This article are provided for information purposes only, and are not intended as legal advice.


Selling your privately owned business

May 12th, 2009

There are many articles written which state that business owners are retiring and 50% of all privately owned businesses may be sold in the next 10 years. A significant percentage of that number during the next five years.  Do you sell now or wait?  Traditionally businesses were based on a multiple of earnings before interest, taxes, depreciation and amortization commonly known as EBITDA.  Some people apply a multiple to this, others use discounted cash flows.  I have seen 2 times multiple for retail, 2.5 times for franchises, 3 times for wholesale and distribution, 5 times for manufacturing.  These are very quick and dirty multiples.  It depends on what part of the country are you located, how large is the company, the larger the company, the higher the multiples tend to go.  If your company has sales of $100 milli0n, it will sell for a higher multiple than a company with $1 million in sales.

 

If your earnings are dropping, if you sell now, what will you get?  If you have 3 bad years and you want to wait until you get 3 good years, then you cannot sell for say 7 years. It will probably take 6 months to get the financial results of your 6th year.  It will then take 3 to 12 months to sell your business therefore you are really there for another 8 to 9 years.   If you planned to retire in 3 years, you will not be able to do it.  These are things that you need to consider when you decide to sell your business

 

Look for a strategic buyer of your business, they will always pay more.  It is difficult to sell to a strategic buyer because they need some information to value the business however they are your competitor and you do not want to provide them with too much information so that they can go after your customers.  Many competitors will know who your large customers are but they will not know the selling price and the gross profit of those sales and you should not provide that information about specific customers until the very last minute and only to an independent third party such as their accountant to allow him to confirm the financial information that you have provided.

 

You the choice of selling your business buy yourself or using a business broker to assist you in the sale of your business.  In addition, you should be discussing the sale with your accountant and your lawyer.  If your accountant or lawyer have never dealt with the sale of a business, do not be a guinea pig, find someone who has experience to guide you though this process.  They can help review the letter of intent and also the final purchase and sale agreement.  Once you have sold the business, you do not get a second chance to get a higher price or better terms and less conditions in your purchase and sales agreement.


Filed under: Businessses for sale — Gary Landa @ 12:11 pm


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