How to Maximize Sale Price When Selling Your Business

The priority for any business owner when selling a business is obtaining the highest sale price and best deal terms. The factors that contribute to overall sale price are manifold, and being aware of all of them is essential. What follows are some insights into how to sell your business for the highest price and best terms garnered by our experienced Business Brokers over the years.

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Financial Review

To determine your initial asking price, you will first need to carry out a review of a minimum of three years of tax returns and generate an up-to-date profit and loss statement for the current year with comparison to the same period from the previous year.

In addition to tax returns, buyers will want to learn the true cash flow the owner derives from the business. To do this, a seller’s discretionary cash flow (SDCF) will need to be calculated for the past three years, the current year and projected out for three years. This figure will include the owner’s salary as well as the perks and benefits that the owner receives from the business (e.g. company car, health insurance, and retirement plan). It also includes discretionary expenses which are not required for the day-to-day running of the business (e.g. travel, entertainment, country club memberships and other perks).

A larger SDFC will allow a seller to ask for a higher sale price, so calculating this figure accurately is important going into sale negotiations.

The Right Business Broker And M&A Advisor

Hiring a business brokerage or Merger & Acquisitions firm that has experience in selling businesses in your industry is essential. Their expertise will allow them to market your business correctly. This will ultimately result in a larger pool of potential buyers which will hopefully help to create a bidding war to drive up the price.

Make sure to hire a firm whose fee structure is based on a percentage of commission payable when the sale goes through. This will give them added incentive to go the extra mile and hold out for the highest possible price.

Asking Price

A well-positioned initial asking price is an integral part of maximizing the sale of any company. If the price is too low, you run the risk of having to settle for less at a later stage in the negotiations, in essence “leaving money on the table”. If you price it too high, you may attract fewer potential buyers and run the risk of being low-balled, potentially compromising confidentiality in the process with an unreasonable number of buyer introductions. A Business Broker will be able to help you settle on a price that falls somewhere between these two extremes.

Confidential Marketing

The importance of keeping the sale of your business confidential cannot be overstated. If customers, vendors, banks, landlords and employees find out that change is afoot before the deal is done, they may get cold feet or become distracted.

An experienced Business Broker will have the proper buyer pre-qualification process in place, and the right contacts and know just how to advertise the business, selecting the right targets to market to so that potential buyers are found without news of the sale becomes common knowledge.

Do Not Close Off Your Options

Try to keep an open mind when it comes to buyers. Know that the best offers sometimes come from buyers who are not familiar with your market segment. As long as potential buyers are financially qualified and have the necessary skills to run your business, they can always learn the business aided by your supervision in the post-sale period.

Transparency & Communication

You should complete due diligence as quickly and efficiently as possible. Transparency is important to convince buyers of the profit-making potential of your business. Providing all the documentation at the first time of asking will give prospective buyers the confidence that everything is as it seems. Be available to respond to any questions about the business that a buyer may have. Only if a buyer is sure that everything is above board will they offer a price which is close to your initial asking price.

Negotiation Phase

It is important to remember that the proposal with the highest price is not always the best offer; the structure of the offer (deal terms) and the buyer competence are also important. Decide on your priorities for the negotiation stage as you examine the offers. Once you have relayed these priorities to your Business Broker, he/she can negotiate on your behalf to get the best price and terms.

Providing a Transition After The Sale

Typically, a deal asking price includes your advice and guidance after the sale goes through. Transition periods vary greatly and depend on the needs of the buyer. In some cases, your involvement will be minimal. In others, you will be required to introduce the new owner to customers, suppliers and staff.