Lack of financial preparation is a big hurdle small business owners will face. If you were to put your house on the market, you’d want to spend some time cleaning it up and making it presentable, the same is true for your business. I am not talking about making sure your lobby and entrance are swept though. I am talking about your financials.
All too often, I meet with business owners who have out of date financial statements or worse yet, no financial statements at all. They operate their business based on how much cash they have in their bank account. This makes it drastically difficult to give confidence to a potential buyer that your business is run profitably. Often, the most important part of due diligence for potential buyers is verifying accuracy and historical trends of your profit and loss statement and other financials. Therefore, the most important part of preparing to sell your business is having accurate, timely and profitable financial statements.
Let's be honest, if you are a Las Vegas business owner, you are comingling funds. I can almost guarantee that you are running personal expenses through your business. That is great, I am all for that! Really, as a Las Vegas business broker, I have 3 of my own companies that I still operate and manage, one of which has 90 employees and I do the exact same thing.
That is one of the benefits of being a business owner and our tax code, we can and we should have some perks but there is a problem. In contrast to publically traded companies that have a goal to show as much profit as possible, and therefore, incur a high tax bill, in order to show confidence to their stockholders that the company is worth holding on to, small business has the exact opposite approach. We want to show as little profit as possible, therefore minimizing our taxable income.
Why does this matter? Because when a Las Vegas business broker or Las Vegas business appraiser comes into to establish a valuation or sales price, they are going to use your profit as a major factor in that valuation. Now that you’ve minimized your taxable income, you’ve also just minimized your businesses valuation.
Here is the solution: Make sure that any non-business related expenses that are run through the company are clearly identified on your financials. This allows the Las Vegas business broker or appraiser to “add-back” all the non-business related expenses to your bottom line, therefore increasing your true profit and business value.
Can you clearly explain to a potential buyer why and how your business is different than your competition? You should be able to do this without a second thought. Why? Because you should have already identified this a long time ago and built an entire marketing plan and strategy articulating this to your customers.
A new buyer will want to know not only how you acquire new customers but also why you are unique and how you differentiate yourself from the competitors in Las Vegas.
How many houses have you purchased in your lifetime? How many cars? My guess is more than a few but how many different real estate agents or car salesmen have you used? Probably just as many.
Some industries are notoriously bad are establishing a list of customers or potential customers and staying in contact with them. I know of one real estate agent (the one I use) that understands the lifetime value of his clients and also understands that, on average, his clients are going to buy or sell once every 7 years. He spends the time and money to stay in contact with them monthly, for years, knowing that he will be top of mind when that time comes.
While you want to make sure you are unique and different from other competitors here in Las Vegas, there is a lot you can learn by being aware of what your competition is doing and why. Are you aware of the sales, the marketing, and the social media your competitors are using? What strengths and weaknesses do they have? Being aware of this not only helps you stay on top and in front of your industry but also gives you ideas for additional products and services that are being underserved in your niche.
Do you have a number if your mind that your business is worth? If so, how did you arrive at that number? Nearly 80% of the time I meet with business owners, that number is not realistic. It’s too high. Business owners are proud of the business they have grown and often overinflate the value in your minds.
A Las Vegas Business Broker will help you with a realistic and accurate value for your business.
You are an expert at running your business, but selling your business is not your area of expertise. Business owners that try to sell on their own, without professional help, can save on the broker fee but the likelihood of them selling on their own, without any help, is less than 10%. Besides that, a Las Vegas Business Broker can usually help you get a high enough price that the broker fee isn’t an issue because it's more than you could get on your own.
Even in the rare occurrence where it does make sense to list the business on your own, you are better off using a Las Vegas Business Broker to help with the negotiations, the showing, the preparation, and marketing as well as the close and contract.
The likelihood of an all-cash offer is not high in today’s marketplace. All cash offers can also be detrimental to sellers from a tax perspective. Instead of getting a large chunk of change at closing, today’s buyers are more likely to need seller financing to close. Most small business acquisitions in Las Vegas require third-party financing, most commonly being the SBA. This type of a loan requires the seller to carry a small note to be paid over time.
Not only are more than 70% of businesses purchased with seller financing involved, the likelihood of your attracting buyers based on your willingness to carry financing will considerably increase your pool of prospects.
If a new buyer comes into your business, what is the plan to transition them successfully to running and operating the company? Buyers will almost always require a training period where the seller will stay and train the new buyer giving them the experience and confidence needed to take over. Many owners are so focused on selling, that they don't think through this transition.
What is worst, many owners have been operating for so long, they really don't have any training manuals or processes in place. They just know it off the top of their head, this is a huge mistake, how is the new buyers supposed to feel confident they can come into your business if you are not there and everything depends on you being there because there is no process, system, and procedures in place.
Spend the time now, building your systems, process, and procedures so a new buyer has a clear transition plan.
I saved the best for last; this is by far the biggest struggle for business owners. They are so caught up in the whirlwind of day-to-day operations that they don't really know their numbers.
Do you know the following:
The average sales value per transaction?
The average number of transactions per customer?
The average number of referrals per customer?
The average lifetime value per customer?
What product is most profitable?
What marketing and client acquisition channel is most profitable?
I could go on asking different questions that you should and must know. Knowing these things shows the potential buyer you run your business like a business and make informed decisions, not emotional reactions.
First Choice Business Brokers sells more businesses than anyone else in Las Vegas. Reach out to me to find out how much I can sell your business for.