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If you are considering selling your business, we can help you get
the maximum value for it. We will provide you with the special
attention and professional services that you and your business
deserve. We have the knowledge and experience to successfully market
and sell your business.
Alpine Business Brokers is a local business brokerage affiliated
with CENTURY 21 Harman Realty, Inc. We combine many years of
business experience that provides you with a professional approach
to selling your business.
We specialize in business sales. All consultations are strictly
confidential.
Call us today: 801-224-8848 |
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The question most often asked by those
considering placing their businesses for sale is: “What is my
business worth?” The question that should be asked is: “How
much can I get for my business?” Worth and value are words
that in many cases are interchangeable. Leading business
appraiser Shannon Pratt, in his book Business Valuation Body
of Knowledge, states that “Price is the face value at which a
specific transaction occurred. It may have been arrived at
arbitrarily, by negotiation, by contract, by court order, or
by some other means. It may or may not comport to any
definition of value discussed herein.”
“Fair Market
Value” is a term that sounds tailor-made for a business owner
who wants to know what his or her business might sell for. The
U.S.Treasury Department offers this definition of Fair Market
Value: “The price at which the property would change hands
between a willing buyer and a willing seller when the former
is not under any compulsion to buy and the latter is not under
any compulsion to sell, both parties having reasonable
knowledge of relevant facts.” This might work in theory, but
not in the real world. The word “negotiation” is not used, so
arriving at this Fair Market Value is assumed to just happen.
The sale of a business simply doesn’t work that
way.
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The price that a business may sell for is
generally far removed from its value. Value tends to be an
exact price for a specific date and must be able to be
defended by the appraiser. There are many different types of
value, based on the purpose of the valuation and/or the reason
behind the decision to sell: divorce, insurance purposes, bank
loan, partnership issues, buy-sell agreements, tax concerns,
ESOPs – the list is lengthy. In many cases, each reason may
result in a different valuation.
When a seller asks
what he or she might receive for their business, there is no
right answer. It depends, for one thing, on how badly the
seller wants to sell. Regardless of who places a price on the
business, it will be the marketplace that ultimately
determines the price. The seller may not agree with this, but
he or she will have to accept it or face the fact that the
business most likely will not sell, regardless of asking price
or perceived value. It all boils down to a buyer’s perceived
value of the business.
Professional business brokers know
the marketplace, what businesses are selling for, what buyers
are really looking for, why they may be buying, and most
importantly how to deal with perception of value. |
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"The International Business Brokers Association
(IBBA) defines the price at which an actual transaction
occurred as: “The total of all consideration passed at any
time between the buyer and the seller for an ownership
interest in a business enterprise and may include, but is not
limited to, all remuneration for tangible and intangible
assets such as furniture, equipment, supplies, inventory,
working capital, non-competition agreements, employment,
and/or consultation agreements, licenses, customer lists,
franchise fees, assumed liabilities, stock options, stock or
stock redemptions, real estate, leases, royalties, earn-outs,
and future considerations.” |
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Naturally,
sellers want the highest price they can get for their
business. In some cases, however, it might not be the best
deal. For this reason, every offer should be scrutinized
carefully. When an offer is presented, the first thing a
seller looks for is the price. If it is lower than
anticipated, the seller’s first reaction is to give it back,
initiating the case for its being much too low. A seller
should consider an offer carefully and avoid a hasty
reaction. |
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Here are a few alternatives that might
offset a lower price:
•an offer with no or
very few, and
easily satisfied contingencies
•a
consulting agreement or other deferred compensation
•a
quick closing
•all cash, if that’s
important
•employment contracts with relatives
or
long-time employee(s)
•business vehicle to remain with
the seller
•buyer has a long success record indicating
long-term survival
•short-term payment period if
seller
financed |
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When a professional business broker is
involved, he or she can point out those areas that may offset
the price, down payment or the structure of the deal. After
all, the important thing is not what a seller gets, but what
he or she gets to keep!
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Prospective buyers don’t want to hear
about “what the business really makes” – they want to see the
books and records that show what is down in black and white.
Here is the old story about proper accounting procedures, or
lack of:
A
Greek restaurant owner had his own bookkeeping system. He kept
his accounts payable in a cigar box on the left-hand side of
his cash register, his daily cash returns in the cash drawer
of the register, and his receipts for paid bills in a shoe box
on the right side of the cash register. When his youngest son
graduated as a CPA, he was appalled by his father’s primitive
bookkeeping methods. “I don’t know how you can run a business
that way,” he said. “How do you know what your profit is?”
“Well, son,” the father replied, “when I got off
the boat from the old country, I had nothing but the clothes
on my back. Today, your brother is a doctor, your sister is a
speech therapist, and you’re a CPA. Your mother and I have a
nice car, a city house, a country house, and plenty of money
for retirement. We have a good business and everything is paid
for. Add all that together, subtract the ‘clothes on my back,’
and there is your profit.”
Great story and it is probably an
accurate depiction of many small businesses, even in today’s
world. Unfortunately, today’s buyers are not going to buy a
business—not for anywhere near what the business may actually
be worth in the marketplace—without checking the books and
records. Buyers will not pay for what they can’t see. Some
sellers want it both ways. Since they haven’t reported this
income to anyone, they haven’t paid taxes on it; and now they
want to sell it as a real number. They also seem to forget the
most important part – “skimming” is against the law.
Joseph Bankman, a professor of tax
law at Stanford University Law School said, “Nothing is as
good as taking half your income off the books to start with;
that’s better than any phony deduction. That’s the biggest
single source of revenue loss in the tax system.” What these
sellers may fail to realize is that the Internal Revenue
Service (IRS) has audit guides for many different businesses.
It tells them, for example, how to roughly calculate annual
sales and expenses of a pizza place by tracking its purchase
of cheese. Any seller who doesn’t think that the IRS can’t
figure out income and expenses of most businesses is kidding
herself. Too many small business owners think that they are
getting away with it – but they just haven’t been caught yet.
If they kept accurate financial records they probably would
get a much higher price for their business, most likely making
up for more than what they would have skimmed.
What happens is this: a business
owner gets ready to sell and realizes that due to his or her
unreported financial dealings, the business won’t sell for
anywhere what he had hoped for. Now he is in the position of
having to reveal to a prospective buyer how he is skimming
from the sales, paying help under the table to avoid the usual
employee costs, or padding expenses. Buyers do not look
favorably on sellers who attempt to justify their price by
revealing how they are cheating the
government(s).
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Here are some tips
for business owners who are considering selling:
• Plan now to maintain
accurate financial records. When it comes time to sell, you
will be able to show a prospective buyer where the money is
and what it was used for.
• Keep in mind that a
selling price is usually based on the cash flow of the
business. The dollar you hide today will most likely be worth
two or three times that when it comes to selling price. Think
long-term, not short-term.
• Talk to a business broker
professional. He or she can provide some education about how
businesses are priced. They can also offer suggestions on how
to gather the necessary information for a prospective
buyer.
By following the suggestions
above and reporting all income, by taking only legal
deductions and maintaining accurate financial records, when it
comes time to sell and the buyer says “Show me the money”
– you can! |
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The telephone rings, the
caller receives a message welcoming them, then she is asked to
dial the extension of the person she wants to talk to. Since
she doesn’t know the extension, she has to wait and listen to
the office directory; then presses the extension number only
to discover that the person being called is not there.
Most Americans have called a credit card company,
their bank or any other large company only to get lost in the
maze with no way of talking to an actual person. Then there is
the “hold music,” the commercial while you wait, with more
“amusements” popping up all the time. Who knows what the
future holds in telephone communication.
While it used
to be that the telephone was a visitor’s first contact with
your business, that tradition is changing. Now it is your Web
site. Today’s busy buyer now goes to the Internet to look for
whatever he or she is considering purchasing. It is even
easier for potential clients or customers to find your
telephone number from your Web site rather than the telephone
book. They can even get directions to your place of business.
In business every call or Web site visitor is a
potential customer or client. You can’t afford to lose even
one. After all, if someone goes to the trouble of finding your
telephone number or locating you on the Web, they must be at
least half-serious.
Make sure your telephone system is
as user-friendly as you can make it. If it isn’t, change it.
One sale or new client will more than pay for this
improvement. What is the status of your Web site? Pay a little
extra to insure that it is also user-friendly. Your Web site
should provide interesting and useful information on your
company, your products or services, your personnel (including
contact information), and anything else that will make you
look like the well-established professional that you are. The
more user-friendly and informative the site, the more business
you will get.
Understand that the first contact
potential customers or clients have with your business is
either the telephone or your Web site – and probably
both. |
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Why Use a Business
Broker/Intermediary?
The business broker or
intermediary does it all:
• helps in establishing a
fair asking price – a price that will attract serious,
potential buyers
• works on a completely confidential
basis
• qualifies prospective buyers
• shows the
business at times convenient to
the seller
• handles
all of the details including negotiations
• guides buyer
and seller through the nuances of the deal
• works with
buyer’s and seller’s advisors
• will, in most cases, obtain
a higher selling price than a seller could obtain on his or
her own |
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This newsletter is not intended
to render accounting, legal or other professional service; the
publisher and sponsors assume no liability for a reader’s use of the
information herein. |
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Copyright 2006 Business Brokerage Press, Inc. |
