Successfully sell your main street business


Published on

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.

Published in: Business, Economy & Finance
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Successfully sell your main street business

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