Let the Pros Help You Sell a Business
Q: I have a mail-order business in the health education and promotion field that has been operating for five years. It is a niche business with minimum competition and significant growth potential. I operate from my home with one part-time employee. I have reached retirement age and would like to sell the business. Can you suggest how I should proceed?
--Alan Sloan, Manhattan Beach
A: Selling a business raises many tax questions, so the first appointment you probably will make is with your accountant or financial advisor. He or she can help you evaluate your business, decide how to approach the sale and devise an exit strategy that is right for you and your business.
Before it can be put up for sale, a business’s fair-market value must be established. Once you have an idea of what a buyer would be willing to pay you, that figure may have a big impact on when, how and even if you still want to sell.
In making your decision, start by totaling your company’s tangible assets, such as equipment and inventory. Add to that figure the “goodwill value” of your business--something that is not quite as easy to measure. What buyers consider goodwill includes profitability, years in existence, competition, location (for retail establishments) and importance of the owner to the health of the company. If a business is primarily a one-man show and much of it is built on his relationships with customers and vendors, it will be more difficult to sell to an outsider. That kind of problem can be overcome, however, if you agree to stay on under contract to the new owner until he or she establishes credibility.
I urge you to put your sale in the hands of a professional business broker, who can do a thorough and objective evaluation of your firm, market it confidentially, screen potential buyers and act as your advocate and intermediary. That way, you can concentrate on keeping your business running profitably. Selling a business is a full-time job, and many sellers who try to do it themselves find that they get so busy that the business slides, profitability decreases and the final selling price is much less than they should have gotten.
You can find a business broker through your attorney or accountant. Typically, a broker takes 10% to 12% of the sales price as a fee, due and payable at the close of the sale. Most legitimate business brokers also charge a fee, probably $500 to $2,500 for a small business, at the outset for the business evaluation and marketing package. Make sure you check a broker’s references and talk to other business owners who have used that broker. There are scam artists who solicit large upfront fees, promise to advertise your business nationwide and then simply disappear without delivering any buyers.
Your broker or financial planner should also help you prepare an exit plan for your business that will position the company for sale. What will your business look like after you sell it? Should you bring in a successor now and train him or her for a few years before selling? Should you sell now and then stay on under contract for a year or two? What will you do with the proceeds of your sale, and how will you lessen the tax impact? Do you have an outside interest that will satisfy you after you sell your business, or do you plan to relocate or retire? All these questions should be answered in an exit plan.
Small businesses typically take six to eight months to sell. If you choose a broker who has a list of pre-qualified buyers, you may be able to sell in as little as 30 to 90 days.
The most important point I make to small-business owners thinking about selling is to make sure they can document the value of their company with verifiable financial records going back at least three years. Buyers come equipped with CPAs who will review all your records before they will enter into a binding purchase agreement. Business owners who cannot prove their company is profitable wind up losing out on good deals.
--John Bates, president, National Business Brokers, Lake Forest
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Q: I’m interested in starting a mobile barbecue business, similar to the mobile lunch trucks seen at construction sites and office buildings. I hope to find a manufacturer who can build a vehicle with the latest grills and smokers installed so I could cook as I go. Can you point me in the right direction?
--Jimmy Sharp, Spring Valley
A: Any time you are going to start putting capital into a venture--whether it is contracting with food suppliers or purchasing vehicles--you must make sure your business idea is something the marketplace wants and will support.
Most of the mobile lunch coaches currently operating go to small-office facilities and temporary work sites, where there is not already a permanent restaurant operating. And most of them sell very cheap, fast and convenient food that workers can pick up and eat during short breaks.
You will need to find out if there is an interest in barbecue among those kinds of people. It strikes me that barbecue tends to be a fun, recreational kind of food--the type of thing you choose for dinner or on the weekends at a state fair or park. It is messy, has to be eaten sitting down with lots of napkins and, because it generally involves a large slab of meat, is usually more expensive than a sandwich or salad.
Before you do anything else, go visit some of the construction sites and office parking lots you have in mind. Take your proposed menu and talk to the people there. Ask them to tell you, realistically, whether they would buy your barbecue.
If, having completing the research, you feel you have a solid business opportunity, then, before you purchase equipment, you will need to make projections about what everything will cost and what kind of return you will get over time.
--Raymond Coen, business
consultant, Pacific Palisades
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If you have a question about how to start or operate a small business, please mail it to Karen E. Klein in care of the Business Section, Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia, CA 91016, or e-mail it to Kklein6349@aol.com. Include your name, address and telephone number. The column is designed to answer questions of general interest. It should not be construed as legal advice.
