Selling a company will not happen overnight. While a quick closing does happen for some, there are plenty of successful businesses out there that take months or years to sell. Understanding how to best prepare for the sale of your business can help you avoid mistakes and remain patient.
An important aspect of selling your business is to be flexible. So many factors are involved with selling a business, and therefore, lots of issues can come up. Being flexible means being able to work through these issues with buyers to avoid sabotaging your deal.
A good Business Broker will tell you that your price needs to be negotiable. Remain willing to accept a lower offer if the reasons behind it are valid. These factors range from lack of systems, quality of management, and limited geographical distribution, to an overreliance on a handful of customers or key clients.
Three things most business owners want when selling their business are confidentiality, the right price, and a quick turnaround. Attaining all three of these is a fairly difficult task. You might have to sacrifice price for quick turnaround, or quick turnaround for price.
Selling a business takes time. You have got to find the right person, at the right time, with the right capital. Set realistic expectations around how long it is going to take to sell the business. The fact is that stressed out owners are far more likely to make mistakes.
Remember that old saying, “You win some, you lose some.” There will be points of contention in the selling of your business. You will lose some battles and win others, but however it plays out, it’s important to remember that a good deal (not a perfect deal) is better than no deal. Do not) lose sight of what you want to achieve: a new venture with your business sold!
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BizBuySell’s 2020 3rd quarter insight report includes statistics on Covid-19 impacts on businesses for sale in 2020. We’ve highlighted a few points from the report below. Read the full report here.
As of April 2020, sales of businesses were down 51% year over year. By July the year over year deficit was only 21% and as of September it was 5%. This shift appears to be based on consumer demand. Those looking to purchase small businesses believe they can get a better deal now than they could a year ago.
Not surprisingly, another impact of COVID-19 is that business owners’ confidence in selling their business fell. Most believe they could have gotten a better value for their business if they had sold in 2019 vs 2020.
However, the median sale price for businesses considered “essential” increased by 20%. Those businesses that are by nature “pandemic proof” (liquor stores, pet supply stores, grocery stores, fast food chains, etc.) have not decreased in value this year.
One final interesting note is that baby boomers, the group that has been the main supplier of businesses for sale, has chosen to re-evaluate lately. Due to the pandemic and the unknowns surrounding it, many have chosen to hang on to their businesses for the time being.
If you’re considering selling your business and need advice or a business valuation
, contact us. We’d love to help.Read More
For most of us, the idea of personal “goodwill” is clear. Within our own lives, “goodwill towards man” generally means doing good things for others, whether that’s volunteering, donating cash or items, or just being kind to those around us. However, in the business world, goodwill usually encompasses everything beyond tangible assets, from a business’s reputation, to the goods, services and products it provides.
Your Reputation Matters
Your business’s reputation is a key factor to your company’s success. When comparing two similar businesses, one with a stellar reputation for good service and community spirit, versus one with many negative reviews about service and support, it’s easy to identify which will be more successful. Make sure your staff knows how important your reputation is, not only for the growth of the company, but for future expansion and the eventual selling of the business too.
Going Beyond the Numbers
Goodwill is often a factor when a buyer pays more than the recognized value of a business. Variables that fall under the concept of “goodwill” include: quality and track record of management; strength of the local economy; the loyalty of the customer base; good relationships with suppliers; copyrights; trademarks and patents; name or brand recognition; specialized training and knowhow. Your broker or M&A advisor will highlight these aspects to potential buyers. Factors that impact the longevity of a business, and its long-term potential, should not be overlooked.
The Evolving Meaning of Goodwill
In recent years, the accounting profession has changed how it deals with the concept of goodwill and how it is factored into decisions. There has been a shift away from tangible assets and towards intangible assets.
Assets under the umbrella of intellectual property, including patents, trademarks, and brand names, are now considered key aspects of goodwill. In short, in the last twenty-years, goodwill has taken on a more complex and varied meaning. Today, businesses are not necessarily based around massive factories and huge assembly lines. Workers and management in the world’s largest companies 50 years ago would be hard pressed to explain the inner workings of some of today’s corporate campaigns.
In conclusion, the concept of goodwill is more confounding than ever. This factor serves to underscore the value, and importance of working with an experienced, capable and proven business broker or M & A advisor. Your business’s goodwill elements need to be highlighted so that prospective buyers fully understand the business’s real value.Read More
You might have heard stories about business for sale that fell through at the last minute. It’s common for people to talk about what went wrong. However, we want to talk about what can go right. There are strategies for successful sales closings that can help you sell your business.
First, it’s important that you, the seller, and your buyer are in agreement on terms. For that to happen, everyone needs to be clear about the offer itself and the terms and conditions of the sale. This can mean putting in a little more work beforehand, providing plenty of details and answers to any questions your buyer might have. You, too, may have questions about the buyer’s ability to finance the deal and his or her ability to successfully operate a business that is near and dear to your heart. Talking through these matters and getting answers to everyone’s questions sooner rather than later can lead to a successful closing.
Second, remember that patience is key. There are lots of details that go into the selling of a business. It can take time to gather all of the necessary paperwork, financial information, etc. While you should make every attempt to stick to the committed closing date, it’s important to remember that selling a business doesn’t happen overnight.
Third, there should be no surprises. As the seller, be upfront about your business’s ups and downs. It’s better for a potential buyer to be aware of shortcomings sooner rather than later. Make sure your business accounts are clean and free of any personal expenses. On the opposite side, your buyer should also be upfront about any of their financial concerns or issues. If everyone is upfront from the beginning then no one will be waylaid by surprises at the end.
Having a business broker in your corner can be helpful for utilizing these strategies to complete a successful sales. Ready to sell your business? Contact us.Read More
When you finally decide it’s time to sell your business, we know you expect that transaction to go smoothly. To make sure it does, we’ve listed some common mistakes to avoid when selling your business.
Keep up with Day to Day operations
First, don’t neglect your business while trying to sell it. It can be easy to start to let go of the business itself and to focus all your energy on making sure it sells. This can inadvertently lead to neglect in the day-to-day services and sales. However, buyers look at recent reviews and, of course, at recent sales when considering buying your company. Make sure the day-to-day items still get done even while you’re trying to sell the business.
Next, think like a buyer. If you were a buyer what would you want to see? What questions would you want to have answered before you seriously considered purchasing your business? Think like a buyer and you’ll avoid potential problems.
As the Boy Scout motto says, “Be Prepare”. This is applicable to selling a business too! Make sure you have all your documents, from valuations to forecasts, etc., that a buyer will need. This not only makes the transaction go more smoothly, it gives the buyer a sense of security knowing the current owner of the business is well-organized and prepared.
Finally, don’t have blinders on when it comes to the value of your business. Accepting that a business you put your heart and soul into isn’t worth as much as you thought is a hard thing to do. However, knowing the true value of your business and making sure to market it at an appropriate price will help it to sell faster and at a price that is realistic.
Mistakes to avoid when selling your business
The common mistakes listed above when selling businesses are all reasons to use a business broker like Franchise Sellers or Company Sellers (link will be included) . We can make sure that you are prepared, that your business is priced appropriately, that you think like a buyer, and that your business continues to run smoothly while it’s on the market.
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When it comes to selling your business, it seems like the person offering the highest price is the right buyer. However, there are other factors that should be considered. Finding the right buyer for your business means looking not only at offer price, but also at motives and potential problems.
Selling to a competitor can be a great option. The competitor already knows the business and how to market it. He will be familiar with potential clients, and your own employees may be able to stay on and continue in their current roles. However, if the deal falls through, you’ve just handed the competitor quite a bit of confidential information about your business.
A financial buyer can be a good option and most likely won’t be a competitor. Unfortunately, financial buyers are planning to sell your business again in a few years, for a profit. This means they’ll be unlikely to pay your asking price.
A strategic acquirer will be more likely to pay the price you’re asking, but you have to ask yourself what their motive is. It’s possible they’re buying the business just to close it or relocate it. That may mean that your employees will lose jobs or that the business will just no longer exist. This can be difficult for many business owners to accept.
Finally, consider an employee. Often a current employee is a great option for buying and taking over your business. Problems with this situation can occur though if the deal falls
through and others at your business learn the business is for sale. Potential issues might arise too if there are many employees who don’t get along with the one buying the business.
Using a business brokerage firm like Franchise Sellers is a great option because we can help you wade through the many offers for your business. If you’re wondering how to find the right buyer for your business, a broker can take the emotion out of it and find the best option for you and your situation.Read More
What Type of Franchise Arrangement is Best for You?
Deciding on the level of franchising that best fits your needs is almost as important as investigating and choosing the right franchise. Below are the four levels of franchising. These include information on the territory specifics, the required level of participation, and the typical liquid capital requirements. It is best to consider all aspects of each level, before deciding what type of franchise is best for you.
Single Unit Franchises
A franchisee has the right to operate one franchise unit. Most franchisees enter the world of franchising by owning one unit. It is a great way to get in and understand the system before taking on more units.
Territory: The franchisee may have a small radius of exclusive territory to operate within. If it is a retail store, the area of exclusivity may be a two or three mile radius around the store. If it is a home-based business the area may consist of a few specific zip codes.
Level of participation: The franchisee is very involved with almost all operations of this type. Even if it is a semi-absentee owned business, the franchisee will want to be present at the business and be as hands-on as possible.
Typical liquid capital required: $25,000 to $60,000 initial out-of-pocket investment required on a total investment of $100,000 to $200,000.
The franchisee acquires more than one unit of the franchise, usually at reduced franchise fees. The risk is lower because the franchisee can take advantage of the economies-of-scale theory; by spreading costs across multi-units, the locations may be more successful. A good sign of the health of the franchise is if many of the franchisees are multi-unit owners.
Territory: There is usually no exclusive territory where the franchises must be set up. The franchisee may have one unit in one part of town with a surrounding radius of exclusivity, and another unit in another part of town 15 miles away or even in another county with its exclusive radius of operation.
Level of participation: The franchisee is less involved with each of the units operations, but will be managing multiple operations and will need to have some level of supervision in each unit. If many units are opened, a general manager and additional administrative and training staff may be needed. The franchisee is more of a general manager when many units are involved.
Typical liquid capital required: $50,000 to $70,000 initial out-of-pocket capital is required to take care of mostly the initial franchise fees. The rest of the investment is usually financed when each unit is opened.
Area Development Franchises
This license usually grants the franchisee the right to open a certain number of franchises in a given area. There is usually a production schedule where the franchisee must open a certain number of franchises during a certain period. The franchisee has an exclusive area where no other franchisees can be allowed to open a franchise.
Territory: The franchisee maintains an exclusive geographic territory as long as the opening schedule is maintained. The territories range from a small city to parts or all of a larger city.
Level of participation: The franchisee will be very involved in the beginning stages of the first location to make sure it is successful. The franchisee will also need to be looking for qualified real estate to open the next few locations. Once several locations are open, the franchisee will need additional assistance to manage several units.
Typical liquid capital required: $60,000 to $120,000 initially to secure the area, pay all franchise fees and have additional start-up capital. The franchisee will then need to be able to finance the rest of the start-up costs for each of the franchises, as they open.
Master Development Franchises
A Master Franchisee, sometimes called a Regional Developer, has the rights to a larger area than that of an Area Developer. The Master Franchisee, in addition to opening franchises at a much reduced franchise fee and royalty, can also sell unit franchises, multi-unit franchises and area development franchises and make a nice return on the sale. The master usually receives a part of the royalty and franchise fee paid by each franchisee.
There may be additional income available from distribution of products through the franchisees in the area and possibly even some real estate interest. The master becomes somewhat of a sub-franchisor for the area, without having experienced all the trial and error the original franchisor did. The master franchisee will usually want to open and operate at least one unit (pilot location), for income and use as a training center. Master franchises are rare as most franchisors do not offer them. However, when they are available they usually sell quickly. The income available from a master franchise is extremely lucrative. The initial investment is low compared to the type of value you can build in the master franchise area. The flexibility is also the greatest at this level.
Territory: Usually is a large metropolitan area, an entire state or even several states or country. It is an exclusive area and will remain exclusive as long as the master franchisee meets the development schedule of franchises in the territory.
Level or participation: The master franchisee will usually set up and operate at least one unit and use a manger to manage it while working on selling other “sub-franchises” and assisting them in operating properly. Very rarely is a master franchisee “hands on” in a unit franchise. They tend to spend more of their time operating like a business consultant or coach to their franchisees to help them become successful.
Typical liquid capital required: $100,000 to $250,000 is needed to acquire the territory and for initial liquid capital to start the area. Financing will be secured for the start-up of the unit franchise.
Interested in purchasing a franchise or selling one? We’d love to help. Contact us today.
Need to sell a company that’s not a franchise? Visit www.companysellers.com.Read More
Franchisors and researchers have spent many years profiling the ideal franchisee candidate to determine which type of buyer has the best chance for success. Franchisors and professional psychological profilers have spent large amounts of time and capital to increase their chances of gaining a successful franchisee. To understand how well a potential franchise candidate will do in a certain franchise system, the franchisor considers these five essential characteristics of successful franchisees. Here is what most successful franchisors look for in potential single-unit, multi-unit, and master franchise candidates before they will award the franchise:
People skills. The franchisee must have the ability and desire to deal well with people. If they treat their employees and customers with trust and respect they will probably treat the franchisor the same. If they treat their employees well the employees will usually treat the customers well. Franchisees will need to enjoy spending time with people. Franchisees who do not enjoy a lot of human interaction tend to become stressed. This will often lead to rudeness to employees, customers and eventually to their family, which will tear down the business instead of building it up.
Follow the System. The franchisee must have the ability and desire to follow a proven system. After analyzing the franchise system, the franchisee must be able to enjoy the system and reaping the rewards of following the proven track record. If the potential franchisee can’t or won’t follow a system for success, the franchisee should consider starting their own business or buying a business. At the heart of the franchise system are the marketing strategies and systems. The marketing programs should be examined carefully to insure the potential franchisee feels comfortable with the system.
Good Attitude. Carefully consider the potential franchisee’s attitude. Are they asking a lot of questions about failure or do they ask more questions about the success of the franchise. They should be seeking to find out what makes the franchise successful rather than dwelling on what makes the franchise a failure. All franchisors that have many units and that have been around a few years have failures. Most of the time it is due to the failure of the franchisee to follow the system. The franchisee must be self-motivated to take action and follow the successes of others. They should have a good work ethic and not be afraid to roll up their sleeves and work side-by-side with their employees. A potential franchisee can consider the success rate of the franchise. If it is under 70 to 80%, it may not be worth the time to consider it. Franchising as a whole has a 90% plus success rate.
Proper capitalization. The franchisee must have the minimum amount of liquid capital and net worth available to meet the franchisor’s requirements. A good franchisor will not allow the potential franchisee to move forward without the proper initial capital. The franchisee must have good credit, not perfect, but decent credit. This is essential for qualifying for a loan if necessary. Good credit also has a direct correlation with how successful the franchisee will become.Area development franchisees and master franchisees will need to have the four characteristics listed above and, in addition, a fifth characteristic listed as follows:
Extensive business experience. Real life success in real business is essential. Successful master franchisees or area development franchisees will take their experience and apply it to the franchise system to help other franchisees succeed. With a proven record of success of the potential franchisee, the franchisor can expect the success to continue on the franchise system.
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These 9 Steps Will Save Franchise Owners Tens Of Thousands Of Dollars
By leveraging the power of technology and automation, industry forms, and online advertising, there has never been an easier time for business owners to value, market, and sell their franchise business ‘on their own, but not by themselves’. In addition, by using these tips, they can save the large commissions (often 10% of the selling price) charged by full-service business brokers. Follow these steps to learn how to sell a franchise business.
Preparation For Sale
Prior-Proper-Planning-Prevents-Poor-Performance! If time is on your side, the best things that you can do to prepare for the selling process is as follows: 1) As the owner, don’t be the secret sauce. 2) Raise up other managers. 3) Cross-train. 4) Focus on branding. 5) Put systems and redundancies in place. 6) Clean up your books. 7) Normalize all wages to market value. 8) Stop paying for personal or one-time expenses through the business.
Determine Business Value
Next you’ll need to determine the fair market value of your business. There are many levels of valuation reports ranging from hundreds to thousands of dollars. In most cases, a Summary Opinion Of Value & Key Indicator Report is enough.
Create A Business Profile For Buyers
Once you are comfortable with the established value range and have decided on a ‘go to market’ asking price, you’ll need to create a 1-5 page Business Profile, which you will provide to qualified buyers. Sometimes called an offering memorandum, or Confidential Information Memorandum (CIM), the Business Profile should include a business description, history of the business, information about the franchise concept, why you are selling, financial summary, and more. Sometimes business profiles also include video interviews and tours.
Another crucial step in learning how to sell a franchise business is advertising your business for sale on some or all of the major business for sale search portals including BizBuySell.com, BusinessBroker.net, BusinessesForSale.com, BizQuest.com, LoopNet.com, DealStream.com (formerly MergerNetwork), GlobalBX.com, Axial.net, and more depending on industry, size, location, etc. To remain confidential, you will need to sell “the sizzle” but not “the steak”. Ads must be created in a way where the reader will get excited enough to ask for more info, but cannot know exactly what business it is without inquiring further.
As each buyer responds to your ads, make sure that the buyer first signs a non-disclosure statement (NDA), and that that they have the skills and financial resources required to purchase your business. Once you have qualified the buyer, you will email them your Business Profile. You will continue to reach out to each buyer until they either agree to submitting an offer, or until they go away.
Offer / Counter Offer / Due Diligence
Leaning heavily on your primary business advisors (accountants, attorneys, financial planners, business brokers, etc.), you will work with the buyer to negotiate the letter of intent, counter-offer, and asset/stock purchase agreement.
Franchisor Disclosure and Discovery
As soon as possible. upon acceptance of an offer, you will want to make sure that the buyer has reached out to your Franchisor to start the franchise disclosure, discovery, and qualification process. There are a few deadlines that have to be met before the Franchisor can approve the buyer as a new franchisee. This includes the buyer receiving the Franchise Disclosure Document (FDD) and going to Discover Day. It is common to experience a delayed because this step wasn’t taken care of early on!
Business Loan Approval
Your buyer will almost always require some form of financing, whether it be a conventional loan, asset loan, SBA guaranteed loan, factoring, home-equity loan, or seller financing. The most common business loan by far is the 7(a) business acquisition loan through the Small Business Administration (SBA). The SBA lending process is long and difficult. Make sure that the buyer is working with one or more lenders (preferably 2-3) to get loan approval. This will take 60-90 days or more. Buyers should be working with lenders simultaneous to all other aspects of due diligence.
The closing process is different depending on your state. It is imperative that you work with a reputable business attorney and accountant to review (or create) all closing documents. You could also engage a business broker to guide you through this process. Depending on your state, the Closing will be facilitated by either a title & escrow company, the buyer or sellers’ attorney, or a third-party attorney that represents the ‘transaction’.
Prefer to work with a professional to sell a franchise business? Franchise Sellers was originally launched in 2005 to assist existing franchise owners with the multifaceted franchise resale process. They have used that experience to create and refine a 9 step ‘Franchise For Sale By Owner Toolkit”. Franchise Sellers can be found at www.franchisesellers.com or 800-499-4280.Read More
Dear Franchise Professional,
The pandemic has proven that franchising is stronger than ever. We have been standing together, sharing best practices, and encouraging each other to keep going. There is nothing like the power of franchising, and once we come through this crisis, we will be unstoppable.
We have been inspired by all of you. From the franchisors who have tirelessly supported their franchisees, to our consultants who have been instilling confidence in worried candidates, and our suppliers who have been offering expert guidance, you all have moved mountains in a short time and we would like to thank you!
We created this video for all of us—our franchising community.
There is truly strength in numbers and we want to spread the word! All of us, as part of this industry, have changed lives. For those who have lost jobs or are just looking for change, franchising offers hope and opportunity. As community servants, we continually give back and our collective efforts have had a significant impact.
I encourage you to share this video below on all your social media channels. Let’s spread the word and celebrate our great industry. There is nothing we can’t do together!
Here is the link to the video: https://youtu.be/