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Gaining the most profit when selling your business depends on a number of crucial factors. Foremost among these is contracting the services of a qualified and knowledgeable business broker.
However, many business owners assume their business acumen will convert into an ability to cash in on their company when they’re ready to sell. In reality, this is often not the case.
The following list sets out five things you should take into consideration when you’re thinking of selling your business.
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1. Formal Valuations Are Vital When You’re Selling Your Business
When word gets out that you’re considering selling your business, expect to hear from a range of people. Some will even try to provide you with a ballpark figure of the value of your company. Then they will expect you set your asking price on the strength of their opinion. However, paying heed to such people is not a good strategy.
The only figure that matters when you’re dealing with potential buyers is a valuation carried out by a highly-rated, independent third-party business valuation firm.
If you do not do take this step before going to market, you run a high risk that a buyer will push for a valuation by their own firm. This will lead to costly delays in the transaction process.
2. It Is a Mistake to Assume Your Buyer Will Be One of Your Local Competitors
Many business owners begin the process of selling their business with the mistaken belief that the prospective buyer will be a local competitor. However, this is seldom the case.
In fact, the probability that you will have interacted with the person who is looking to acquire your business is less than 10 percent.
Instead, you will likely discover that there are many powerful investors on the lookout for ways to put their money to work. Many will be looking for profitable takeover opportunities.
Therefore, it is prudent to look at the bigger picture and consider the possibility of selling to a buyer outside of your immediate circle.
3. Cash Flow Is the Be All and End All When You’re Selling Your Business
The fundamental purpose of conducting an independent, third-party valuation is to work out the health of your business. This firm will look closely at your company’s assets. More crucially, they will scrutinize its cash flow.
All businesses have assets. If those assets are worth more than the business’s financial obligations, then the business should be valued more highly. This will drive up the asking price.
It is worth stressing again that the appraisal of your business must be performed by an independent valuation firm. Only in this way will you attain the maximum sale price.
4. Favor an “Offer to Purchase” over a “Letter of Intent”
When you’re selling your business, expect some prospective buyers to submit letters of intent to your broker.
With such a letter comes an unwritten understanding that the business will be taken off the market. The ensuing delay provides the prospective buyer with time to collect the funds necessary for the purchase.
However, this tactic is not likely to wash with serious brokers. Nor will it pass with sellers who are intent upon selling their business for the greatest profit.
Any broker who is worth his salt will request a formal Offer to Purchase (OTP) before allowing formal negotiations to take place. An OTP provides the basis and structure to the dealings. It will most likely be accompanied by a commitment that is backed up by demonstrable funds.
This separates buyers with legitimate interest from those without the means to follow through. This is a critical point to keep in mind if you are seriously thinking of selling your business.
5. Do Not Try to Go It Alone
You will have learned much during the many years it took to build a profitable business. And one of those things is that you can’t attain worthwhile goals without the assistance of an excellent team.
Therefore, be sure to choose the best people to value, market, and properly hammer out every aspect of the deal when you’re selling your business. This will ensure the eventual success of the sale.
This article was provided by A Neumann & Associates, LLC, an experienced and professional business brokerage firm headquartered in New Jersey. If you’re considering selling your business, contact this firm to ensure that you receive maximum profit from the sale.