Successfully sell your main street business

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Sell a Business in Sacramento. In the Slide, Andrew Rogerson provides a number of tips, ideas and information on what to do or not to do when selling your business. His company, Rogerson Business …

Sell a Business in Sacramento. In the Slide, Andrew Rogerson provides a number of tips, ideas and information on what to do or not to do when selling your business. His company, Rogerson Business Services can help you to evaluate when is the best time to sell a business.

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  • 1. Successfully sell your ‘Main Street’ business
    By
    Andrew Rogerson
  • 2. Goal of this presentation
    Introduce the many steps to sell a Main Street business:
    Introduce some of the processes
    How to research and apply to your business
    Allow you to create a plan
    Allow you to decide what’s important
  • 3. What is a ‘Main Street’ Business?
    NOT:
    Publicly held companies
    Privately held companies with sales >$5 million
    IS:
    Privately held company with
    Sales up to about $5 million
    Generally an owner/operator
  • 4. Why ‘Main Street’?
    Valuation method
    Uses Discretionary Earnings – not EBITDA
    Types of Sellers
    Types of Buyers
    Individual or Corporate Executive – control of their life
    Unemployed – looking for a job
    Synergistic – competitor or already in your industry
    Investment – hires a manager & wants a ROI
  • 5. 10 areas to research & understand
    Tax Planning
    Accounting
    Legal review
    Personal Financial Planning
    Personal Future Planning
    Build your Team
    Financing the sale
    Valuing your business/assets
    Sales and marketing plan
    Other parties in the transaction
  • 6. Tax Planning
    Entities and their tax treatment
    C Corp, S Corp, Partnership, LLC or Sole Prop
    Check your tax consequences if you sell
    Purchase Price Allocation
    Seller and Buyer have different needs and this has different tax consequences for each party.
  • 7. Accounting
    Report ALL earnings at least 12 months prior to selling…
    So it reflects in your valuation and ultimate sale price
    Need - Current and accurate Profit and Loss Statement (P&L)
    Need - Tax Returns (Last 3 years)
  • 8. Legal Planning
    Check ALL Owners agree to sell
    Divorce – what does the other ½ get?
    Broad Agreement on price and terms
    Legal contracts up to date?
    suppliers, employees, customers, finance, landlord etc
    Read existing contracts for “gotcha’s” e.g.: lease, equipment finance leases, franchise agreement etc
  • 9. Legal Planning (cont’d)
    Documents to sell the business
    Confidentiality Agreements
    Asset Purchase Agreement
    Sellers Disclosure
    Buyers Disclosure
    List of Fixtures, Furniture and Equipment (FF&E)
    Lease
    Franchise Agreement
    Profit & Loss Statements, Tax Returns etc
  • 10. Personal Financial Planning
    How will you invest the sale proceeds once the business sells?
    Trust: Living, Charitable, Testamentary etc?
    Retirement account?
    Health Insurance account?
    Shares/Mutual funds/Bonds etc
    Wills/Heirs
  • 11. Personal Future Planning
    What will you do once the business sells?
    Play golf?
    Spend more time with grandchildren?
    Travel?
    Join the Peace Corps?
    Solve world peace?
    Note: Sellers change their mind about selling because they lose structure and familiarity
  • 12. Team planning
    Recommend two teams
    Primary team
    Spouse and/or family member and one trusted friend
    Secondary team
    Professionals you can hire
    Attorney/Accountant/Financial Planner
    Business Broker
    Critical ingredients = Trust and Ethics
    Try to avoid changing the team for continuity
  • 13. Financing the sale
    How will the sale be financed?
    Cash - Highly unlikely
    Buyer with $300,000 cash will buy a $900,000 business
    Seller finance
    SBA loan program
    Conventional loans from a bank
    Commercial Real Estate loan
    Factor accounts payable and receivable
  • 14. Valuing your business
    Determine what’s being sold and valued
    Business
    Machinery and Equipment
    Real Estate
    Intellectual Property
    Main Street businesses sell for multiple of Discretionary Earnings
  • 15. Valuing your business (Cont’d.)
    Types of business valuations
    Brokers Opinion of Value (Cost $500 to $1,000)
    Standard Valuation (Cost $2,500 to $5,000)
    Full Appraisal (Cost $4,000 to $10,000)
    Do not overpay
  • 16. Sales and marketing plan
    Executive summary – Blind
    Confidential Business Review (CBR)
    Direct Mail
    Newspaper Advertising
    Web
    Trade Association
    Newspaper Business Opportunity section
    Magazines – Inc, Forbes or Trade Association
  • 17. Potential “Deal Killers”
    Family
    Landlord
    Attorney or Accountant
    Selling a business comes with risk
    Franchise
    Check your UFOC or FDD
    Lender
    Each business is unique – what’s important to sell your business?
    Do not forget - Buyers have choices
  • 18. Review your options
    You’ve done your research and plan – what are the options?:
    Do nothing
    Close the business down
    Sell to a family member or friend
    Sell the business
    If you decide to sell …
  • 19. If you decide to sell…
    Make sure it’s what you want
    It is not a quick process
    It is an emotional process
    It is a complex process
  • 20. Seller V Buyer
    Remember: Seller and Buyer are looking for different outcomes but cannot close a deal without each other.
  • 21. What the Seller would like
    • All cash
    • 22. Provide one week of training
    • 23. One day of Due Diligence
    • 24. Receive an offer and close escrow two days later
    • 25. Sell at 5 to 6 times Discretionary Earnings
  • What the Buyer would like
    • Downpayment of 10% of purchase price
    • 26. 6 months training for free then close escrow
    • 27. 4 weeks of Due Diligence
    • 28. 4 week “Test Drive” of the business
    • 29. Buy at 1 times Discretionary Earnings
  • Where they end up meeting
    • Buyer downpayment equal to Discretionary Earnings
    • 30. Seller provides some finance
    • 31. 2 to 3 weeks of free Seller training
    • 32. Two weeks of Due Diligence
    • 33. Close escrow 45 to 60 days after offer accepted
    • 34. Sold at 2 to 3 times earnings
  • The ‘perfect’ business
    A reasonable price
    A reasonable down payment (About 30%)
    Some Seller finance
    Reasonable sales (hopefully increasing each year)
    Discretionary Earnings of $60,000 pa or more
    A compelling reason for sale
    A desired industry type
    Good and attractive location
  • 35. 8 reasons a business does not sell
    Sellers starts process and sees the complexity
    Seller fears the future
    Seller receives no offers or lower than expected
    Sellers next phase of their life less appealing
    Seller wants all cash and can’t get it
    Due diligence problem: environment, govt., legal
    Seller unwilling to accept what the market offers
    Records do not support income, expenses & profit
  • 36. Conclusion
    It is:
    Complex
    Demanding
    Frustrating
    Time consuming
    Emotional
    Rewarding & a relief…when it’s done
  • 37. Questions?
    Phone: (916) 570-2674
    Email: Andrew@RogersonBusinessServices.com
  • 38. Thank you
    Andrew Rogerson
    Web: http://www.RogersonBusinessServices.com