value, it’s about demonstrating that value.  Company owners should strive to show potential buyers that their company is well establish and has potential to keep growing.

Reputation is a very important factor in the value of a company. A company that makes a lot of money through unethical practices is not one that is ready to sell.  Mainstream buyers aren’t interested in getting down and dirty to save a few bucks.  They want to buy a clean business with a good reputation.

A company’s appearance also contributes to its value.  Companies with physical locations should keep clean offices and warehouses.  Employees should be well dressed and hygienic.  Online companies should have good looking and well designed web pages that are user friendly and easy to read and interface with.

Remember that potential buyers are looking for something they can be proud of.  Their primary focus will be how much money the company can make, but supporting factors will make them much more likely to see the true value of a company than any financial report will by itself.

This also gives company owners with weaker companies a chance to really put in the effort and show that all the tools are present for a money making company, even if the numbers don’t show it just yet.

Remember that price isn’t everything, and a company is much more than the sum of its financial records.

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A Time To Sell

Business owners may choose to sell their ventures for a number of reasons.  Sometimes it is as simple as a need for physical relocation.  Other reasons may include the need for tangible capital to start a new business or even retire.  Owner may not always be faced with a need to sell, and thus need to decide if they should sell.  When necessity is not the driving force, careful consideration helps to guide the “should I sell?” scenario.

 

Risks And Reasons

 

Even when selling a business is a decision, needs are still to be considered as factors.  An owner may wish to relinquish their hold on a company if the work load is more than the financial gains they are making or require.  Conversely, if the owner’s spending rate is higher than the gains being made, a sale can free up capital or allow for a period of re-evaluation.  When considering the sale of a business, it is important to weight what will be gained against what may potentially be lost.

 

The Loose-Win Scenario

 

In a down economy, small business owners may face the fact that running their company is costing them more than it is making.  While a sale may not generate an enormous amount of capital, it can still halt a potential bankruptcy situation and would thus benefit the owner in the long run.  This decision to sell can create a positive out of a potentially negative situation.

 

The Win-Win Scenario

 

Some business owners make the decision to sell when their company is strong and growing.  Although this choice could seem counter intuitive to the long-term picture, it might allow the owner the leisure of an early retirement.  The trade-off is that a large amount of instant finances is gained while the long term income becomes uncertain.  For many owners, this is still an attractive choice, since the sale of a profitable business can give enough capital to finance a comfortable and leisurely life.

 

The Loose-Loose Scenario

 

The most dreaded case of selling is making the wrong decision.  This happens when factors such as timing, financial needs, and market position are not taken into consideration before selling a business.  The scenario most often occurs when an owner has overvalued their company, or put themselves in a position where they must sell, and the buyer holds all of the power of negotiation.  The best way to avoid this pitfall is to research market demands, have the company properly assessed, and monitor market projections.  By having the proper information, an owner will no longer need to ask “should I sell?” but will be able to make a decision confidently, and when the time is right.

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Creating Value

Business owners are often disheartened to discover that their company is not worth as much as they had thought.  This type of revelation should not be taken as a defeat, but rather as an opportunity to grow the value of the business.  Although the start-up of a business may take years to generate a true profit, company value enhancement can be achieved more quickly when the foundation is already in place.

 

Basic Business

 

A solid business foundation is like a blank canvas that can be painted with the fundamentals of growth.  In the simplest terms, a company’s value is its projected future earnings minus the risk required to get there.  To increase value, an owner can raise projected potentials, decrease risks, or do both.  While the formula itself is simple, the factors that are involved can vary, and this is where many business owners try to change too much at once, and thus sabotage the foundation they have already established.

 

Growth Potential

 

The best starting point is to develop a plan that suits the business and addresses any weaknesses that may be present.  Some owners are willing to undertake this process on their own, while other are more comfortable hiring an advisor to determine how value may be best achieved.  If increasing potential is the focus, then factors such as strengthening and protecting a niche, increasing market presence, and widening the customer base can be undertaken.  On the personnel and production side, warehouse efficiency, management capabilities, and the ability to take advantage of opportunity will also help to add value.

 

Reducing Risk

 

For a business that is already set up to grow, but could still use greater value, risk reduction may prove to be an effective tool.  This plan looks at any threats to future earnings and examines expenditures that may be extraneous.  Overspending and debt are the most common issues that businesses face, and these may be overcome through consolidation of expenditure and the reduction of waste.  This may include an initial investment in machinery for better production or schedule changes for time management, but the result is that the money spent becomes value added over time.  As risks are reduced, stock prices and market placement will rise, which then creates marks in the plus column for growth.

 

Sticking To The Plan

 

Regardless of the manner in which a business decides to value add, it is important that once a plan is formulated it is followed.  The most detrimental move a company can make is to enact too many changes at once by taking on over many variables, as this does not allow for any one factor to create change.  A value plan for a company can only help if it is actually followed, otherwise it becomes just another risk.

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Value Assessment

The buying and selling of companies is similar to the real estate market.  Some investors are willing to purchase a fixer-upper that they can later flip for a profit, while others may be looking for a business that is already strong and ready to grow.  Regardless, the buyer is looking to make money just as much as the seller, and knowing the true worth of a company can ease the process of the sale.  An owner who is asking too much for a company that needs work will be just as disappointed as an owner who sells a goldmine for much less than it can produce.

 

Appraising A Business

 

Companies need a substantiation of value that is honest and factual, so that the seller can understand how to properly negotiate a sale, and so that the buyer can comfortably attain the new business.  In order to assess the value, the business owner should be familiar with the methods that are used to make this determination.  Key factors of worth include:

  • •          Asset values
  • •          Recalculations of earnings
  • •          Cash flow
  • •          Projected growth

These factors are then considered in concert with one another to make the final determination.

 

IRS Considerations

 

Many owners will defer to an appraiser if they do not have an experienced accountant on staff.  Some smaller businesses that still turn a good profit and have sound market position may still utilize a basic bookkeeping system and not have the necessary knowledge to make a true appraisal.  The IRS often suggests that several methods of value assessment be used when a business is being sold, as this will ensure that all parties are able to see a fair value for the company.  All of the methods are considered to be accurate, even though they may result in slight variance of value, so using multiple assessments helps to address as many factors as possible.

 

Business Appraisal

 

The most common methods used to figure out what a company is worth include:

  • •          Net worth method – This is the book value, but not always the fair market value.
  • •          Underlying Value Of Assets – This includes assets as based on current market price.
  • •          Capitalization Of Earnings – This takes into consideration past and projected earnings.
  • •          Price Earnings Multiplier – This looks at the value of publicly traded stocks.
  • •          Discounts – This considers devaluation potentials.
  • •          Goodwill – This considers projected value as based on consumer loyalties.
  • •          Weighting – This places emphasis on one or more of the factors used in evaluation.

By using two or more of these methods, the seller and the buyer can be confident that a fair value for the business has been determined.

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Selling At The Right Time

A lot of work goes into building a business.  Companies grow over time and accrue value based on their productivity as well as their name and market positions.  Some investors start a company with the aim of eventually selling or merging, in order to move on to other projects, while other operators may have had dream that grew into a larger than imagined result.  When an owner wishes to sell their business, both financial and emotional factors can come into play, but smart marketers learn to balance profits with personal perceptions in order to create the best position for the company to be sold.

 

Labor Versus Love

 

One of the most important points to remember when positioning a business for sale is that it needs to be attractive to the buyer.  This can mean that the company has an impressive portfolio or steady or rising returns.  It can also mean that the company is in a growth market or a physical location that makes it attractive to the buyer.  Although the owners may love the business they are selling, they still need to view the company critically and think of the way the buyer will see the venture in order to make it attractive.

 

Considering Readiness

 

A business that is in a good position to be sold is one that is in good shape and at peak performance.  If a company is in the middle of downsizing, has out of date inventory, or employees who are not performing efficiently, then changes will need to be made before a sale can occur.  Potential buyers will want documentation of financials and an overview of operational components so that they know exactly what they are getting.  An attractive presentation of the company will not only give a clear picture of worth, but will also provide definite figures to show growth and potential.

 

Presentation Points

 

Sales presentations can be as elaborate or as simple as the business owner chooses, but should still contain several major points for the buyer to become interested.

  • •          Company history including size and ownership
  • •          Organizational and operational structure
  • •          Financial aspects
  • •          Employee history
  • •          Market position

Businesses which are not quite ready for sale can often be enhanced by strengthening the market position through aggressive advertising and branding.  Although the process may take a little time, a recognized name and strong show of growth can attract buyers more quickly and competitively.

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What To Do Once You’ve Decided To Sell

Making the decision to sell one’s business is a very difficult thing to do. There are plenty of hard numbers to crunch, but also a great deal of emotional factors that come into play. For maybe the first time, a business owner must consider his or her own interests above the interests of the company as a whole. Anyone who has decided to sell his or her company has gone through a lot of stress and confusion already, so this person probably does not also want to deal with the complications that come from actually making the sale. Fortunately, there are tons of great third party corporations that can handle every aspect of the selling process.

 

One’s business can often be thought of as one’s baby, and just because one is selling it does not mean one does not care about where it ends up. In addition to wanting the best selling price possible, one wants one’s business to be in great hands. When looking for a third party company to assist with the sale, there are several factors one must consider.

 

  • Experience: If one is entrusting one’s business in the hands of someone else, it is important that this other party have a great wealth of experience. By researching one’s options and looking at reviews and testimonials, one can find a great sales expert to help sell one’s business efficiently and properly.
  • Understanding: As previously stated, selling a company is very difficult and often emotional. For these reasons, one may not prefer a standard business transaction, but a more soothing and helpful process. It is important to find a third party sales expert that will take the time to thoroughly understand one’s individual needs and concerns. Without a great bond, it will be difficult to come up with a strategy that makes everyone happy.
  • Professionalism: If one is paying good money to hire someone to sell one’s business, one wants this expert to be worth the cost. Often, these experts will offer initial consultations before they are actually recruited for the job. During these consultations, it is important to ask a lot of questions in order to determine whether or not one is truly comfortable working with this person.

 

Selling a business is hard enough; one does not want to make the process even more difficult by attempting to do it alone. With a great sales expert at the ready, any business can be sold efficiently and in a way that makes everyone happy.

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How To Up The Value Of Your Business

When one has made the decision to sell his or her business, one must understand exactly what his or her company is worth. This calculation can be made by a financial expert, but sometimes, the number is not what the company owner wants to hear. In order to guarantee the biggest profit possible from selling one’s company, one must start with a great company value. If one’s company value is not as high as one would like it to be, one must figure out exactly why, and make some changes.

 

A company’s value can seem like a very abstract concept, but there are tangible, changeable determiners that need to be considered. There are several techniques one can use to raise the value of one’s company.

 

  • Understanding Profit: In order to understand exactly what one’s company is worth, one must first examine how much profit one’s company makes. This number is the bottom line of any business. A company’s profit margin should be analyzed constantly, as it is not a guaranteed thing. Depending on client satisfaction, economic status, and industry competition, one’s company profit may fluctuate greatly over the years. It is important to understand which things make one’s profit go up, and which make it go down, that way one can always attempt to sway the result.
  • Growth Record: A company’s worth can also be measured by its growth rate. When a prospective buyer is looking into a company, he or she is also looking into the future. A company that stays the same size over a long period of time is not ideal; one wants one’s company to grow and change over the years in order to become more successful, and therefore have a higher worth.
  • Marketing: If one’s business is not doing very well, one might consider one’s marketing strategies. In order for a business to attract potential clients, it must be sold to them. It may be worthwhile to contact a marketing expert to help one’s business appeal to the public. Often, these experts end up paying for themselves tenfold.
  • Employees: Another business aspect one must consider when trying to up its worth is its employees. Are these employees worth what one is paying them? Could better employees be found? An employee’s worth says a lot about the worth of the company he or she works for.

 

While there are many other factors that help determine and raise a company’s worth, the ones listed above will certainly help any business owner maintain a great business value.

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