Owners Selling Businesses For Sale By Owner - Buyers and Sellers

Question's About Buying or Selling An Existing Business - By Michael Jay Wilson Sr. DISCLAIMER

Buyers:

When should I consider buying an ongoing business?
What should I consider when buying an ongoing business?
What should I look for when considering R.O.I. as a business owner?
What should I consider about the business Good Will?
What should I consider about the Real Estate portion of my business purchase?

Sellers:

What is a fair price I can ask for when selling my business?
When can I ask for more?
When should I expect less?
What if I am willing to sell the business for less?
How can I best prepare to sell my business?

For Professional Assistance With Buying Or Selling A Business In Georgia Or East Alabama
Click Here to visit DermoRealty.com - Dermo Realty in Carrollton Georgia
Tony Dermo - Licensed Commercial Real Estate and Business Broker with Over 35 Years of Experience

BUYERS

When should I consider buying an ongoing business?

Buying an ongoing business with a proven business model, location, pricing structure, advertising methodology, product and/or service mix can be invaluable when you are considering running almost any type of business.

33% of all new businesses fail in the first year and 33% more will fail in the next two years. The value of purchasing an ongoing business is almost priceless when considering the failure rate of new business starts.

Please seek the advice of a licensed professional if you have any questions about this all important topic.

All readers are advised that this article was written for illustrative reasons only and everyone is advised to seek the advice of a licensed professional in regards to any topics addressed here.

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What should I consider when buying an ongoing business?

How much of your business will be lost due to replacing the existing owner of a business?
How much do you know about running this type of business?
How much do you want to change the scope and practices of the existing business?

Real Estate - Is the Real Estate included with the property?

Check for liens on the property.
Check the Zoning
Get an appraisal on the property on a business premises basis only.
If not... Check the Zoning
If not... How long is the lease?
If not... Is the lease transferable?
If not... Are there options to extend the lease at set rates?

Licenses - Can you get all the necessary licenses in a timely manner so that you can continue to conduct the business without interrupting your day-to-day business.

Contracts - You will need to review all business contracts to ensure the contracts are transferable.

Transferability - How easy will it be to transfer the business into your name with the least interruption to the existing business? For example; Buying a corporation which holds the business and has all necessary licenses, deeds and most importantly contracts in the corporate name allows for you to purchase a company without making anyone aware that the ownership of the business has changed hands.

These are just a few issues which may be overlooked. You should always seek the advice of a licensed professional if you have any questions about this all important topic.

All readers are advised that this article was written for illustrative reasons only and everyone is advised to seek the advice of a licensed professional in regards to any topics addressed here.

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What should I look for when considering R.O.I. as a business owner?

Most owners selling businesses will only show you the books once you have paid a 'Good Faith' money deposit into an escrow account.

Many owners selling businesses will include the pay they receive as an employee of the company in their annual profit... especially when the owner has little day-to-day management duties in the business.

You may want to consider asking these questions in a frank discussion about this matter with the owner selling the business and include these as contingencies in any offer you make for the business. Many times the owner will be happy to discuss these topics including any other perks they may realize as the owner of the business.

You also need to know how many family members work for the business and whether they can be replaced by new people at the rates of pay they receive.

There are many more considerations which should be included in an analysis of the business' profitability, so you should seek the advice of a licensed professional if you have any questions about this all important topic.

All readers are advised that this article was written for illustrative reasons only and everyone is advised to seek the advice of a licensed professional in regards to any topics addressed here.

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What should I consider about the business Good Will?

The 'Good Will' of a company includes the faith of the employees in the on-going success of the business. When considering this you must ask if whether the changing of the ownership or management of a company will effect the faith of the employees in the future success of the company and how you can best manage the transition.

The 'Good Will' of the company also includes the relationships a business has with its vendors, business partners and associates, as well as anyone the business contracts with for goods or services. The key here is to control these relationships so that you either have the opportunity to negotiate better terms in some cases and 'locked in' prices in other cases.

The positioning of a business may change considerably should you make it public that the business is under new management, especially when considering the type of business it is you are buying. In other words, if you change the name of the company, or have an 'Under New Management' sale you may put at risk any business which depended upon the personal good-will enjoyed and brought to the company by the previous owners.

Another thing to consider is to know the full relationships the present owners enjoy with their customers, vendors and other parties involved in the success of the business. For example; If the present owner owns another company and uses this company's product or service as a loss leader for the other company, or if certain vendors afford a discount tied to the business of the other company, or if certain customers enjoy a discount of any sort due to any purchase they make with the other company also controlled by the owner; you will need to address each of these issues and ensure that you can offer your clients the complete solution they need or whether you can expect to continue to enjoy the benefits of these existing relationships.

There are many more considerations which should be included in an analysis of the business' good-will,, so you should seek the advice of a licensed professional if you have any questions about this all important topic.

All readers are advised that this article was written for illustrative reasons only and everyone is advised to seek the advice of a licensed professional in regards to any topics addressed here.

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What should I consider about the Real Estate portion of my business purchase?

How important is the location aspect of the business?

Real Estate - Is the Real Estate included with the property?

Check for liens on the property.
Check the Zoning
Get an appraisal on the property on a business premises basis only.
If not... Check the Zoning
If not... How long is the lease?
If not... Is the lease transferable?
If not... Are there options to extend the lease at set rates?

Other considerations if the real estate is included with the sale...

Future construction - Is your competition moving in next door? Is your customer base local and how will future construction effect the traffic of your location? The local Zoning commission or council may be able to help you research this further.

There are other factors you need to know about... commercial starts in the area... whether road construction or railway issues will impact your future business.

Can you increase your traffic by improving your property or affording more access to your property?

Does the property afford you other opportunities for profiting from the deal such as the inclusion of commercial out-parcels... etc. (You may want to investigate whether you can buy the business without any extra real estate not absolutely necessary to the future success of the business.)

There are many more considerations which should be included in an analysis of the real estate included in a business sale, so you should seek the advice of a licensed professional if you have any questions about this all important topic.

All readers are advised that this article was written for illustrative reasons only and everyone is advised to seek the advice of a licensed professional in regards to any topics addressed here.

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SELLERS

What is a fair price I can ask for when selling my business?

As a rule of thumb, here is an equation for a business which has been profitable for the past two years or more and can reasonably expect to continue to enjoy this level of profitability.

Add together the values of your 'Furniture + Fixtures + Equipment + Inventory' - These are raw costs of what it takes to run your business...

Add 'Three x Annual Net' to this amount. - This what you get for proving your business model at this location and you may be able to add in your salary if you are not overly involved in the day-to-day operations of the company... a good rule of thumb is to find a fair salary you could pay someone to do your job and subtract this from what you are getting paid... if you have money left over you can add this amount to the Annual Net of your business for considering this business value appraisal.

Now multiple the total of the above by 120% ( x 1.2) - This is a 20% buffer you get for putting it all together, and further more, this amount when added to the annual net portion of this equation equals the total amount you are asking for in Good Will while selling your business.

Now add in the value of your real estate on a business premises for sale basis. - This is the cost of obtaining the property with the necessary amenities you need to run your business.

There are many more considerations which should be included in an analysis of pricing your business, so you should seek the advice of a licensed professional if you have any questions about this all important topic.

All readers are advised that this article was written for illustrative reasons only and everyone is advised to seek the advice of a licensed professional in regards to any topics addressed here.

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When can I ask for more?

Any time. You should always ask for as much as you reasonably expect you can sell your business for... and then a little more as you can always come down in your price..

But more specifically:

When you have long term contracts which afford you a guaranteed minimum income you may be able to get anywhere from four times to seven times your annual net. But your buffer should only include 20% of the first three years annual net.
When you do not actively manage the business you may be able to sell your business easier while also increasing the price of your business. The more you can provide the new owner the opportunity to invest less time in managing the affairs of the business the wider the scope of potential buyers becomes and this offers you the ability to ask for more for your business. You may be able to get anywhere from four times to five times your annual net. But your buffer should only include 20% of the first three years annual net.
When you can easily expand your business to accommodate more guaranteed business you can of course ask for more, but this depends upon your ability to convey this value to a potential buyer. For example; Let's say you are marketing your business in an area and yet your service radius is much smaller than this area (the reach of your marketing), you may be able to easily increase business by opening new locations or expanding your service radius.

All readers are advised that this article was written for illustrative reasons only and everyone is advised to seek the advice of a licensed professional in regards to any topics addressed here.

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When should I expect less?

There are many exceptions to this general method for pricing your business.

The main issue here is -- "How much business will be lost should you personally stop managing or working within the company?" For example; A person owning a single chair beauty shop who also cuts all the hair, may have to cut their price... sometimes as low as only 1 times annual net in the equation.

- Of course this may be best overcome with some creative thinking. You could add a chair and have the new owner work beside you for three months as they take over the business, get to know the clients personally and learn what the clients expect, while perhaps building up their own clientele in your location.

All readers are advised that this article was written for illustrative reasons only and everyone is advised to seek the advice of a licensed professional in regards to any topics addressed here.

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What if I am willing to sell the business for less?

Many times owners selling their business are pleasantly surprised that their business may be far more valuable than they once considered it to be.

This is when you can use some creative financing to spruce up the deal for a quick sale. Some sellers will use this fact to their advantage and accept the amount they thought the business was worth as a down-payment while personally carrying the note for the remainder of the selling price.

Thinking even more creatively you could structure the deal where you get what you thought the business was worth as your minimum down payment and then tell potential buyers that for every extra thousand dollars they put down over this amount you will reduce the total price by a thousand dollars.

All readers are advised that this article was written for illustrative reasons only and everyone is advised to seek the advice of a licensed professional in regards to any topics addressed here.

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How can I best prepare to sell my business?

- If you own the Real Estate - Get a Business Premises Only Appraisal.

- If you don't own the Real Estate - Do your best to secure a long term lease, or options added to your existing lease to fix these costs.

- Simplify the transfer of your business... Think about forming a corporation or LLC and moving all of the business assets into this device through a non-taxable exchange of stock or other ownership interests in exchange for your interest in the business assets. This way a potential buyer can simply purchase your stock or interest and all of the licenses, deeds, contracts and/or business accounts will seamlessly transfer with the sale of your business.

There are many more considerations which should be included in an analysis how best to prepare your business for sale. Many are obvious, such as cleaning the place up, but you may easily overlook an aspect of preparing your property for sale so you should seek the advice of a licensed professional if you have any questions about this all important topic.

All readers are advised that this article was written for illustrative reasons only and everyone is advised to seek the advice of a licensed professional in regards to any topics addressed here.

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DISCLAIMER
Michael Wilson began his career in sales and marketing as a Business Broker in a big city depressed market. The basic principles have not changed in the past thirty years but all readers are advised that this article was written for illustrative reasons only and everyone is advised to seek the advice of a licensed professional in regards to any topics addressed here. See - www.LiveStrongAndProsper.com/OwnersSellingBusinesses.htm - for the original text of this article.