Nobody ever said that selling a small business in Arizona would be a simple process. But that does mean that it can’t also be an enjoyable, and rewarding, process, if you start out with realistic expectations and develop a well thought out approach. There are many different ways you may decide to approach the sale of your business. You might decide to place it “For Sale By Owner,” or to list it for sale with a professional business broker. Some owners seek to transfer ownership of their business to a long-term and trusted employee through the use of a buy-sell agreement. No matter which course you decide to pursue, there a couple of basic concepts that Arizona business owners should understand in order to increase the likelihood of a smooth transfer of ownership.
This list is by no means complete. You may well find something missing, or disagree with an element that is on the list. Whatever your conclusion, it’s our hope that these concepts prove useful to you as you begin to think about selling your Tucson business. In our experience, these concepts will prove useful to you whatever the size and nature of your business.
1.Make Sure Your Historical Financial Records Are Accurate
Like every other business owner, you’ve probably developed your own unique approach to managing your finances. You may use Quickbooks, or, choose to rely upon a bookkeeper or external accountant. Maybe your a whiz with numbers, and are in a simple business, and you keep all your records on the back of an envelope. Whatever your particular style, and particularly if it’s one of the latter, you are going to need to invest in a copy of Quickbooks and get some help to make sure your records are accurate, thorough, easy to read, and correctly reconciled.
Inaccurate record keeping is a red flag for any potential buyer of your business, and an interested buyer who comes across them is likely to saddle up and ride off into the Arizona sunset, leaving you wishing you’d got your act together sooner. Make sure to have, at a minimum, an income statement, balance sheet, and copies of your tax returns for at least the past three years.
2. Be Realistic In The Valuation Of Your Business
Nobody is going to question that you’ve put blood, sweat and tears into your business for ten or twenty or however many years you’ve owned it. You may have sold your Summer cottage, gotten rid of your sports car, and scaled back your lifestyle in order to keep it going during lean years, and now that the time has come to sell it you are ready to paid back for all of your sacrifices. Keep in mind that these are all emotional attachments to the business, and have little to do with it may be worth on the market. You can be sure that if your business has been successful, you will be paid fairly for it. However, you will not be compensated for your sacrifice and emotional attachments that add no tangible value, and if you hold on to the expectation that you will, you will hold out for a price your business does not command and may not be able to sell it.
Do yourself a favor and get realistic now. Do some research and consult with trusted advisors. Review the trade publications in your industry for insights, and check online business listing sites for similar businesses. You may also consider hiring an accountant or business broker to conduct a business valuation in order to follow widely accepted valuation practices. There are a number of widely accepted methods for valuing a business, including: “Discounted Cash Flow Analysis” and “Single Period Capitalization Method”. A formal valuation will often perform the analysis using several of these methods in order to ensure objectivity.
3. In Addition To A Business Broker, Work With An Attorney Who Understands Commercial Transactions
The sale of your business is going to require the services of an attorney. Sure, you may have some old friends or neighbors who are attorneys that you’d like to throw a bone to, but save yourself time, money and frustration by instead seeking out an attorney who regularly deals with commercial transactions.
An experienced business broker can walk you through the all the steps of the selling process, call upon a bullpen of trusted complementary service providers (attorneys, CPAS, appraisers, commercial real estate agents, escrow and title companies, bankers, etc.). A business broker will also likely be able to negotiate more effectively on your behalf, because they will be focused on maximizing your profit and will not react as emotionally to the buyer’s comments, or any elements of the transaction that you would be sensitive to. Your business broker has done many deals before, is familiar with all the steps in the selling process, the accompanying forms, and can help you avoid unsavory clauses in the buyer’s proposed contract that impug your interests.
4. Be Willing To Compromise
Sucessful negotiations are often based around an outcome that offers mutual gains. In other words, each party may feel that they have ceded certain smaller points, but achieved the outcomes that were most important to them. Taking the time to reflect on your desired outcomes in a sale, and communicating effectively and transparently, probing to uncover the buyer’s priorities, is more likely to lead to a “win-win” outcome. Either party is, of course, free to walk away from the transaction at any point before it is closed.
You would do well to remember that every sale is followed by a transition period, and if you take the hard line and end up prevailing during a tough negotiation, you will likely have also generated acrimony that could become a hindrance to an effective transition to the new owner. You want the new buyer to suceed, and, as you did, put a piece of themseleves into the business. Your legacy of ownership is tied up in their future success, in that sense. Buyers that walk away believing that they received a fair deal and were well treated will speak well of you in the community, and are less likely to jump into litigation if minor problems arise with the business down the road.
5. Know When To Hold ‘Em, Know When To Fold ‘Em
Most successful business owners have honed a sound instinct for the art of doing a deal. Sometimes, it’s necessary to be willing to walk away from a deal in order to find out if the deal you really wanted was available, or not. We don’t recommend that you “cry wolf” under false pretenses as a hollow negotiation tactic, rather that you truly understand what your threshold is and are willing to stand by it.
Your business instinct is akin to a gut feeling about the situation, and it may well be worth more than any other analysis you have performed. When you havea strong feeling that something is amiss, that a buyer’s position or demands in the negotiation are not reasonable or legitimate, you have to be willing to demand a change to that aspect of the arrangement, or to walk away from the deal entirely. In the final analysis, you want to have a solid comfort level with the individual or group of investors buying your business, and this is even more the case when you have ongoing relationships with the customer base you have built up over the years, or if the sale of the business involves the transfer of intellectual property that is associated with, or named after, you.
Thinking about selling a business in Tucson or Southern Arizona? Take the time to review our Seller’s Process on this website, schedule a Free & Confidential Seller’s Consultation, or call Carrie Allen at 520-909-8242. We would be pleased to discuss the process with you.
If you’d like more information on this subject, please Contact Us.