Selling Your Business


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How to sell your business

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Selling Your Business

  1. 1. Selling Your Business A brief overview
  2. 2. Wayne Booker, MBA Commercial & Business Opportunities REALTOR® Prudential CRES Commercial Real Estate 150 E. Mound St., Columbus, Ohio 43215 614-580- 614-580-1766
  3. 3. 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
  4. 4. 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
  5. 5. 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
  6. 6. 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
  7. 7. Steps in Selling (cont.) Qualify Buyers Negotiations Letter of Intent Due Diligence Financing Sales Contract Closing and Payout
  8. 8. 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.
  9. 9. 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.
  10. 10. 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.
  11. 11. 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
  12. 12. 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
  13. 13. 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
  14. 14. Value of Professionals Accountant Attorney Financial Planner Business Broker Certified Appraiser Banker Insurance Broker
  15. 15. 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
  16. 16. 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
  17. 17. 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
  18. 18. 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!
  19. 19. 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
  20. 20. 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
  21. 21. 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
  22. 22. 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
  23. 23. Thank you!!! We’re part of the “Rock”!
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