How to Know When It's Time to Sell Your Business - LegalZoom in Las Vegas, NV

Published Aug 25, 22
6 min read

Selling Your Business in 2021: A Definitive Guide in Las Vegas, NV



Selling a small business is a complex venture that involves several considerations. It can require that you enlist a broker, accountant, and/or an attorney as you proceed. Whether you profit will depend on the reason for the sale, the timing of the sale, the strength of the business's operation, and its structure.

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Selling your business starts with identifying your reasons why, making sure your business is in the shape it needs to be in to be sold, and the timing of the sale. Preparing for the sale at least a year or more in advance is critical, as it gives you time to improve your financial records, customer base, and other factors that can make the business more successful.

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Don't spend the money all at once. Take the time to work with a financial professional and determine how you want to invest or otherwise use the money. Reviewing these seven considerations can help you build a solid plan and make negotiations a success. You've decided to sell your business.

Owners commonly sell their businesses for any of the following reasons: Retirement, Partnership disputes, Illness or death, Becoming overworked, Boredom Some owners consider selling the business when it is not profitable, but this can make it harder to attract buyers. Consider the business's ability to sell, its readiness, and your timing.

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Your information packet should also provide a summary describing how the business is conducted and/or an up-to-date operating manual. You'll also want to make sure the business is presentable. Any areas of the business or equipment that are broken or run down should be fixed or replaced prior to the sale.

Small Business Administration. Finding the right buyer can be a challenge. Try not to limit your advertising, and you'll attract more potential buyers. Once you have prospective buyers, here's how to keep the process moving along: Get two to three potential buyers just in case the initial deal falters. Stay in contact with potential buyers.

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If you plan to finance the sale, work out the details with an accountant or lawyer so you can reach an agreement with the buyer. Allow some room to negotiate, but stand firm on a price that is reasonable and considers the company's future worth. Put any agreements in writing.

Try to get the signed purchase agreement into escrow. You may encounter the following documents after the sale: The bill of sale, which transfers the business assets to the buyer An assignment of a lease A security agreement, which has a seller retain a lien on the business In addition, the buyer may have you sign a non-compete agreement, in which you would agree to not start a new, competing business and woo away customers.

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There are also fees that may come up if you are transferring a lease to the new owner of your business. The process of selling to a competitor would involve the same steps as selling to a company that is not a competitor. Selling a business involves negotiations, discussions, and a lot of leg work.

Accountant and/or Tax Preparer: As discussed earlier, you may have an accountant work in your business or review your accounting activity and financial statements each month. Most businesses also use an accounting firm to prepare the business tax return. Attorney: A business may use one attorney for day-to-day business transactions and contracts, and a second attorney for the business sale documents.

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The professional who may have the most involvement in your business valuation and sale is a business broker. An experienced broker can add tremendous value to a company sale, and they may perform these tasks for a seller: Pricing and Valuation: The broker can research and explain the metrics used to determine the price of businesses in your industry and the value of your company.

A seller, also, may consider some measurements to be more important than others. The true value of a business involves opinions and judgment. This section discusses many of the tools used to assess the value of a business, and why buyers and sellers consider this data to be relevant to a sale.

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The earnings total refers to net income, which is defined as (revenue less expenses), and the earnings balance includes all expenses. EBITDA takes earnings and adds back the expenses incurred for interest, tax, depreciation and amortization. Consider each of those line items individually: Interest expense: Interest incurred on all loan balances.

Depreciation expense: Assets are resources used in a business, and fixed assets depreciate as they are used up over time. A $30,000 truck, for example, might be depreciated at a rate of $5,000 year for six years. Amortization expense: Intangible assets, such as a patent or copyright, incur amortization expenses as they are used to produce revenue.

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The firm may post amortization expense of $5,000 per year. After adding back (removing) these expenses, the EBITDA balance is larger than net income (How To Sell My Business). While EBITDA is widely used and understood for valuations, it has an important flaw that business owners need to know. EBITDA does not account for the cost of replacing assets over time, and this cost may be substantial for some businesses.

Each location’s balance sheet lists over $400,000 in assets, including furniture, fixtures, ovens and refrigerators. Over time, these assets will need to be replaced – and EBITDA does not account for asset replacement. Assume, for example, that the Main Street location has a number of assets that are near the end for their useful lives, and the store posted a large amount of depreciation expense in the last 12 months.

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A valuation should also consider the cash inflows and outflows of the business, because no company can operate without a sufficient level of cash. A potential buyer will pay close attention to the growth in sales, compared to the increase in accounts receivable (Sell My Business Idea). If sales are growing at 15%, and the accounts receivable is increasing at a 30% rate, a business will eventually run short on cash.

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