Sell a Business | Transworld Business Advisors of Denver

Top 5 Ways a Seller Can Make Themselves Attractive to a Buyer: Industry

When business owners are preparing to sell their businesses, there are many ways they can make themselves attractive to buyers. As we represent many current and new business owners in Colorado, we have compiled the top five ways sellers can make themselves attractive to buyers. In Part 2 of our series we will focus on ‘Industry.’ To read the full series, click here.

We all know industries experience ups and downs. Factors that might affect whether an industry is hot or cold include; market dynamics, government regulations, new technology, and whether or not an industry is desirable. Ultimately, whether an industry does better or worse from time to time depends on supply and demand.

For example, frozen yogurt was in high demand 5 years ago. Everyone wanted a new store because there was limited supply and the market was demanding new stores. Now there is a frozen yogurt store on every corner – over supply and under demand – which will affect the value of the company and whether the buyer wants to enter the market.

For a buyer, a business in a stable, consistent industry is desirable. Traditional industries such as construction and manufacturing tend to be more consistent and have fewer threats than say the frozen yogurt industry. Ultimately, buyers want to enter markets that have growth potential versus markets decreasing in value or with strong threats that will decrease the value of the industry in the future.

Selling a business is a complicated manner. If you have additional questions, please contact one of our Colorado business brokers at 720.259.5099 or email us. You can also read more about our seller services at this link.

Top 5 Ways a Seller Can Make Themselves Attractive to a Buyer: Reputation

Part 3: Reputation

When business owners are preparing to sell their businesses, there are many ways they can make themselves attractive to buyers. As we represent many current and new business owners in Colorado, we have compiled the top five ways sellers can make themselves attractive to buyers. In Part 3 of our series we will focus on ‘Reputation.’ To read the full series, click here.

A business’s reputation is not only vital to the success of a business, but it also plays a crucial part in the business’s value when it comes time to sell. Despite this, many businesses tend to ignore the importance of reputation and focus more on revenue and growth. In truth, a business’s reputation is a major factor that a buyer evaluates when deciding to purchase a business.

What gives a business an appealing reputation? First, a strong market presence– having a strong market presence will give the buyer confidence that the business being sold is established. A company that has 3+ years of history is evidence to a buyer that the company is stable and has a strong revenue potential. Additionally, a business that is a leader in its industry or niche will command a higher listing price, since it is already very influential in the market.

It is important to recognize that a business’s reputation can fall to the owner of the business. If the owner is the “face” of the business and the business’s reputation is a direct result of the owner, this may cause issues for a buyer. It will make it harder for a buyer to transition the business if the previous owner was a focal point in the reputation for the business.

Lastly, positive online reviews are essential to a good business reputation. Bad reviews or public relations can lead to a decreased listing price and/or repel potential buyers.

All in all, having a strong business reputation is a major factor for buyers. A great reputation will result in increased activity on a listing and a higher listing price.

In our next issue we will explore the next important way a seller can become more attractive to a buyer: culture. Our next issue will be posted on Wednesday. To receive our newsletter with ongoing information for both buyers and sellers of businesses, click here.

Top 5 Ways a Seller Can Make Themselves Attractive to a Buyer: Organizational Structure

Part 2: Organizational Structure

The way a business is structured is a major factor for buyers. In general, business structure is the framework on which the business is run. This can include but isn’t limited to the organizational structure of a business– directors, managers, and the various roles of staff.

A key aspect of business structure as it relates to the sale of a business is how involved the owner is with the customer facing activities such as sales, customer service, or customer retention. For example, if the owner of the company is client facing and directly impacting the majority of the sales of the business, a buyer may believe it will be difficult to continue those sales once the owner is no longer with the company. It is imperative, therefore, that the sales of a company do not rely on an owner solely. This is a huge ‘red flag’ for potential buyers.

Sellers can remedy this situation by transitioning the owner out of client-facing roles. They can begin to implement and/or hire account managers that will take over this role making the business more attractive to potential buyers.

In summary, it is essential to ensure that a business structure doesn’t rely on an owner. Buyers want to ensure that a business will still be able to maintain its revenue once the owner has transitioned out of the company.

In our next issue we will explore the next important way a seller can become more attractive to a buyer: reputation. Our next issue will be posted on Wednesday. To receive our newsletter with ongoing information for both buyers and sellers of businesses, click here.

Top 5 Ways a Seller Can Make Themselves Attractive to a Buyer: Cash Flow

Part 1: Cash Flow

When business owners are preparing to sell their businesses, there are many ways they can make themselves attractive to buyers. As we represent many current and new business owners in Colorado, we have compiled the top five ways sellers can make themselves attractive to buyers. In Part 1 of our series we will focus on ‘Cash Flow.’ To read the full series click here.

When business owners are preparing to sell their business, there are many ways they can make themselves attractive to buyers. As we represent many current and new business owners in Colorado, we have compiled the top five ways sellers can make themselves attractive to buyers. In this issue, we will focus on cash flow.

Cash flow is defined by the total ownership package of the business. Professionals may refer to this term as Owner’s Cash Flow or Sellers Discretionary Earnings (SDE)– these terms are often used interchangeably when discussing the sale of a business. Generally speaking, cash flow is comprised of net profit, ideally as claimed in the seller’s tax returns, plus adjusted expenses (salaries, depreciation, etc). A seller identifying their cash flow correctly is key to attracting potential buyers.

Another reason cash flow is so important, is that it helps buyer identify what the return on investment will be for their purchase. The average sale price for a small business (those with cash flow less than $500,000) is between 1x and 3x the cash flow amount. This range can vary depending on factors such as the number of employees, the length of incorporation, industry and the current marketplace. If a seller positions the asking price above this average, there will be little activity on the listing. On the contrary, if a seller positions the asking price on the lower end of the average, he or she can generate lots of activity from interested buyers. All in all, it is essential that the asking price is in correct proportion to the cash flow.

In our next issue we will explore the next important way a seller can become more attractive to a buyer: Organizational Structure. Our next issue will be posted on Wednesday. To receive our newsletter with ongoing information for both buyers and sellers of businesses, click here.

An Overview of Seller Financing in a Business Transaction

Almost 90% of business owners have never sold a business before. So if you are beginning your research on how to sell your business, and haven’t got a clue where to start, you are not alone. One of the many terms thrown around in discussions of a business acquisition or sale is seller financing. A term that almost immediately solicits a negative reaction from most sellers, it is not one that should be feared, but should be learned and understood as a tool to help sell your business.

The majority of businesses that sell today include some percentage of owner financing. With a rejection rate of about 80%, the SBA application process is often not an option for many businesses and buyers. Also, businesses that advertise seller financing along with their sale generate significantly more inquiries and a 15% higher sale price (estimated by Bizbuysell.com). There are many benefits – and risks – to seller financing and it is important that both the buyer and seller feel comfortable in the transaction.

Why Seller Financing?

Seller financing is a loan provided by the current owner of the business to the new owner of the business. Buyers negotiate seller financing for a number of reasons:

They cannot afford the business at the full asking price
The business transaction will not qualify for a bank loan
There is a level of uncertainty that the business will continue to be successful without the previous owner

An owner’s willingness to finance a portion of the sale often gives that business an edge over the competition, by removing some of this uncertainty in the buyer’s mind.

How is the Seller Protected?

It is important for a seller financing transaction to be handled by professionals who can offer advice and construct documents that protect both the buyer and seller’s interests. Typically, a promissory note is drawn up that illustrates the details of the agreement. This includes what recourse the seller has if a buyer defaults on the note. In the sale of a small business, the most likely scenario is that the seller would have the right to take the business back. Additional recourse options are using the assets of the business as collateral or through a personal guarantee from the buyer. Utilizing a professional advisor, the seller can negotiate any of these terms or a combination.

It is also recommended that while the buyer is completing due diligence on the business, the seller does the same on the buyer. Seller financing, in effect, is an investment in the business and the new owner. At a minimum, it is recommended that a seller request credit records and references. It is important that the seller understands the buyer’s background, business and financial qualifications, and motivation for purchasing the business.

How Long is the Note? How Much Interest does the Seller Receive?

The terms of the note are constructed in order to give the buyer adequate time to repay the note. Payments must be in an amount that the buyer can afford from the business income while continuing to run the business at an optimal level. The last thing either party wants is for the loan terms to constrict the buyer and eventually put them out of business. For this reason, the term length of seller financing varies depending on factors including: size of the loan, revenue of the business, capital investment of the buyer. The interest rate charged on a seller financing note is often in line with current banking rates.

If you have further questions about how seller financing can help sell your business, please contact us or schedule a complimentary consultation.

Transworld Business Advisors of Denver is a team of Denver business brokers that helps visionary entrepreneurs buy a business, sell a business, or grow a business through franchising. If you have questions regarding seller financing or how to sell your business in Denver, you can reach us at (720)259-5099.

The Baby Boomer Seller Tsunami: How it Affects the Value of your Business

No one can argue that the impending baby boomers retirement will affect how business markets operate currently. And it will be no different for mergers and acquisitions and small business sales. In the current market, it is estimated that approximately 30,000 – 50,000 business sales occur every year. With the wave of baby boomers planning to exit their businesses, however, SME Research predicts that up to two million businesses will be sold between 2017 and 2020. This would increase the market volume ten-fold, to an average of 500,000 businesses each year.

What does this mean for sellers?

Right now we are experiencing a seller’s market. There are many more qualified buyers searching for good business opportunities than good businesses available for sale. Over the next three years that will slowly start to flip, until we have a strong buyer’s market where many business owners will be competing for deal dollars. From a basic economic standpoint this means two things for business owners planning on selling in that market: 1. Sale prices will go down 2. Competition will increase and it will be harder to sell your business.

What does this mean for buyers?

If you are in a position to buy a business or add-on an acquisition opportunity to your current operations, this time could be incredible for you. Buyers may be able to expand their business operations and overall value during this time through savvy acquisitions.

So what should I do?

If you own a business and you are thinking about selling in the next three to five years, don’t wait. Yes, it is true that you can price any company right and it will sell, in any market condition. However, if you want to avoid the unknowns of the potential decreases in valuation put your business on the market now. Just because you sell your business, does not mean you have to exit your business. You can construct employment or contract agreements that keep you involved and working for years after the sale. At the very least have a conversation with a professional advisor like a business broker, business attorney, or financial planner and begin planning today.

The Seller Tsunami is not something to fear, but simply something to plan for. The baby boomer generation will affect business sales. If you are worried about how the baby boomer generation will change your business value, start planning now.

Transworld Business Advisors of Denver is a team of Denver business brokers that helps visionary entrepreneurs buy a business, sell a business, or grow a business through franchising. If you are interested in having a conversation about what your business is worth, or how to sell your business you can contact us via email or phone at 720-259-5099.

Why You Should Use a Business Broker to Sell Your Business

When business owners are looking to transition out of their business for a variety of reasons – relocation, retirement, and change of career – they are presented with multiple options in regards to the future of their company. Should they close? Transfer to an employee or family member? Or sell? And if they sell should they do it on their on or through a business broker.

If the choice is to sell, a relationship with a business broker can provide an easier transaction with multiple and higher dollar offers. No matter what the business owner decides, they should work with someone who is an experienced business professional and active in the business brokerage community. In Colorado, business brokers should have active real estate licenses and be affiliated with our state brokerage association, Colorado Association of Business Intermediaries (CABI) as well as the International Business Brokers Association (IBBA).

For more helpful tips on finding the right business broker to help sell your business, read this article by Inc. Magazine, “Finding the Right Business Broker for your Business.” It includes helpful information from industry experts, including Transworld’s CEO, Andy Cagnetta.