Selling Your Business
A brief overview

Wayne Booker, MBA
Commercial & Business Opportunities
REALTOR®
Prudential CRES Commercial Real Estate
150 E. Mound St., Columbus, Ohio 43215
614-580-
614-580-1766
wbooker@prudentialcrescolumbus.com

The Small Business Market
90% of US small business closely held
Over 20 million small businesses
Employ 2 out of 3 employees
50% of technical innovation
39% of GNP
Over $10 trillion dollars in wealth will transfer
over the next 10-15 years
10-
Most of this wealth is held by privately owned
businesses
70% of those businesses will change hands

Why Sell Now
Capital gains rate is the lowest ever at 15%
Interest rates are at an all time low
Economy is relatively stable
Large number of buyers with substantial cash
Early on the curve of retirement of baby
boomers
Future risks leave many uncertainties
Present value of payout can be worth more than
the future potential

Why Businesses Sell for Less than
Maximum Value
Owner doesn’t know value
Lack of key documentation
Sold to the wrong buyer
Improper transaction structure
Sold at the wrong time
Lack of proper advisors

Steps in Selling
Assemble a team: Accountant, Financial
Planner, Attorney, Business Broker,
Insurance Broker, Business Appraiser,
Investment Banker.
Determine Current Value
Prepare an Exit Plan
Market Your Business

Steps in Selling (cont.)
Qualify Buyers
Negotiations
Letter of Intent
Due Diligence
Financing
Sales Contract
Closing and Payout

Exit Planning
An exit plan is a comprehensive road map to
successfully exit a privately held business. A
plan asks and answers all the business,
personal, financial, legal, and tax questions
involved in selling a privately owned business.
– Contingencies for illness, burnout, divorce or the
owner’ death.
– Purpose is to maximize the value of the business at
the time of exit.
– Minimize taxes.
– Insure that the business owner is able to accomplish
all their personal and financial goals.

Failure to plan results in:
– An exit as result of circumstances other than the
owner’s intention.
– Timetable is forced instead of planned.
– Business is undervalued, with much hard work
wasted.
– Taxes are higher than necessary.
– Loss of control of the process.
– Failure to realize all the financial and personal goals.
– Unnecessary psychological stress.
– Lose confidentiality during the sale or exit process.

Why businesses don’t sell
The number one reason that businesses
fail to sell is because of poor planning on
the part of the owner. Only 30% of
businesses actually sell, the rest are
liquidated with a huge loss of valuable
equity.

Business Valuation
EBITA and recast financials
Market research – what similar firms in similar industries
sell for
Direction of the business
Direction of the industry
Competitive situation
Book value
Brands, copyrights, patents, reputation
Employees and systems
Customer loyalty
Repeatability

Difficulties Sellers Encounter
… when trying to sell their own business
Valuing the business Negotiating
Keeping it confidential Timing
Marketing Dealing with buyers
Structuring the deal Remaining objective
Financing Running their
Preparing documents business AND selling
their business

Value of the Business Broker
– Knowledge of the process
– Connections with key advisors
– Confidentiality
– Marketing assistance to find buyers
– Coordination with other key professionals
– Assistance in valuation and in getting the business
ready for sale
– Prequalification of buyers
– Negotiations with the buyers and the financial
institutions

Value of Professionals
Accountant
Attorney
Financial Planner
Business Broker
Certified Appraiser
Banker
Insurance Broker

EBITDA & RECASTING
Earnings per tax return -300
Interest expense 25,000
Taxes 10,000
Depreciation (buildings & equipment) 30,000
Amortization (intangibles) 5,000
Country Club Dues 6,000
Boat Payment 12,000
Mother-in-
Mother-in-Law Wages 75,000
Mercedes Payment 12,000
Convention Travel 20,000
RECAST EARNINGS 194,700

Typical Transaction
Purchase Price $ 1,000,000
Business Asset Value 400,000
Buyer’s net worth after down payment 200,000
Bank Loan @ 8.5%, 7 years 600,000
Buyers down payment 200,000
Seller Financing @ 5%, 5 years 200,000
Business EBITA 250,000
Seller Financing Cost 45,000
Bank Financing Cost 114,036
Annual Cash Flow to New Owner $ 90,964

Tax Implications
25% Goodwill 50% Goodwill 75% Goodwill
Sale Price $1,000,000 $1,000,000 $1,000,000
Professional Fees $ 100,000 $ 100,000 $ 100,000
Capital Gains Taxes @ 15% $ 33,750 $ 67,500 $ 101,250
Ordinary Income Taxes @ 35% $ 236,250 $ 157,500 $ 78,750
Debt Repayment $ 200,000 $ 200,000 $ 200,000
Balance $ 430,000 $ 475,000 $ 520,000

The Steps to Selling A Business
PLANNING SEARCH DEAL MAKING CLOSING
Plan for Selling Activate Buyer Buyer Visit First Meeting Coordinate Due
Search Plan Diligence
Gather Your Data Distribute 1-Page Tour Business Loan Request Package
Business Summary
Recast Your Financial Qualify Buyer Probe Buyer Interest Lender Introductions
Statements
Determine Value and Determine Buyer Motivate Buyer to Act – Assist in Resolving All
Assets to be Sold Interest Offer to Purchase Issues
Prepare CBR /Data Sign Nondisclosure Facilitate Negotiations Definitive Purchase
Package Agreement Agreement
Prepare 1-Page Present CBR LOI or offer to purchase Review Final
Business Summary /Data Package Documents
Close!

What Buyers Look For
Cash flow
Diverse customer base
Growth potential
Transition (by seller for 1–6 months)
1–
Reasonable price
Flexible terms
Living wage

How Long Does it Take to Sell?
40
35
30
25
% Sold
20
15
10
5
0
'1-3 '4-6 '7-9 '10-12 '12-18 '>19
Months

Documentation
Last 3 years tax returns
Current P&L and Balance Sheet
Current AR and AP Journals
Payroll Records
Equipment List
Property Description
Employee List
Law Suit Disclosure
Patents and Copywrites owned
Competition
Suppliers
Customers

Role of an Intermediary
Provides confidentiality
Educates all parties on process
Create customized marketing package
Executes strategic marketing plan
Act as buffer for emotions
Provides negotiation skills
Facilitates process from start to finish

Thank you!!!
We’re part of the “Rock”!