Are You Building a Business Worth Buying?
As attorneys representing sellers of businesses in NJ, there are some common themes we see in each sale.
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Selling a Business Attorney
Now Come the Steps in the Sales Cycle You Need to Understand
- A solid profits history. A buyer wants to see that the business has made money for at least the preceding two to three years.
- A good location that can be taken over by the buyer. This is particularly important when your location is essential to the success of the business.
- The business space and equipment are in good appearance and state of repair. A smoothly running and attractive operation is a huge plus since it means that the buyer can build on your success, not have to create it. In addition, it demonstrates to him or her that the business has been well managed and operated.
- An attractive inventory of goods. It helps to have a stock of fresh, good-looking items that are available to sell the moment the buyer takes over.
- An exclusive distributorship that can be taken over by the buyer.
- Limited or less competition means guaranteed customers and higher profit margins with each dollar of sales.
- A loyal group of customers or clients. A databank of constant and repeat customers means the buyer can hit the ground running. A solid customer base is really critical.
- Profitable long-term contracts with customers or clients. Buyers will be impressed if you’ve already booked future business that they can take over at a price that is profitable to them at or about your current cost structure.
- Accounts receivable that are not long past due and capable of collection.
- A loyal, competent and energetic workforce. If your employees will stay on when the new owner takes over, the buyer doesn’t have to do the often-difficult work of assembling a talented staff.
The First Step in Selling Your NJ Business
So let’s assume that you have decided to actually sell your business. Here are some things you should do first.
It doesn’t matter what you think your business is worth, or what you want for it. It also doesn’t matter what your accountant, banker, attorney, or best friend thinks your business is worth. Only the marketplace determines what your business is worth!
So go and gather information about businesses like yours. Here’s a checklist of things you should research and start assembling:
- Three years’ profit and loss statements
- Federal Income tax returns for the business (go back at least 3 years)
- Itemize by listing all fixtures and equipment
- Photocopy of the lease and all lease-related documents
- Compile a list of any loans against the business, with amounts and payment schedule
- Assemble copies of any equipment leases
- If applicable, obtain a copy of the franchise agreement
- Compile an approximate amount of the inventory on hand, if applicable
Package this information in a neat, orderly format as if you were going to present it to a prospective bank lender. Everything starts with this information.
Make sure the financial statements of the business are current and accurate. If it’s half way through the calendar year, make sure you have last year’s figures, tax return, and prepare updated year-to-date figures. A small business is often priced based on cash flow. This includes the profit of the business, but also, the owner’s salary and benefits, the depreciation, and other non-cash items.
Prospective buyers will want to review your financial figures, especially income and expenses. They want to know if they can make the payments on the business and still make a living. Let’s face it, if your business is not making a decent living wage for someone, it probably can’t be sold. There is a cliché that is very applicable here.
It is not how much your business sells for, but how much of it can you keep. Federal and NJ Tax Laws determine how much money you will actually be able to put in the bank post sale. How your business is legally formed can be an important factor in determining your taxes when selling your business. It is important that you understand the tax implications of a sale of your business with a qualified tax advisor.
Lease issues and your landlord can really complicate a closing. Buyers reasonably expect to operate your business at its present location well into the foreseeable future. If the lease is scheduled to expire in a year or two, will the new owner be able to renegotiate a longer lease with the landlord after the sale? Proactively address lease issues now by negotiating with your landlord to secure an option to extend the lease with favorable terms for the buyer.
Like the old saying goes, first impressions mean everything. When preparing to sell, take the time to do the little things and boost the curb appeal of your business. Making sure you also address the inside to reflect the same amount of care, as your business environment can influence a buyer’s decision. If they can’t see themselves operating in the company’s current facilities, they probably won’t make an offer. Take the time to paint where needed, fix that old awning or sign and clean up.
Selling your NJ business? Need a lawyer to help? Then please call Fred Niemann toll-free at (855) 376-5291 or email him at firstname.lastname@example.org to schedule a low cost and convenient consultation about your NJ sale of business matter. You’ll find him accessible, practical and easy to talk to.