Ms. Garcia brings over 18 years of compliance, regulatory administration and management experience. Known for her "Get It Done" attitude she has navigated several gray areas as it relates to working with leadership through identified loopholes and uncharted waters at the workplace.  

As a Mayoral appointee assigned to team7 she needed to effectively collaborate in identifying various gaps and discrepancies violating current policies and procedures which require decisions to exonerate or acquit reported allegations.

Garcia’s private sector security and civilian law enforcement training incorporates DHS, FEMA, ASIS  and various County Sheriff's department training to include other hands-on training alongside law enforcement. 

Additionally, Garcia’s ILO training provides for public and private sector partners responsible for security and emergency management with an awareness of threats to critical infrastructure. The ILO serves as a primary contact her local Law Enforcement Coordination Center and Terrorism Liaison Officers (TLOs), which includes local law enforcement, fire, and other public safety officials, to help protect their company, regional critical infrastructure, and community. 

For over 10 years she has volunteered and collaborated with local law writer(s), in support of bills under legislation; specifically, those under public safety and privacy in support of domestic violence. Working with ASIS allows Garcia to stay at the forefront of the ever-changing security industry.

NAPW Award 2015 – Recognized as Businesswoman of the Year

She provokes thought around real life situations while providing insight from boots on the ground experience.

Limit of Liability/Disclaimer of Warranty: BizBuySell is a brand owned and operated  by CoStar Realty Information, Inc. (“CoStar”). CoStar makes no representations or  warranties with respect to the accuracy or completeness of the contents of this work  and specifically disclaim all warranties, including without limitation warranties of  merchantability, fitness for ordinary purposes or fitness for a particular purpose. No  warranty may be created or extended by sales or promotional materials. The advice and  strategies contained herein may not be suitable for every situation. CoStar is not engaged  in rendering financial, legal, accounting, or other professional services and nothing in this  work, including but not limited to, any materials or forms in the included Digital Toolkit,  should be considered or used as such. If professional assistance related to the subject  discussed in this work is required, the services of a competent professional person should  be sought. COSTAR AND ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS,  DIRECTORS, EMPLOYEES AND THIRD-PARTY SUPPLIERS (COLLECTIVELY,  THE “COSTAR PARTIES”) WILL NOT BE HELD LIABLE FOR ANY DAMAGES  SUFFERED OR INCURRED BY ANY CONSUMER OF THIS MATERIAL  INCLUDING WITHOUT LIMITATION THOSE ARISING OUT OF OR  RELATED TO ANY FAULTS, INACCURACIES, ERRORS OR OMISSIONS IN THE  INFORMATION CONTAINED HEREIN. CoStar does not endorse the information  or recommendations provided by an organization or website referred to in this work as a  citation and/or a potential source of further information. Further, readers should be aware  that internet websites listed in this work may have changed or disappeared between when  this work was written and when it is read. All rights reserved. No part of this book may be resold, reproduced, or transmitted in any  form or by any means, electronic or mechanical, including photocopying, recording, or  by any information storage and retrieval system without the prior written permission of  CoStar. BizBuySell 101 California Street, 43rd Fl. San Francisco, CA 94111 

www.BizBuySell.com

 Copyright © 2023 CoStar Realty Information, Inc. All rights reserved. ISBN: 979-8-9879311-0-3 Library of Congress Control Number: 2023903862Contents v vii 1 3 1. Estimating the Value of Your Business The Asset Approach to Valuation 5 7 The Market Approach to Valuation 12 The Income Approach to Valuation 13 Circumstances That Alter the Business Valuation 14 The High Value of Business Sale Professionals 2. Defining What You Want Out of Your Business Sale 21 Defining Your Motivations and Objectives 22 Resolving Conflicts Between Your Exit Objectives 25 and Your Desired Outcome 27 Understanding Your Sale Options Setting Your Top Exit Priority 31 3. Planning Your Exit and Building Pre-Sale Business Value 33 

Formulating  34 37 41 42 50 55 

4. Launching the Sale of Your Business 57 Assembling Your Business Sale Team 58 iii

Compiling Financial Records and Necessary Documents  5. Marketing Your Business for Sale Maintaining Confidentiality Defining Your Likely Buyer Creating Business-for-Sale Listings That Attract and Prequalify Buyers Managing Your Listing and the Inquiries You Receive 6. Navigating the Selling Process Verifying Qualifications and Prioritizing Prospects for Follow-Up Quickly Reaching and Beginning Discussions with Qualified Prospects Preparing for Questions Buyers Are Likely to Ask Determining Your Business Sale Payment Approach Receiving and Accepting a Buyer/Seller Friendly Offer 7. Closing the Sale and Transferring the Business Performing Due Diligence Structuring the Sale Negotiating Final Terms and the Purchase and Sale Agreement Understanding the Purchase and Sale Agreement The Closing Process Closing the Sale 64 68 71 77 78 80 83 90 95 96 98 102 109 114 121 122 128 137 140 142 144 

Passing the Baton 147 Recommended Resources 153 Index 155 ivForeword Exiting a business is likely the biggest move a business owner will  make. For most, it represents the conclusion of a career chapter that’s  provided a steady stream of income and, finally, the opportunity to  reap the value built over years of hard work and creativity.  An established business with positive cash flow, skilled workers,  competitive products and services, or even just a reputable brand  has value for which other entrepreneurs would pay top dollar. But  is your business ready to attract buyers? This guide helps you answer  that question.  You’ll discover how planning is critical to receiving the full  value for what you’ve worked so hard to build, while passivity  and procrastination can be costly. Whether you’re looking to sell  immediately, or in the near or more-distant future, now is the time  to chart your roadmap to a sale that allows you to exit on your own  terms. As the Internet’s leading business-for-sale marketplace, we  are pleased to provide this informative guide authored by Barbara  Findlay Schenck, now in its fully updated 10th Anniversary edition.  This guide will enrich you with knowledge to apply during presale  preparation, working with industry experts, navigating the sale  process, and help you successfully pass the business on to a new  owner. vviIntroduction Since its first publication, BizBuySell’s Guide to Selling Your  Small Business has led countless owners through the exit process,  helping them to harvest the final round of value before turning  their businesses over to new owners. Its actionable advice and step by-step instructions have become a widely recognized roadmap  through the sale process, from first defining motivations and  objectives to preparing the business for sale, launching a plan for  reaching qualified buyers, negotiating a purchase offer, and, finally,  completing a sale that allows owners to exit on their own terms and  conditions. This 10th Anniversary edition of the Guide to Selling Your Business updates and optimizes the roadmap, helping you plan your exit and  sell when ready. It addresses the questions on the minds of business  owners in today’s business-for-sale marketplace, beginning with the  primary methods of business valuation before detailing long- and  short-term strategies for enhancing and protecting value. It then  leads you through the entire business sale process, which typically  takes 6-12 months. Through each step, it provides valuable advice  and helps you maintain confidentiality as you aim to reach and  negotiate with buyers and achieve a sale that meets your financial  goals. Plus, this new and enhanced edition features an all-new set  of digital forms and worksheets to help you customize your own  personal roadmap and prepare for a successful business exit. You can  access this downloadable digital toolkit at no cost by visiting https:// 

www.bizbuysell.com/seller/guide/selling-a-business/

. When you own a business, the question isn’t whether you will  someday leave its ownership behind, but rather when that exit will  take place and how you will reap final value from the business you  have built. Count on this guide to deliver advice and steps to follow  on the exit path ahead.vii Guide Objectives • A detailed explanation of business valuation, exit planning, and the selling process. • Ways to enhance the value of your business and prepare it for sale. • Advice on how to price, present, and market your business for sale. • Best practices for assembling your team of business sale advisors, communicating with prospective buyers, navigating the sale process, and maintaining confidentiality. • Details on ways to structure the sale, negotiate the deal, and pass the ownership and success of the business you have built to a new owner. • Resources on professionals to rely on through the entire process. Using This Guide The seven chapters of this guide are presented in two parts:  Part I: These three chapters outline the steps for creating a plan  for protecting your future and exiting your business when the time  is right. They help you determine the current value of your business,  assess whether your business is a strong sale prospect, and undertake  pre-sale improvements that enhance sale attractiveness and value.  Count on this part to provide step-by-step information for creating a  sound exit plan to follow. Part II: These four chapters present essential steps to follow from  the moment you decide to sell to the moment you pass the keys to  a new owner. They guide you through the process of preparing and  pricing your business for sale and selecting your team of sale advisors  before listing and marketing your business for sale; finding, screening,  and negotiating with buyers; navigating the sale transaction; and,  finally, closing the sale and transferring business ownership.viii Additional Valuable Resources Professional Business Brokers: First and foremost, we want you  to achieve success. In addition to the information in this guide, a  professional business broker can offer a wealth of expert advice and  assistance on business valuation, exit planning, assessing business  sale-readiness, business pricing, finding buyers and conducting  buyer negotiations. To locate a broker, visit the BizBuySell Broker  Directory.  BizBuySell: For over 25 years, BizBuySell has been the  Internet’s leading business-for-sale marketplace where hundreds of  thousands of businesses have been bought and sold. BizBuySell has  a large inventory of businesses listed for sale, a leading franchise  directory, and one of the largest databases of for-sale and sold  business comparables. The BizBuySell website also features tools,  advice and resources for business buyers and sellers. To stay on top  of the latest news and information on the process of selling a  business, go to

https://www.bizbuysell.com

and click “join” for a free  BizBuySell membership. On Facebook, follow @bizbuysell. On  Instagram, follow @officialbizbuysell, On Twitter, follow  @BizBuySell. This guide is produced by BizBuySell and written by  Barbara Findlay Schenck, who with her husband, Peter, started,  grew, and sold an advertising agency before becoming a columnist  and presenter on how to plan, market, brand and sell a business.  She is the author or coauthor of best-selling books including Small  Business Marketing for Dummies, Business Plans Kit for Dummies, and  Branding for Dummies.ix xPart I Valuing Your Business  and Planning Your Exit1 21 Estimating the  Value of Your Business You may be ready to sell and exit your business now, or you may  be planning to grow it for a few more years before offering it for sale.  Either way, understanding its current sale value is the first step in  planning and protecting your future.  In the same way that a medical checkup assesses your current  physical condition and provides information that guides your health care decisions, a business valuation assesses the current condition and  value of your business and provides information that guides your  business planning, exit planning, planning for pre-sale improvements,  and sale timing decisions. By estimating the value of your business — creating at least a back of-the-envelope estimated price — you will have the information you  need to determine whether your business today meets the financial  objectives you are aiming for in a sale and, if not, to determine the  extent of improvements required and the amount of time necessary  to achieve them.  Three widely accepted valuation approaches lead to an estimate  of business value, which almost always is revised, with professional  assistance, prior to finalizing the sale asking price. 3 BizBuySell Guide to Selling Your Business • The asset approach estimates the fair market value of the  physical assets of a business that could be converted to cash.  This assessment is especially important to owners of distressed  businesses who are likely to liquidate tangible assets. It is also  important when substantiating the price of the business during  sale negotiations and due diligence. • The market approach projects estimated value of a business  based on sale prices of comparable businesses. It involves  accessing and analyzing data from recent transactions and  dividing sale prices by business revenues or earnings to arrive at  the multiple at which the sales of comparable businesses have  closed.  • The income approach estimates the value of future business  cash flows or income. It is especially important when valuing  startups or turnarounds for which past financial performance is  not a good indicator of future potential. The approach involves  either a capitalization of earnings method or a discounted cash  flow method to project growth, with both benefitting from  professional valuation and accounting advice. No one valuation approach answers the  question, “What’s my business worth?” Instead,  a combination of approaches contributes to the  answer based on the value of your business  assets, sale prices of comparable businesses,  and the annual earnings and strength of your  business as a going concern. This chapter provides you with valuation information you can  use on your own and as you call on assistance from professionals. It  guides you through the following: • The business valuation approaches.4 1: Estimating the Value of Your Business • How to calculate seller’s discretionary earnings (SDE), a key figure in pricing calculations. • The earnings multiple that applies in most valuation estimates of businesses like yours. • When to call on outside professionals and business brokers for assistance. Step 1: The Asset Approach to Valuation This approach establishes the fair market or sale value of the tangible,  physical assets of your business. • The asset valuation includes all physical assets of the business including fixtures, furnishings, equipment, inventory, real estate, and other physical assets • The asset valuation does not include the value of intangible assets such as brand recognition and reputation, websites and online presence, client lists and relations, skilled workforce, trademarks, patents and trade secrets, and intellectual property that will transfer to a new owner. Intangible assets are included when assessing goodwill value and almost always require assistance from professional valuation experts. A valuation of assets is essential throughout the sale process: • During exit planning, the asset valuation provides a sense of the total value of all physical assets that could be converted to cash. If, after completing a business valuation, the sale value of physical assets is very similar to the price likely to be received through a business sale, liquidation — simply selling assets and closing shop — becomes the most expedient exit route. Liquidation also becomes the necessary exit route for owners of businesses that are not in condition to attract a buyer at the time the owner wants or needs to make an immediate exit, a condition Chapter 3 of this guide aims to help your business avoid.5 BizBuySell Guide to Selling Your Business • During business sale negotiations, the asset valuation substantiates  a component of the business pricing strategy. It presents an asset inventory and a sound projection of what it would cost the buyer to otherwise purchase the furnishings, fixtures, equipment, and other physical assets of your business, in their current condition and at their current market value. • During the due diligence phase of a business sale, the asset valuation confirms all assets being transferred and whether each asset is owned outright or financed, and whether specific assets are accompanied by service agreements or other obligations. Conducting an Asset Valuation Begin by listing all physical assets of your business. Make an  inventory by going room by room, department by department, or  location by location. Or group assets by type, such as office furniture,  office equipment, production equipment, office furnishings, leasehold  improvements, automobiles, and so on, also noting the location of  each asset. For each asset, record the date of acquisition, original cost,  replacement cost, and current fair market value, which is the sale  value of the asset in its current condition. Use the Asset Valuation Worksheet in the Digital Toolkit as  you create and value your asset inventory. The form automatically  calculates column entries. It also includes a column for notes  regarding ownership, such as the amount of the purchase price  outstanding, the cost of accompanying service agreements, and other  costs of ownership. Access the digital toolkit by visiting https://

www.bizbuysell.com/seller/guide/selling-a-business/

. Be aware that the resulting asset valuation will differ from the asset  value shown on your business balance sheet for two reasons: 1. The balance sheet reflects the book value or carrying value of assets based on acquisition cost minus depreciation, while the asset valuation reflects the fair market value of assets which, in some cases, could be even more than their initial price.6 1: Estimating the Value of Your Business 2. The balance sheet reflects the depreciated value only of assets acquired at prices above a minimum value, while the asset valuation includes the market value of all physical assets minus any liabilities associated with those assets. Also be aware that there are situations that may require asset  valuations by an independent certified appraiser. For example,  if production equipment assets are being used as collateral for a  bank loan, the valuation will require assessment by an independent  certified machinery appraiser. Likewise, other high-value assets may  require fair and impartial appraisals that can hold up under scrutiny  with courts, banks, and financial institutions. Step 1: Key Takeaways The asset approach establishes the value of the tangible or physical  assets of a business:  • An asset valuation allows owners with immediate exit priorities to weigh the value of liquidation versus business sale. • An asset valuation substantiates a component of business pricing during due diligence and price negotiations. • Valuation of high-value assets may require fair and impartial professional appraisals.Step 2: The Market Approach to Valuation The market approach estimates the value of your business  based on data from similarly sized and recently sold businesses in  your geographic area or business sector. It involves multiplying the  earnings of your business by the valuation multiple at which similar  businesses have sold or are selling. Accessing Comparable Data Often referred to as comps, comparable data is usually sourced  through online databases tracking recent listed and recently sold  businesses. These databases are typically accessed through business  7 BizBuySell Guide to Selling Your Business BizBuySell Guide to Selling Your Business brokers or professional appraisers. You can also access comparable  data by visiting

BizBuySell.com

.  Comp criteria can be targeted by industry, geographic location,  financial performance, sale price, and other fi lters. Thi s allows a  comparison of information only from businesses that are similar to  yours in terms of industry classification, geographical location, size  (revenue, assets, employees), earnings, and other financial metrics.  Using Comparable Data to Establish Valuation Benchmarks Knowledge of the price-to-revenues or price-to-earnings ratios  at which businesses similar to yours have recently closed provides a  benchmark for the valuation multipliers you might use to arrive at a  ballpark estimate of your business value. The goal is to compare businesses like yours in terms of industry  classification, geographical location, size (in terms of revenue, assets,  employees), earnings, and other financial metrics. For example, the owner of a California pizzeria could compile  a BizBuySell Valuation Report for comparable pizzerias sold in  California. Based on the report results, the owner could divide the  sale price of each recently sold pizzeria by its gross revenue or earnings  to see the range of pricing multiples at which comparable businesses  have recently sold. The owner would then study the report data in search of  information reflecting the condition of each business, based on such  indicators as expenses, rent, or other data. Considering how the  condition of recently sold pizzerias compare with the condition of  the owner’s pizzeria would help determine if it ranks in the higher  – or the lower – quartile of businesses in terms of condition, and therefore whether its valuation would be based on the higher – or lower – multiples achieved through recent sales. Understanding the Difference Between Price-to-Revenues  and Price-to-Earnings Ratios When reviewing data for comparable market sales, two of the  most common ratios used are revenue multiples (often referred to as 8 1: Estimating the Value of Your Business sales multiples) and earnings multiples.  • Revenue multiples are based on the gross revenue shown on  the annual business income statement. They involve a fixed  figure, and therefore some experts feel applying a multiple to  annual gross revenue is the most reliable approach. However,  because annual revenues cannot reflect how much money  the business actually earns, most experts caution that basing  the price multiple on revenues does not reflect the health of  the business. Revenues do not reflect whether the business is  mismanaged or if it has higher-than-average expenses. • Earnings multiples are based on how much the business  earns annually for the benefit of its owner. Owner earnings  differ from the annual profit shown on the business year-end  income statement or its federal tax return. When pricing small  businesses, profit and earnings are defined as follows: Profit, the bottom line on the business income statement,  reflects all business revenue less all legally deductible business  expenses to arrive at the lowest possible taxable income. Annual owner earnings, also called owner’s cash flow or seller’s  discretionary earnings (SDE), also include all business revenue,  but from there deductions reflected on the income statement  are revised to arrive at a total showing how much the business  actually generates for the benefit of its owner in a normal year. Preparing a Statement of Seller’s Discretionary Earnings (SDE) To calculate SDE, a key figure in small business sales, the year-end  income statement is recast with the following adjustments: 1. Add back expenses that were deducted for interest,  depreciation, taxes, and amortization, resulting in what  accountants call business EBIDTA (earnings before interest  depreciation, taxes, and amortization). 2. Add back expenses that benefitted the owner directly, such as  owner’s salary and benefits, insurance, and auto use.  3. Add back discretionary expenses and contributions or 9 BizBuySell Guide to Selling Your Business donations that another owner might choose not to incur.  4. Add back non-recurring expenses to “normalize” earnings by  excluding unusual and one-time transactions of the business 5. If SDE has differed greatly over recent years, work with your  accountant to create and present what is called a weighted  average. 6. To prepare an estimate of your SDE, use the SDE Calculation  Worksheet in the Digital Toolkit, working from your  financial statements to fill in the shaded cells. The form  automatically calculates entries to reflect your annual owner’s  benefit – your seller’s discretionary earnings or SDE – which  forms the basis of the income-based valuation used in pricing  nearly all small and medium-sized businesses. Calculating the Earnings Multiple The earnings multiple used in most small business valuations is  a number between 1 and 5. Businesses with weakest potential and  highest risk have the lowest multiples, and businesses with strongest  potential and lowest risk have the highest multiples.  When applied to the SDE of the business, the multiple results  in an early estimate of business value. For example, a business with  SDE of $500,000 and a multiple of 3 has an estimated value of  $1,500,000, while a business with SDE of $500,000 and a multiple  of 4 has an estimated value of $2,000,000.  To determine the multiple for your business, begin by studying  comparable-data benchmarks, described in the previous section.  They provide the most basic ballpark estimates of earnings multiples  for businesses matching your size, geographic location, or business  sector. You can begin to estimate the earnings multiple for your business  by assessing factors likely to signal attractiveness or risk to buyers.  To begin, open the Earnings Multiple Assessment Worksheet  in the Digital Toolkit. It lists the major risk factors, including annual  earnings, revenues and profits, financial records, clientele, products,  recurring revenue, staffing, location, brand and reputation, and more.10 1: Estimating the Value of Your Business Consider the questions that accompany each factor and assign  a number from 1 to 5 that you feel accurately reflects the condition  of your business, with 1 indicating the weakest condition and 5  the strongest condition. The form automatically averages ratings to  provide an early sense of the earnings multiple that your business, in  its current condition and based on your assessment, might command. CAUTION: Be aware that the multiple you arrive at is based  on your assessment at this time. The result will almost certainly  be adjusted prior to pricing, based on expert input from your sale  advisers, the condition of your business at the time of sale offering,  sale terms, and other conditions that affect attractiveness to buyers. Doing the Math This is the easy part of estimating value using the market approach. • You have analyzed comparable sales data and learned the  multiples achieved by recent sales of businesses similar to yours. • Based on market comps and your own assessment of the  condition of your business, you have estimated the multiple to  use when roughly estimating your business value. • You have recast your year-end income statement to arrive at  your seller’s discretionary earnings (SDE). You are now a simple calculation away from creating a ballpark  estimate of the value of your business: SDE x Earnings Multiple = Estimated Business Value That single calculation results in the estimated value of your business. CAUTION: Take the word “estimated” seriously for a number  of reasons: • Business valuators agree that the business owner may not be  the best person to assess the strength and attractiveness of the  business and therefore its earnings multiple.  • Even after a business valuation is established, it is subject to  change due to changes in business conditions.  Business sale prices typically include fixtures, furnishings, and 11 BizBuySell Guide to Selling Your Business equipment, normal inventory, and intangible assets, but not owned  real estate, which is valued separately.  Valuation involves layers of complexity. Involve business advisors  and your broker to provide valuable assistance in making the  assessments that contribute to the earnings multiple calculation. Step 2: Key Takeaways The market approach begins with an analysis of data from recent sales  of similar businesses: • Most business valuations involve a multiple of business revenues  or earnings.  • Data from comparable business sales provides a benchmark  for determining the multiple used in the business valuation  formula, with the benchmark adjusted to reflect business  conditions, strengths, and risks. • Most business valuations apply a 1 to 5 multiple not to business  revenues or profits, but to annual seller’s discretionary earnings  (SDE), a recast version of the income statement that reflects  how much the business actually generates annually for the  benefit of the owner.  • SDE x Earnings Multiple = Estimated Business Value • Take the word “estimated” seriously. Until the time of a  sale offering, business valuation will be adjusted based on  professional input, changes in business conditions, sales terms,  and buyer negotiations.Step 3: The Income Approach to Valuation The income approach values a business based upon its expected  future performance and cash flows, which are calculated by  projecting current business earnings and then adjusting for changes  in anticipated future growth rates, cost structure, and other factors  that affect earnings.  The income valuation is based on either capitalization of earnings or  discounted cash flow: 12 1: Estimating the Value of Your Business • Capitalization of earnings measures the value of a business  by determining the net present value (NPV) of expected future  profits or cash flows. This involves dividing the expected future  earnings of the business by the capitalization rate, which is the  rate of return the buyer can expect to earn on the investment  made to purchase the business. The capitalization rate is  determined in part by the company’s perceived risks. This  method is often used by businesses with stronger future growth  and profit projections than past performance indicates. • Discounted cash flow (DCF) estimates the value of a business  based on its projected future earnings. First, the expected  cash flow of the business is projected over a duration of time,  usually one year. That projection is then discounted based on  risk, using a percentage which is either derived from weighted  average cost of capital (WACC) or a build-up rate determined  by the market. All valuation approaches, and especially the income approach,  benefit from the knowledge and expertise of experienced professionals,  listed in the upcoming Step 5 titled “The High Value of Business Sale  Professionals.” Step 4: Circumstances That Alter  the Business Valuation  Until the time of a sale offering, business valuation will be  adjusted to account for changing conditions, including: • Changes affecting your business sector and market area may  affect the value of your business and the price a buyer might be  willing to pay for it. • Changes altering economic conditions may affect your sales  volume and profit margins, also affecting the annual earnings  upon which multiple-of-earning valuations are based. • Departure of key personnel or major clients, or other major 13 BizBuySell Guide to Selling Your Business business changes, may affect business value and attractiveness. Beyond adjustments due to circumstances, prior to a sale listing  the asking price will be further adjusted based on the following  circumstances: • If the sale offering includes seller financing – the seller’s  willingness to accept a portion of the purchase price in  payments that are not due until a defined point in the future  – the attractiveness of the sale offering increases. Some studies  show that by offering seller financing, the earnings multiple  used in the price calculation can increase by as much as a third,  resulting in higher business value.  • Because business buyers negotiate downward from the business  asking price, sale pricing is often set at 10-15 percent over  valuation to account for the effect of buyer negotiation. Of  the thousands of closed business sale transactions reported to  BizBuySell each year, most sales closed at approximately ninety  percent of the asking price. Step 4: Key Takeaways Valuation estimates are adjusted prior to sale pricing to account for: • Changes in the business sector.  • Changes in economic conditions. • Changes in business staffing or clientele. • The owner’s decision regarding whether to provide seller  financing. • Anticipated buyer price negotiations.Step 5: The High Value of  Business Sale Professionals The surest way to arrive at a valuation for your business is to  follow the guidance on the preceding pages and to seek guidance  14 1: Estimating the Value of Your Business from professionals experienced in business assessments, valuations,  and sales. When and Where to Seek Guidance • Seek guidance from a business appraiser or valuation expert if your business owns intellectual property or involves proprietary processes, a valuable brand, or other assets that are unique and therefore difficult to value and price. • Seek guidance from business consultants if your selling price could be significantly higher following major business improvements that are beyond the expertise of you and your management team. • Seek guidance from a broker if you need help placing a value and price on your business, maintaining confidentiality about your sale, finding and dealing with prospective buyers, and taking on the demands of selling your business – while you keep running it efficiently. • Seek guidance from a merger and acquisition (M&A) specialist or from an attorney with M&A expertise if your business has annual sales over $5 million or annual SDE over $1 million, as it is likely to attract another business as its buyer, and the sale will be complex. • Seek guidance from a local Small Business Development Center (SBDC) for help with business planning, financial management, and much more. America’s SBDC is a nationwide network, funded in part through the U.S. Congress and Small Business Administration, that offers a wide range of free and low-cost services to small businesses. Choosing a Broker Business brokers offer in-depth insights on valuation, marketing,  prospecting, negotiations, and other fundamental sale elements.  Most have extensive prior business experience that allows them to  understand the financial, operational, and legal aspects of a business.  From sale preparation through the sale process, their role is to 15 BizBuySell Guide to Selling Your Business streamline the process, focusing on the deal while the owner focuses  on maintaining business operations and strengths. Most broker’s charge a percentage of the sale as their fee. In return  they provide a number of benefits: • Experience in the business sale arena and process. • Knowledge of comparable business sale values. • Ability to professionally present the business and attract prospective buyers through extended networks and listings on heavily trafficked sites. • Access to a database of prospective qualified buyers. • Ability to establish confidential contact with targeted prospective  buyers. • Experience assisting with business preparation, valuation, and sale materials, although sometimes at an additional fee. • Guidance and expertise through the buyer negotiations, due diligence, financing, closing documents, and the final business transition from seller to buyer. • Experience in business sales and familiarity with most challenges that can arise. Brokers are especially valuable for business owners who are  uncertain about valuation, who are unclear about how or where to  find prospective buyers, who lack time to run the business while also  planning for and negotiating a sale, and who have little expertise in  marketing, presenting, and negotiation. When seeking a qualified broker, check out the BizBuySell  Broker Directory, the largest online broker directory, which includes  thousands of professionals who can assist with business sales.  You can also contact the International Business Brokers Association  (IBBA) at

https://www.ibba.org

.  When it’s time to interview brokers, the Business Broker Questionnaire in the Digital Toolkit provides questions to ask. Following this deep dive into business valuation, you now have the basis for estimating the value of your business today, in its current  condition, and knowing the resources to call on for help. You are now 16 1: Estimating the Value of Your Business ready to begin seriously thinking about your exit plan, the topic of  Chapter 2.  Step 5: Key Takeaways Rely on professionals experienced in business assessments, valuations,  and sales:  • Rely on business appraisers and valuation experts when valuing intellectual property. • Rely on business consultants when planning value-enhancing business improvements. • Rely on business brokers for business valuation and pricing, finding and dealing with buyer prospects, and handling the demands of a business sale while you keep running the business efficiently. • Rely on merger and acquisition (M&A) specialists if your business is likely to attract another business as its buyer, if its sale value and future potential is high, and if the sale will be complex.Key Terms Asset Valuation: An estimate of the fair market value of all  tangible assets owned by a business that could be converted to cash,  including such physical items as furnishings, fixtures, equipment,  inventory, and real estate but excluding intangible business assets  such as brand recognition and reputation, websites and online  presence, client lists and client relations, talented workforce, and  other intangible elements, which together are valued separately, often  with professional valuation assistance, and included in the goodwill  value of the business.  Market Valuation: An estimate of business value based on data,  referred to as comps, from recent listings or sales of similarly sized  businesses in the same geographic location and/or business sector to  determine the multiple of revenues or earnings at which comparable  businesses are being offered or sold. Earnings Multiple: A number, usually between 1 and 5 but  17 BizBuySell Guide to Selling Your Business sometimes higher for large or very profitable businesses, that reflects  the profitability, future strength, and attractiveness of a business and  that is used, when multiplied by seller’s discretionary earnings, to  roughly estimate sale value.  Going Concern Value: The value of all the assets of a business plus  its worth as an ongoing entity, based on its recent past performance  attracting and retaining customers and experiencing financial success.  Goodwill: The value of intangible assets of a business, including  brand recognition and reputation, websites and online presence,  client lists and client relations, talented workforce, industry and  community standing, and other positive elements that contribute to  business strength.  Income Valuation: An estimate of the value of a business based  on future business cash flows or income. It is most used when valuing  startups or turnarounds for which past financial performance is not  a good indicator of future potential. The approach involves either a  capitalization-of-earnings method or a discounted-cash-flow method  to project growth, both of which rely on professional valuation and  accounting advice. Intellectual Property: Trademarks, patents, and trade secrets  which almost always require valuation assistance from professional  valuation experts. Liquidation: Ending a business by selling its physical assets with  no compensation for the intangible assets of the business. An asset based valuation shows what is considered the liquidation or “floor  value” of the business. Seller Financing: A sale payment approach that allows the  business buyer to pay a portion of the purchase price when the sale  closes, and to pay the remainder of the price, plus interest, over a  specified period, usually backed by security and other agreements.  Seller’s Discretionary Earnings (SDE): The amount a business  generates annually for the benefit of its owner and a key figure of  interest to business buyers. SDE differs from business profit by adding  back deductions for owner salary, insurance, auto use, memberships,  and other benefits; discretionary expenses another owner may choose 18 1: Estimating the Value of Your Business not to make; expenses for non-recurring purchases; and deductions  for interest, taxes, depreciation, and amortization. Also called annual  earnings or owner’s cash flow. Digital Toolkit Resources Access the digital toolkit by visiting

https://www.bizbuysell.com/

seller/guide/selling-a-business/. Asset Valuation Worksheet SDE Calculation Worksheet Earnings Multiple Assessment Worksheet Business Broker Questionnaire19 BizBuySell Guide to Selling Your Business20 2 Defining What You Want  Out of Your Business Sale Chapter 1 was all about setting your exit starting point by  finding the answer to your first question: What’s my business worth?  It helped you arrive at the estimated value of your business in its  current condition. Chapter 2 is all about developing your plan for going forward.  If you could ask a GPS app to map the route from today to your  business exit, you’d see three options. The longest route would be the  one that includes making value-enhancing business improvements  prior to a sale listing.  The midrange route would involve offering the business for sale  in its current condition. The shortest route would be liquidation by  selling not the business but rather only its tangible assets, often at  bargain prices.  As you select the exit route you’ll follow, this chapter guides you  through the major considerations involved: • Defining and prioritizing your exit motivations, timeframe and objectives. • Understanding the most common exit options and what’s21 BizBuySell Guide to Selling Your Business involved with each. • Matching your financial and timing priorities with exit options. • Selecting an exit approach that achieves your financial objectives, sale-approach objectives and after-sale objectives. Reading this chapter will take minutes, but making the decisions  involved requires a worthwhile investment of time and thought.  Worksheets in the Digital Toolkit will help as you set the exit plan  you’ll follow. Step 1: Defining Your Motivations and Objectives Before you can zero in on your preferred exit approach, you need  to do some pre-exit self-reflection. • What circumstances are driving your desire or need to exit, and how urgent or flexible is your exit timeframe? • What do you want to achieve financially from your business sale? • Post-sale, do you want to exit immediately, do you want to remain involved with the business only during the ownership transition, or do you want to stay involved for a longer period? • Post-sale, do you have preferences for how the business will continue under new ownership? The next sections help as you consider your answers to these  questions and decide which sale approach best aligns with your  objectives. Defining Your Exit Planning Circumstances and Urgency Owner exits are usually prompted by one or several circumstances,  with no one reason applying to all or even most exits. Use the  Motivations and Timing Worksheet in your Digital Toolkit,  which you can access by visiting

https://www.bizbuysell.com/

 seller/guide/selling-a-business/. Then, consider whether any of the  following are motivating your decision making: 1. Do you want to retire?22 2: Defining What You Want Out of Your Business Sale 2. Are you bored by your business? 3. Are you feeling burned out? 4. Are there business challenges that require time and financial investment beyond what you can or want to provide? 5. Is there a desire or need to relocate to a different geographic region? 6. Is divorce, a family issue, or other personal challenges prompting you to sell? 7. Are financial pressures, including the need to free up money or to make more money than the business can provide, an issue behind your exit motivation? 8. Are you facing health challenges? 9. Is there a new opportunity you’d like to pursue? 10. Are you facing partner conflicts or other internal business issues? After listing which circumstances are motivating your exit  decision, note whether your exit timing is urgent or flexible. Realize  that the most urgent exit needs often correlate with lower sale prices  for three main reasons: • Immediate exits eliminate the opportunity to strengthen business performance and attractiveness prior to a sale listing. • Immediate exits prompted by pressing financial needs almost always force an immediate sale and payoff, precluding the opportunity to offer seller financing, which typically supports a higher sale price. • Immediate exits shorten or eliminate the possibility of seller involvement in a post-sale transition period, which likely leads to concerns that can lower a buyer’s offer. Defining Your Financial Priorities Beyond personal circumstances, exit decisions involve financial  priorities, which are affected by timing realities: • Do you want to achieve the highest-possible sale price, or is timing more important than pricing? Consider that unless a23 BizBuySell Guide to Selling Your Business business is in a strong financial and operational condition, an  immediate sale likely results in a discounted price.  • Do you want or need a full payout or a significant payment at sale closing? Consider that most cash payoffs require buyers to seek third-party loans, which are often hard to come by and slow to process. They also often result in lower selling prices. Defining Your Post-Sale Considerations Understanding what you want to do after a sale also influences your  sale-approach decision: • Do you want to exit and immediately walk away from the business? Consider that unless the business is in strong condition and easy to transition to a new owner, the seller’s desire for a rapid departure raises doubts and leads to a lower selling price, especially if the seller also seeks an all-cash payoff. • Are you willing to remain involved during a 3- to 12-month transition period? Consider that a seller’s willingness to remain with the business for a post-sale period conveys to buyers higher confidence in the future of the business, which in turn supports a higher selling price. • After the sale, do you want to remain involved, full- or part time, as a partner, consultant, or employee? Consider that in many cases, the seller’s desire for ongoing involvement limits the buyer pool and triggers price negotiations. As part of post-sale considerations, also list what you want for your  business, clients, and staff:  • Is it important to you that your business remain at its current location with only limited disruption to clients and staff? Consider that a desire to keep the business in its current location and configuration reduces the option of a merger or consolidation with another business, narrows the buyer pool, and usually affects pricing.24 2: Defining What You Want Out of Your Business Sale Step 1: Key Takeaways Planning your business exit begins by defining your motivations and  objectives: • The circumstances driving your desire or need to exit. • The urgency or flexibility of your exit timeframe. • Your financial hopes or expectations. • Your desire to exit immediately or to remain with the business post-sale, either during the transition period or for a longer period. • Your conditions, if any, for how and where the business will continue under new ownership.Step 2: Resolving Conflicts Between Your Exit  Objectives and Your Desired Outcome Various exit objectives conflict with one another. Before finalizing  the list of what you want out of your exit, use the following list to  reconsider and prioritize your motivations. Desire for the highest possible price conflicts with desire for  all-cash payoff, immediate departure, post-sale involvement, or  post-sale priorities.  Why? First, sales requiring all-cash payoffs typically close at  considerably lower prices than those involving seller financing.  Second, sellers requiring an immediate departure signal to the buyer  a high sale desire, which invites price negotiations. Finally, stipulating  post-sale priorities for the owner or the business often narrows the  buyer pool and decreases the ability to sell for the highest possible  price. Desire for all-cash at closing conflicts with desire for immediate  sale, a high price, or immediate departure.  Why? All-cash payoffs often require difficult-to-obtain and slow to-process third-party loans. They also signal urgent seller motivation,  25 BizBuySell Guide to Selling Your Business which can lead to lower sale prices. Desire for immediate sale conflicts with desire for a high price  and desire for immediate departure.  Why? Almost all businesses require a period of time for pre-sale  preparation to enhance business attractiveness, strength and value.  And almost all businesses that appear less attractive and valuable are  slower to attract buyer interest. Desire for immediate departure conflicts with desire for a high  price or all-cash payoff. Why? Unless the business is in strong condition and very easy to  transition to a new owner, rapid departure raises buyer doubts and  leads to lower pricing. To a business buyer, a request for immediate  departure, like a request for an all-cash payoff, is an indication of  either the seller’s high desire to sell or low confidence in the future of  the business, both resulting in lower purchase offers. Desire for post-sale personal or business priorities conflicts  with desire for a high price. Why? Stipulating future personal involvement or after-sale  priorities for the business limits the buyer pool and triggers price  negotiations. Desire for a pre-sale business preparation period followed by  a strong sale offering conflicts with no other sale objective.  Why? With a mid-term to long-term time frame, the seller can  improve the condition, attractiveness, and value of the business while  planning a sale offering that addresses seller objectives and avoids  conflicting priorities. As you consider your exit objectives, two worksheets in the  Digital Toolkit can help. The one titled Prioritizing Sale Objectives  helps you gauge on a scale of 1-10 how important each sale outcome  is to you. The Conflicting Objectives Worksheet summarizes how  desired outcomes can preclude one another and can help as you  reassess which objectives are your highest sale priorities. 26 2: Defining What You Want Out of Your Business Sale Step 2: Key Takeaways Personal exit motivations guide your exit and sale decisions: • Desire for immediate sale often conflicts with desire for the highest price or all-cash payoff. • Desire for the highest possible price often conflicts with desire for all-cash payoff at closing, immediate departure, post-sale involvement, or other post-sale priorities. • Desire for all-cash payoff at closing often precludes immediate sale, a high price, or immediate departure. • Desire for post-sale involvement or post-sale priorities often precludes a high price. • Desire for a mid-term to longer-term pre-sale planning period during which business improvements enhance business value prior to a sale offering precludes no other sale objectives.Step 3: Understanding Your Sale Options Whether you’re selling only the physical assets of your business,  selling a portion of your business, or selling the entirety of your  business, when you’re ready to exit, you have options, and each  option has issues that need to be considered. Option 1. Selling Your Part of the Business to an Existing  Partner Most partnerships are launched with legal documents that  include a buy-sell agreement. If a partnership agreement is in place  (and you should never enter a partnership without one), it stipulates  the pre-defined route for a partner exit – including the price and  procedure for selling and departing. Considerations: While selling to a partner likely results in little  disruption to the business, a near-immediate sale and exit, the  likelihood of a cash payout and, if desired and negotiated, post-sale  involvement as a board member or advisor, it seldom results in the  27 BizBuySell Guide to Selling Your Business highest possible selling price. Option 2. Partially Selling to a Key Employee or New Co owner or Partner A partial sale of the business requires a detailed business valuation,  determining what percentage of ownership to sell, drawing up legally  binding partnership and buy-sell agreements, and becoming a co owner or partner rather than the sole owner of the business.  Considerations: A partial sale allows owner flexibility in  determining future business involvement and provides continuity  for staff and clients. Especially if the partial sale is to a key employee,  it rarely results in a top-dollar sale price and probably results in  payments made over coming years. Option 3. Selling to Another Business Businesses or private equity groups acquire businesses, in full  or in part, for strategic rather than purely financial reasons, most  often to expand capabilities, market reach, competitiveness, and  profitability. This is accomplished through integrating the offerings of  the purchased business into those of the established business, which  is usually larger and stronger than the business being purchased. Considerations: A business-to-business sale allows for the  possibility of a strong selling price and immediate payoff, though sale  terms often require the seller’s ongoing involvement in the business  for a designated period of time. Option 4. Partially Selling to Another Business Selling a portion of your business to another business forms a  strategic partnership with a business partner that can result in greater  financial, operational, distribution, or marketing strength. Considerations: A business partnership can be structured to  include a succession plan that gradually sells the entirety of one  business to the partner business. As in any partnership, this approach  requires a detailed valuation and legally binding agreements that 28 2: Defining What You Want Out of Your Business Sale specify terms and timelines. Option 5. Transitioning to Next-Generation Family Members This sale approach is the choice of as many as one in every three  business owners. It rarely results in a top-dollar payoff, but, by passing  ownership to an heir or heirs, the business stays in the family, the  seller often has flexibility to determine post-transition involvement,  and staff and clients usually experience the least disruption.  Considerations: This is an easy plan to consider and a complicated  one to arrange. It requires consultation with attorneys and accountants  to establish the valuation, create business transfer plans, and address  tax- and estate-planning issues. If there is more than one able and  interested heir, it also requires deciding which will assume business  control and how others will be included in the transition plan –  usually by transferring some of the business value and therefore a  portion of the owner’s wealth to the others, even if they don’t attain  business ownership. Option 6. Selling to Employees This approach involves a tax-qualified, defined employee benefit  plan, called an employee stock ownership plan, or ESOP, through  which employees buy or otherwise accumulate shares of the business  quickly or over time, depending on how the plan is structured. It  provides tax advantages, a phase-out of owner involvement, and  continuity for staff and clients.  Considerations: An ESOP requires the involvement of an ESOP  attorney. It also requires an employee or group of employees capable  of taking over the business and ongoing involvement of the owner  over the period, often years, between when the ESOP transfer begins  and when the employee or employees assume full ownership. Option 7. Selling to an Individual Buyer This approach is the primary focus of the rest of this guide. It  involves selling to someone who wants to buy rather than start a 29 BizBuySell Guide to Selling Your Business business, in part to avoid start-up risk and to benefit from established  systems, products, staff, clientele, sales, and cash flow. Also, because  many business sales involve seller financing – basically a seller financed loan accompanied by an often-sizable down payment and  a secured promissory note – those seeking a business for sale realize  that it’s often easier to finance a business purchase than to undertake  a business start-up. Considerations: Businesses with strong earnings and with  sale terms that include seller financing are more likely to result  in successful sales and higher prices. If your business is in strong  condition and attractive to buyers, selling to an individual provides  the greatest opportunity to achieve a timely sale at a good price and,  possibly, post-sale involvement with the business – should that be of  interest to you and the buyer. Option 8. Liquidating Liquidation is last on this list because it’s often a last resort and  always the lowest-value exit approach. It involves selling all tangible  assets that can be converted to cash (including furnishings, fixtures,  equipment, and inventory), collecting outstanding receivables,  paying off debts, addressing contractual obligations, formally  releasing employees, dealing with legal and financial obligations, and  closing up shop. Considerations: Liquidation results in no compensation for the  goodwill or going concern value of a business. It becomes the exit  option when the sale value of a business is the same or nearly the  same as the sale value of its physical assets, or if the owner wants or  needs an immediate exit from a low-value business and can’t devote  the time to plan and implement the value-enhancements outlined in  Chapter 3.30 2: Defining What You Want Out of Your Business Sale Step 3: Key Takeaways Depending on the circumstances, urgency, and financial expectations  that motivate your exit, there are at least eight ways to sell your business: • Sell your part of the business to an existing partner • Sell a portion of the business to a key employee or new co owner or partner • Sell to another business • Sell part of your business to another business • Transition ownership of your business to family members • Sell your business to your employees • Sell your business to an individual • Sell only tangible, physical assets and close the businessStep 4: Setting Your Top Exit Priority After considering what is motivating you to exit from your  business, and after resolving the potential conflicts among the  objectives you hope to achieve, you need to weigh what, above all  else, you most want out of your business exit. By stating your highest priority, you aren’t ruling out your other  sale objectives. You’re acknowledging that in order to achieve what  you most want out of your exit, you may need to compromise on  other aims.  It’s time to check one box: Which one of the following objectives  is your single highest exit priority? ⑧ An immediate departure. ⑧ The highest price possible. ⑧ All-cash payoff at closing. ⑧ Post-sale involvement with your business. ⑧ Post-sale priorities such as little or no disruption to clients or staff. ⑧ Pre-sale preparation followed by a future sale. With your overarching goal in mind, you’re in position to develop your exit plan and prepare your business for the sale in front of you,  31 BizBuySell Guide to Selling Your Business BizBuySell Guide to Selling Your Business all covered in Chapter 3. Key Terms ESOP: Short for Employee Stock Ownership Plan, a tax-qualified  defined employee benefit plan through which employees buy or  otherwise accumulate shares of the business quickly or over time,  depending on how the plan is structured, allowing tax advantages  and a phase-out of owner involvement over time. Seller Financing: An arrangement through which the buyer pays  an often-sizable portion of the purchase price at closing and signs a  promissory note to pay the seller the rest of the price, with interest,  over a specified time period. Valuable Online Resources For additional resources on developing an exit strategy,  go to

bizbuysell.com

and visit the BizBuySell Learning Center at 

https://www.bizbuysell.com/learning-center/

. Digital Toolkit Resources Access the digital toolkit by visiting

https://www.bizbuysell.com/

seller/guide/selling-a-business/. Motivations and Timing Worksheet Prioritizing Sale Objectives Worksheet Conflicting Objectives Worksheet32 3 Planning Your Exit and Building  Pre-Sale Business Value  Chapter 1 helped you arrive at a rough estimate of what your  business is worth in its current condition.  Chapter 2 helped you define what is motivating your exit  and what you want out of your business sale. It detailed the most  common sale approaches and helped you consider each one against  the sale terms and conditions you aim to achieve. Then it helped you  consider your exit motivations, resolve conflicting objectives, and  establish your primary exit goal.  This chapter helps you establish the exit strategy you will follow  as you prepare to leave your business and capture its value through  a sale. It guides you through the assessment of your business as a  purchase prospect and helps you make decisions about the pre-sale  condition of your business and the value enhancements necessary to  achieve the sale you’re aiming for. Step by step and with worksheets in the Digital Toolkit, this chapter  describes: • How to set your exit plan. • What buyers want, value, and seek in a business purchase.33 • How to identify and plan value-enhancing business  improvements. • How pre-sale decisions can enhance sale value and minimize  tax impact. Step 1: Formulating Your Exit Strategy The first step in exit planning is to establish the outcome you  seek to achieve through the sale of your business. Your Sale Goal What is your desired sale outcome? • To sell your business in part and remain involved with its  operation. • To sell your business in full and remain involved with its  operation. • To sell your business in full and end involvement with its  operation, either immediately or after a transition period. Your Timing Objective For what exit timeframe are you aiming? • Immediate (0-6 months). • Within a year. • Within 2-3 or more years. Your Financial Objective Most businesses sell at a multiple of what is called seller’s  discretionary earnings or owner’s cash flow, which is another way  of saying how much the business earns annually for its owner. The  earnings multiple is based on the condition and attractiveness of the  business. Businesses in weakest condition sell at a multiple of 1 or  less, if at all, and businesses in strongest condition sell at a multiple  of 5, or even higher.  Based on the condition of your business and the urgency of your 34 3: Planning Your Exit and Building Pre-Sale Business Value timing, what is your financial expectation?  • My business is in strong condition and likely to command a  high earnings multiple. • I am prepared to accept a lower price due to my timing urgency  and the current condition of my business. • I am willing to commit time and effort to strengthen my business  condition and therefore improve its likely attractiveness and  earnings multiple. Your Pay-Out Objective Will you require all-cash at closing or are you willing to offer a  seller-financed loan, realizing that all-cash closings most often result  in lower sale prices and, because a third-party loan is likely necessary,  a slower sale closing. • I am willing to provide a seller-financed loan for a portion of  the sale price. • I will require an all-cash payoff at closing. Your Sale-Marketing Objective Have you defined your preferred buyer, or are you interested in  selling to any qualified buyer, whether a business or an individual? • I prefer or am obligated to sell to a partner, key employee,  employee group, or family member. (If so, you will not need  to list or market your business for sale. Instead, you will work  with legal and financial advisors as you pursue next steps.) • I intend to pursue a sale to a targeted business such as a supplier,  competitor, or strategic business buyer. (If so, you will not need  to list your business for sale. Instead, you will work with legal  and financial advisors as you strategically market your business  to select targets.) • I seek to sell to any buyer who has the necessary financial,  expertise, and management capability to buy my business. (If  so, proceed with the following parts of this guide as you prepare  to list, market, and sell your business.)35 Your Personal Post-Sale Objective • I want to stay involved with my business after its sale, in a  managerial capacity or as a consultant or board member. • I am willing to remain involved over a post-sale transition period  of 1-3 months or longer. • I prefer to end my relationship with the business upon completion  of the sale. Your Post-Sale Objective for Your Business • I prefer to sell to a buyer who plans to retain employees and  to cause little disruption to staff, clients, or customers of the  business. • I am willing to sell to a buyer who plans to merge, move, or  significantly alter the business. Put your objectives in writing. You may decide to make adjustments  to your desired outcomes after completing the Step 2 assessment of the  condition of your business and after determining the extent of pre-sale  improvements you want to make, but the objectives you set at the  outset will provide the starting point you will plan from. Step 1: Key Takeaways Your exit strategy is guided by your sale objectives: • The extent of pre-sale improvements required to enhance business  attractiveness and value may guide your decision to reassess either  your timing objective or your financial expectations.  • The condition of your business as an attractive sale prospect, your  desired exit timing, your sale pay-out objective, and your after-sale  requirements may affect your financial expectations. • The extent of pre-sale improvements required to achieve your  desired price, unless you reduce your price expectations, may affect  your timing expectations. • Preference for a certain kind of buyer will affect how you market  your business for sale, which will begin with a sale listing only if  you have no buyer preferences beyond a buyer who has the financial  and managerial capacity to buy the business.36 3: Planning Your Exit and Building Pre-Sale Business Value Step 2: Understanding What  Business Buyers Want After getting a sense of what your business is currently worth,  covered in Chapter 1, if you are like most owners your next question  has to do with whether your business can actually be sold. While each buyer seeks a specific type of business, perhaps based  on location, business sector, or even business size, all buyers seek  businesses with strength in the conditions listed in this section.  Businesses that gain the highest ratings in all areas sell for the highest  prices, while those with good-to-medium conditions sell at lower  prices, and those with poor conditions likely are not considered as  purchase prospects without significant pre-sale improvements, which  are covered in Step 3. • Strong revenues and profits: When buyers evaluate businesses,  money talks first and loudest. They are looking for increasing  sales, increasing profits, and, especially, strong owner earnings.  Owner earnings become the basis of the business valuation,  with higher earnings leading to higher business prices. They  are also important because most buyers want to know that any  business they consider can provide strong annual earnings for  its owner. • Strong financial condition: Buyers want to review financial  statements that go back at least three years to verify the  following conditions: - Positive cash flow, resulting from more money flowing into  the business than transferring out of the business.  - Working capital, which is the positive difference between the  current assets of the business and its current liabilities.  - All taxes paid to date. - Either no debt or current debt payments. - Current accounts receivable. - Assets that exceed liabilities. • Clear legal condition: Buyers avoid businesses with legal 37 issues, or signals that legal issues lie ahead in the form of  lawsuits, contract disputes, or pending legal actions, whether  from product warranties, employee lawsuits, regulation or  zoning issues, or any other unaddressed legal issues. • Distinct and competitive products and services: Buyers  are attracted to businesses with products and services that  are in strong demand and that generate steadily increasing  revenues and profits. They value products that are produced  using proprietary or difficult-to-replicate processes that serve  as a barrier to competition but are well documented for easy  adoption by a new owner. • Location: Buyers seek businesses that are well positioned  geographically and within industries or business sectors that  are strong and growing.  They value an attractive geographic location for livability, for  accessibility, and, if your business serves a local clientele or  relies on a local workforce, for access to a growing population  of residents who match the customer profile and employee  descriptions of your business. They also seek businesses with  attractive physical facilities located in areas with no threat of  zoning, redevelopment, or other changes that could threaten  business viability. • Facilities and Equipment: Buyers value modern facilities and  equipment that is either owned outright by the business or  on long-term, transferable leases. They also expect equipment  to be in sound condition, and backed by transferable service  contracts. • Capabilities and Processes: Buyers seek businesses with  systems in place to achieve financial goals and keep the  business running smoothly. These include well-structured  and cost-efficient operations that are well documented and  implemented, strong marketing, customer service that draws  good reviews and word-of-mouth, and, depending on the  nature of the business, other capabilities such as distribution 38 3: Planning Your Exit and Building Pre-Sale Business Value and delivery and research and development. • Staffing: Buyers want assurance that the business success does  not rely solely on the current owner’s management, skills,  and knowledge. They prefer businesses with an organizational  structure that supports business success even in the owner’s  absence, with key managers who can provide continuity after  the sale.  They want to know that key managers have signed employee  contracts and enjoy benefits that heighten the likelihood they  will remain with the business after the sale to ease a smooth  transition to a new owner. And they want assurance that  staff is well trained, with employment policies outlined in an  employee manual or handbook. • Clientele: Buyers want assurance that the clients or customers  of the business rely on and value the offerings of the business  and the expertise of its managers and staff as much or even  more than they rely on the owner’s personal expertise and  interaction. Put differently, they want to know business success  does not hinge on the current owner’s presence and abilities. They want to see that the business has a loyal clientele (unless  its success relies on transactional rather than long-term or  repeat customers), a broad client roster rather than reliance  on a few customers, signed long-term contracts with major  clients, and a well-maintained client database. • Brand and Reputation: Almost any buyer with interest  in a business quickly conducts an online search. Buyers  want verification that the business they are considering is  well regarded, well known, respected in its market area and  business sector, and backed by positive customer relations,  strong marketing, and a positive online presence.  They want assurance that the business has a strong and  respected brand and, as the owner of the business, you want  the same thing, because a strong brand and positive reputation  contribute heavily to the intangible value of your business – to 39 its goodwill – which is a strong contributor to the value of the  business and the price a buyer will pay. • Transferability: Buyers seek assurance that the business can  transfer with no obstacles, including: - Transferability of clients: Buyers need to know that  customers, especially major customers, are committed to  and served by the business and not just its owner, and that  contracts and a well-maintained client database will transfer  with the business purchase. - Transferability of business capabilities and processes: Buyers  value processes and systems that are well defined, well  documented, and easy to adopt. - Transferability of business contracts: Buyers expect well  documented and transferable relationships with customers,  suppliers, distributors and other key associates, and  transferable long-term leases on facilities and equipment. - Transferability of workforce: Buyers want to see that key  employees have contracts, employee benefit plans, and other  incentives that keep them loyal to the business. Step 2: Key Takeaways Buyers seek businesses with strength in the following areas: • Revenue and profits • Financial condition • Legal condition  • Location • Facilities and equipment • Capabilities and processes • Staffing • Clientele • Brand and reputation • Ease of transferability to a new owner40 3: Planning Your Exit and Building Pre-Sale Business Value Step 3: Assessing Your Business  as a Purchase Prospect  Use the Business Condition Assessment Worksheet in the Digital  Toolkit as you assess the current condition of your business against the  strengths that buyers seek when considering a business purchase. Your answers to the worksheet’s Yes/No questions will help you  assess the sale-readiness of your business in each of the 10 areas buyers  examine. It will also help you prioritize improvement needs and  estimate the timeframe required to make improvements.  If you answer Yes to all questions on the worksheet, your business  is in sale-ready condition. If not – if you are like most owners and  answer No to some or many questions – you have three exit options: • Make the decision to liquidate assets and close rather than  attempt to sell the business – the decision of owners with urgent  need for an immediate exit and business conditions in high need  of pre-sale improvement.  • Make business and value enhancements before offering your  business at the price you aim to achieve. • Reduce your price expectations and offer the business in as-is or  slightly improved condition. • Before a sale offering, assess the condition of your business against  the strengths that buyers seek, then prioritize and estimate the  time required for improvement needs. Step 3: Key Takeaways Business condition affects pricing and exit-timing expectations:  • To achieve your target price, you may need to extend your exit  timing objective to allow for condition and value enhancements  before offering your business for sale. • To offer your business as-is or only slightly enhanced condition, you  may need to reduce your price expectations before offering it for sale. • As a last resort, a business in high need of improvement and an  owner with an urgent exit-timing objective may decide to liquidate  assets and close rather than attempt to sell the business. 41 Step 4: Identifying Pre-Sale Improvements  to Attract Buyers and Build Value Pre-Sale Improvement Objectives Two objectives guide pre-sale improvement plans:  • Enhance strengths that most contribute to the attractiveness  and value of your business. For example, financial condition is  a strength every buyer seeks. If the cash flow of your business  is weak, or even if it is in good but not great condition, aim to  make it a high target for pre-sale improvement.  • Overcome weaknesses that most detract from the attractiveness  and value of your business. For example, reliance on only a  few clients, or lack of key staff who will continue after the  sale, are viewed by buyers as purchase deterrents and therefore  weaknesses. These should be high targets to address during for  pre-sale planning. If your exit timeframe allows, plan to address every condition that  you ranked as being in high need of improvement when you completed  the Business Condition Assessment Worksheet in Step 3.  Two objectives guide pre-sale improvement  plans: Enhance strengths that most contribute  to the attractiveness and value of your business,  and overcome weaknesses that most detract from  the attractiveness and value of your business. If your exit timeframe is short, plan at least to address every  condition that you believe a buyer will view as a major strength or  a major weakness. The upcoming sections detail improvements to  consider.42 3: Planning Your Exit and Building Pre-Sale Business Value Pre-Sale Improvement Actions  Following your pre-sale assessment of the condition of your  business, consider the recommended actions in this section as you  plan to address any improvement needs. To develop sales and profits, work with your management team or  a consultant as you consider the following actions:  • Assess how the sales and profits of your business have trended  over the past three years, using the Sales and Profit Growth  Chart in the Digital Toolkit. • Review your business model, which is a description of how  your business makes money. Analyze whether there are revenue  sources that could be developed, for example online sales, sales  of accessory items, or service agreements, and, if so, consider a  reallocation of business resources to those areas.  • Identify purchase patterns or successful marketing campaigns  you may be able to build upon or replicate. Also, identify  seasonality patterns that provide opportunity to increase  production, pricing, and sales. • Determine if you can reduce cost of sales, and therefore increase  profit margins, perhaps through bulk purchases, diversifying  suppliers, and reworking or diversifying supplier contracts,  which may also lower supply-chain risks. • Reassess pricing, increasing margins or rates on your high demand unique offerings and adjusting prices, based on  competitive research, to win either more sales or greater margin  on widely available offerings. • Look for areas in your business where you have capacity to  grow. • Identify which products or services deliver the lowest- and  highest-profit margins and decide whether you can shift sales  emphasis from one to the other. • Develop streams of recurring revenue, automatically repeating  sales or, for service businesses, service contracts. These provide  revenue predictability, lower marketing costs, and high 43 attractiveness to buyers.  In addition to strengthening revenues and profits prior to your  sale offering, be aware that buyers want to see key areas of growth  potential, and therefore revenue potential. Be ready to highlight areas  where your business is not currently at full capacity, and therefore  areas that present opportunity for the new owner to experience  business growth.  To strengthen the financial condition of your business, work with  your management team and accountant to consider the following  actions: • Optimize accounts receivable by promptly following up with  past-due invoices, creating payment plans for late-paying  customers, and introducing incentives for early payments and  penalties for late payments. • Negotiate terms for accounts payable, including early payment  discounts and/or longer payment cycles. • Reduce expenses by eliminating unnecessary purchases,  renegotiating vendor pricing where possible, or shopping for  less-expensive alternatives. • Reassess inventory needs, buying less if stocks are sufficient and  renegotiating or shopping for better or bulk pricing for future  purchases. • Consider seeking a small business line of credit to preserve cash  flow. To present necessary financial statements for the past three years,  work with your CPA to prepare the following:  • An income statement, also called a profit and loss statement. • A balance sheet, which presents the financial condition of the  business. • A seller’s discretionary earnings (SDE) statement, which recasts  the income statement into a pro forma estimate of how much  money the business generates annually for the benefit of its  owner. This is also called an adjusted cash flow statement or a 44 3: Planning Your Exit and Building Pre-Sale Business Value statement of recast earnings. It is of primary interest to a buyer.  While the income statement reflects deductions for every  allowable business expense and legitimately minimizes profits  and taxes, the SDE statement is a recast or “normalized” income  statement that adds back deductions for interest, depreciation,  taxes and amortization, one-time expenses, expenses (including  salary) that benefit the owner directly, and discretionary  expenses another owner might not choose to incur. The result  is a bottom line that reflects how much the owner earns or  benefits annually from the business.  To address unresolved issues that affect the legal condition of your  business, seek legal advice as you examine and plan to address the  following issues: • Patents that will be part of the business sale must be current,  not nearing expiration dates, and owned by the business and  not by the owner personally. • The lease for the business location must be current, assignable,  and transferable. If the location is essential to the ongoing  success of the business, it should extend at least five years  into the future, ideally with lease increases protected by rate escalation clauses. • The business must be clear of any zoning-regulation violations.  If there are pending regulations or grandfathered variances that  a sale may void, be prepared to disclose these facts rather than  have them discovered during due diligence. • Any legal claims, encumbrances, or liens against the business  should be cleared prior to the sale offering. • Pending or unresolved lawsuits must be concluded before the  sale or disclosed early in the selling process, long before due  diligence discovery. • If your business has faced or faces employee-related issues, be  prepared to disclose the problems and outline the steps taken  to preclude similar issues in the future. • If your business has had regulation or law violations, or 45 environmental or safety compliance issues, the expenses will be  yours to address. Additionally, the risk must be overcome, or  you should be prepared to assure the buyer of controls that will  avoid recurrence of the violations. • Be sure all licenses are up to date. • Be sure any necessary third-party consents to your sale will be  easily obtained. As a key step in preparing for legal due diligence, you will also  need to assemble all the documentation the buyer and buyer’s advisors  will require. Use the Business Sale Documentation Checklist in the  Digital Toolkit, along with advice from your attorney and broker, if  you are using one, as you compile the necessary information.  To strengthen the marketing of the products and services of your  business, consider the following actions: • Be prepared to present how your products and services are  decidedly better and preferred when compared to competing  options. • Be prepared to present how your products and services are  produced using a process that is difficult to copy but easy to  adopt and follow. • Review and improve product presentation and packaging  to enhance visual appeal and to reduce cost, waste and  environmental impact. • Improve and document proprietary production processes. • Consider creation of automatic purchase programs,  complementary products that provide new streams of revenue,  and bulk or repeat purchase incentives. • Study online reviews for your business and products. Especially  if existing reviews are dated or less-than sterling, cultivate new  reviews by personally inviting your best customers to share  their opinions. Provide the URLs of sites prospective buyers  will likely check, taking care not to violate review site rules by  offering payment for good reviews, inspiring negative reviews 46 3: Planning Your Exit and Building Pre-Sale Business Value of competitors, or posting reviews misrepresenting yourself. To strengthen or overcome conditions that weaken your business  location, consider the following actions: • If your business relies on its local market for customers, and if  those customers are showing declining interest in the products  or services of your business, consider product revisions  to increase appeal. Also consider product and marketing  adjustments that attract new customers from the local market,  from nearby markets, and from markets that might be served  remotely. • If your business relies on the local market for staffing and  finds employee recruitment increasingly difficult, review the  competitiveness of the salaries, benefits, and conditions your  business offers, while also considering how a remote work force  could compensate for the availability of local market employees. • If your business sector or industry faces regulatory, legal, or  growth challenges, consider how you can shift the emphasis of  your business and its offerings away from high-risk aspects and  toward undamaged niches of the industry. • If your business has not adapted to recent industry changes,  plan to make necessary adjustments to bring it into alignment  with industry standards prior to a sale offering. • If your business location attracts foot traffic, review and update  business signage, point of entry, and interior, ensuring that it is  clean and in condition to make a strong first impression. Local business groups and industry associations are resources  to tap as you make pre-sale adjustments. Showing membership in  such groups enhances business attractiveness, both by demonstrating  market and industry involvement and by creating positive connections  with those a buyer may contact while forming impressions about  your business as a purchase prospect. To make improvements to the facilities and equipment of your  business, consider the following actions: 47 • See that all equipment is in good order and ready for presentation,  not only through a facility tour but also in the form of an asset  list that itemizes furnishings and equipment either by type — such as office furniture, computers, production equipment,  and so forth –— or by the way they are used in your business.  Use the Asset Valuation Worksheet in the Digital Toolkit as  you create your list. • If equipment is owned rather than leased, confirm that it is  owned by the business and not the owner, and that titles are  free of liens or encumbrances.  • If equipment is leased, review the stipulations, length, and  transferability of contracts.  • See that all manuals, leases, service contracts and other  supporting documents are ready for presentation. To strengthen the capabilities and processes of your business,  consider the following actions:  • Define the capabilities that most contribute to the success of  your business, for example product production, sales, customer  service, and the processes involved with each. • See that business processes are detailed in process manuals. • Write or update your business plan and create a short-form  version that presents an overview of the business, its mission  statement, key products or services, its business model, and  business goals and objectives.  • Write or update your marketing plan and create a short-form  version that describes your market situation, market position,  brand statement, and strategies for products, distribution,  pricing, and advertising and promotions. To strengthen the management and staffing of your business,  consider the following actions:  • Create and train a management team that is committed to the  business, backed by solid training and transferable employment 48 3: Planning Your Exit and Building Pre-Sale Business Value contracts. This increases the likelihood that management team  members will stay with the business after the sale and contribute  to a successful ownership transition. • Create employment policies that are outlined in an employee  manual or handbook that brings together employment and  job-related information and clarifies policies. • Create an organization chart or a description of your business  organization and structure that will reinforce your plan for an  easy ownership transition. • Document your personal role and responsibilities in the  business and, if necessary, create a plan to shift responsibilities  to key managers or staff who are likely to remain with the  business after the sale. To strengthen the clientele, client relations, and client databases  of your business, consider the following actions: • Review the condition of your customer database, or create one  if necessary, and update entries so they are current at the time  of business transition. • With your attorney, review current client contracts for accuracy  and transferability. • If necessary, reduce reliance on one or a few clients by developing  a broader customer base. • If necessary, reduce the reliance of key customers on your  personal presence and interaction by developing their  relationships with and confidence in key managers or staff  members. To strengthen the brand and reputation of your business, consider  the following actions: • See that your website is well designed, well optimized for  search, quick to load, and owned not by you, personally, or by  its designer, but by the business and therefore transferable as  part of the sale.49 • If you have not done so already, secure your business name  with your state’s business filing agency, and also secure it online  as a domain name and across social media channels. • Unify your business identity across all signage, displays,  advertising and sales materials. • Review search results and create a plan for generating positive  reviews and publicity, if needed. Step 4: Key Takeaways Pre-sale business improvements accomplish two objectives: • Enhance the most valuable business strengths to achieve greatest  business attractiveness and value. • Overcome or minimize the greatest weaknesses that most  detract from business strength and attractiveness.  Pre-sale business improvements require commitment and  confidentiality: • Commit the necessary resources and assign tasks, deadlines, and  responsibilities. • Share sale intentions only as necessary and with a strong request  for confidentiality to avoid devaluing your business by creating  unnecessary staff or customer uncertainty.Step 5: Making Pre-Sale Decisions  That Impact Sale Value and Taxes Before listing your business for sale, work with your accountant  or financial advisor to weigh the impact of how the sale you are  planning will be structured and financed. Sale Structure Business sales are structured as asset sales or as entity sales. All  sales of sole proprietorships must be structured as asset sales, but  businesses that are incorporated or formed as LLCs can also be  structured as entity sales. 50 3: Planning Your Exit and Building Pre-Sale Business Value • An entity sale transfers the entire business including all its assets and all its liabilities except those specifically listed as exclusions. • An asset sale transfers only the tangible and intangible assets, except those listed as exclusions, into a new business formed by the buyer. Most buyers prefer deals structured as asset sales to avoid the transfer  of liabilities. Most sellers prefer entity sales for these reasons: • Entity sale proceeds are taxed at the capital gains rate, which is currently considerably lower than proceeds taxed as ordinary income. • In an entity sale, liabilities transfer to the buyer unless they are specifically excluded. This eliminates the seller’s risk of future responsibility for liabilities which, in an asset sale, would remain with the seller. Sale structure becomes an issue for buyer-seller negotiation and  is covered fully in Chapter 7. During exit planning, however, it is  useful to have an early understanding of the topic as you establish  sale objectives. Seller Financing All sources concur that business sale listings that offer seller  financing – requiring a good portion of the purchase price at closing  and receiving the balance, plus interest, over a specified period of  time – achieve higher asking-to-closing prices. As you consider a sale,  discuss with your financial advisors the upsides, downsides, and tax  advantages of offering seller financing. Upsides of Seller Financing • Buyers prefer seller financing - It eases their concern about your confidence in the future success of your business. - It reduces their need to seek third-party loans. - It provides more flexible payment terms than those offered51 through most bank loans. - It involves no loan origination or other fees. - It allows the buyer to pay for the purchase in part at closing  and the remainder over coming years. • Sellers benefit from seller financing: - It attracts more buyer interest and higher purchase offers. - It spreads sale income and therefore the tax impact from the  sale over a number of years. - It involves a seller-to-buyer loan that provides interest income  in addition to sale income.  Downsides of Seller Financing  • The buyer can default on payment obligations — a not uncommon  outcome. Especially if the buyer has weak business experience  and poor financial expertise, the condition of the business can  falter during the post-sale period, with loan payments being one  of the first casualties. For that reason, it is essential to secure the  loan with protections described in Chapter 7.  • Foreclosure clauses do not protect against business devaluation,  which occurs if the buyer depletes inventory and devalues  assets by the time the business lands back in the seller’s hands,  underscoring the need for conducting due diligence and  obtaining strong personal guarantees and loan security prior to  seller-financing agreements. Financial and Tax Implications • A request for an all-cash payoff at closing often results in fewer  offers and lower sale prices, and it also results in the receipt of  all sale income in a single year, likely pushing the seller into a  higher tax bracket and reducing net proceeds from the sale.52 3: Planning Your Exit and Building Pre-Sale Business Value Step 5: Key Takeaways  Pre-sale considerations have tax and value impact: Seller-financing  and the structure of a business sale can result in sale implications  worthy of early advice from an accounting or financial advisor. • Whether a sale is structured as an asset sale (the only structure  available in the sale of a sole proprietorship) or as an entity sale  becomes a point of negotiation because one structure is more  appealing to buyers and the other is more appealing and offers  tax advantages to sellers.  • Whether the seller requires an all-cash payoff at closing or offers  seller financing impacts the attractiveness of the offer, the selling  price, and when proceeds are taxed.Key Terms Asset Sale: A sale in which the seller keeps the actual, legal  business structure, called the business entity, and sells only tangible  and intangible business assets, which the buyer moves to a newly  formed business entity. An asset sale is the only approach available  to sole proprietors, who have no stock to sell. It is the preferred  sale structure of buyers, who avoid risk by buying the assets of the  business and assuming only select and specified liabilities. Entity Sale: Also called a stock sale. A sale in which the owner  of a corporation sells its stock, or the owner of an LLC sells its  membership shares, to a new owner. With the sale of stock or  membership shares, the seller transfers and the buyer assumes all  business assets and liabilities that are not specifically excluded from  the transaction. Sale Structure: The legal manner in which a business is sold, either  through an entity sale, which is also called a stock sale, or through an  asset sale. Each sale approach has tax and liability implications that  merit early counsel from your attorney and accountant. 53 BizBuySell Guide to Selling Your Business Digital Toolkit Resources Access the digital toolkit by visiting

https://www.bizbuysell.com/

seller/guide/selling-a-business/. Business Condition Assessment Worksheet Sales and Profit Growth Chart Business Sale Documentation Checklist Asset Valuation Worksheet 54 Part II Attracting Buyers  and Selling Your Business 55

BizBuySell Guide to Selling Your Business 56

4: Launching the Sale of Your Business 4 Launching the  Sale of Your Business You have arrived at a good estimate of what your business is  worth (Chapter 1). You have examined your motivations, objectives  and preferred outcomes (Chapter 2). You have assessed the current  condition of your business as a sale prospect, set your exit strategy,  and enhanced the value of your business to make it more attractive  to buyers (Chapter 3). You are ready to exit your business. It is time to launch the sale  process.  This chapter guides you through the sale-planning steps in front  of you: • Assembling your business sale team. • Compiling financial records and necessary documents. • Finalizing your sale asking price. • Preparing your business story – in summary form and in a  selling memorandum. • Creating your business-for-sale listing. • Marketing your business to potential buyers.57 BizBuySell Guide to Selling Your Business Step 1: Assembling Your  Business Sale Team Every step in this chapter is essential to business sale success, and  perhaps none is more important than your selection of professionals  who will guide and assist you through the selling process. Nearly all  sale teams include an accountant and an attorney and many also rely  on the expertise of a business broker – an experienced professional  with the skills and resources to maintain confidentiality while guiding  you through the process from sale pricing to marketing to negotiation  to closing the sale and transferring the business. It is impossible to overstate the value of experienced advisors in  a business sale. No owner, no matter how small the business or how  seemingly uncomplicated the sale deal, should sell without, at the very  least, first seeking financial and tax advice.  In addition to the necessary expertise of an accountant and an  attorney, many owners also rely on a business broker, and, depending  on unique circumstances, others also seek input from appraisers,  valuation experts, and business consultants. Deciding Which Advisors to  Include on Your Business Sale Team While you alone make the decision to sell your  business, every step after that decision benefits  from professional advice.  Which advisors you select for your team depends on the nature of  your business, your personal marketing and negotiating capabilities,  and the time you can devote to the selling effort. Business sale-team  advisors include: • CPAs or accountants, especially ones who have experience with  sales of businesses of your size and type, deliver essential advice 58 4: Launching the Sale of Your Business throughout the sale process. They provide valuable assistance  formulating preliminary valuations of the assets and goodwill  of your business, setting the sale price, preparing financial  statements, reviewing business tax filings, estimating and  mitigating tax liabilities, structuring the deal, assisting during  the buyer’s due diligence, and also conducting due diligence,  on the buyer’s financial condition and ability to complete the  purchase. They also provide essential expertise when assessing  and weighing the tax impact of buyer price negotiations and  throughout the closing process.  • An attorney provides essential advice during sale preparation,  due diligence, buyer-seller negotiations, and sale closing. Even  the smallest and least-complicated business sale should involve  the advice of an attorney experienced in selling businesses. Long  before the necessary task of drafting or reviewing the purchase  and sale agreement and other paperwork, your attorney will  assist in reviewing the condition of contracts, leases, loans,  and other legal obligations of your business, reviewing and  negotiating the buyer’s purchase offer, and providing advice  regarding legal ramifications from issues that arise during sale  negotiations. • A broker provides valuable advice and assistance while helping  to maintain necessary confidentiality through every step of the  sale process — preparation, pricing, marketing, due diligence,  negotiation and closing. The broker’s role is especially important  for business owners who have limited experience in selling,  whose buyer pool is broad and difficult to reach, and who lack  time to both run the business and sell the business without  endangering the strength of the business. • Consultants can assist in overcoming business challenges by  providing insight and experience to improve business strategy,  marketing, finances, operations, management, technology,  or other aspects of the business. They are especially valuable  when the business selling price could be significantly higher  with major business improvements beyond the expertise of the 59 BizBuySell Guide to Selling Your Business business owner and management team, and when the owner  has a generous pre-sale preparation timeframe for improving  processes, organization, marketing, sales, and use of business  resources. • An appraiser or valuation expert is necessary for a business  with difficult-to-assess intellectual property, proprietary  processes, a valuable brand, other high-value intangible assets,  or real property. (Some brokers provide appraisal assistance,  but be aware that many buyers, when considering businesses  with high-value intangible assets, consider only valuations  by credentialed appraisers. See the upcoming section titled  “Selecting an Appraiser.”) Determining Whether and How to Hire a Business Broker Businesses marketed by their owners rather than by brokers are  called “for sale by owner” or FSBO (pronounced “fizbo”), exactly as  you see in the housing real estate market.  Typically, business owners go the FSBO route if: • They cannot find a broker interested in representing the business  for sale. • They don’t want to pay the broker’s commission, also called a  success fee, which is normally a percentage of the final purchase  price and may vary depending on brokerage, deal size, and  structure. • They want to maintain complete control and feel they can  handle the process themselves. Even if you can go it alone, before opting for that route, consider the  role brokers play: • They serve as advisors with in-depth insights on valuation,  marketing, prospecting, negotiations, and other fundamental  sale elements. • They can ensure confidentially while marketing your business to  qualified buyer prospects. • Most have extensive prior business experience and understanding 60 4: Launching the Sale of Your Business of the financial, operational, and legal issues of selling and  transitioning businesses. • They facilitate and streamline the selling process, allowing the owner to focus on operating the business. Selecting Your Business Broker Although there is some crossover, and some brokers serve businesses  of all sizes, most brokers fit into two categories: • Businesses worth more than $2 million dollars are usually sold by mergers and acquisitions (M&A) specialists. • Smaller businesses typically work with main street business brokers. When seeking a qualified broker to help sell your business, search  the BizBuySell Broker Directory at

https://www.bizbuysell.com/

business-brokers/, which includes thousands of qualified professionals. When interviewing brokers, base comparisons on thefollowing factors: • Credentials & Training: - Is the broker a certified business intermediary (CBI) and member of the International Business Brokers Association (IBBA), a member of M&A Source, or a member of a state or regional broker association? - Is the broker licensed to sell businesses in your state? Many states require a real estate license. - Does the broker have other credentials or training, for example CPA, MBA, or other professional certifications? • Experience: - How long has the broker been in business? - Does the broker work full time or part time? - Does the broker work independently or as part of a broker group? - Does the broker have experience with businesses similar to yours? • Performance Record: - How many listings does the broker have annually?61 BizBuySell Guide to Selling Your Business - How many annual sales? - What is the average sale price compared to average asking price of the broker’s recent annual sales? • Marketing Strength: - How professional is the broker’s site and is it well-optimized for search engines? - How many prospective buyers are in the broker’s database? • Marketing Approach: - How would the broker price your business? - How would your listing be marketed? - How does the broker use online business-for-sale listing sites, and which ones? • Contractual Arrangements: - What is the broker’s fee? (Broker fees are typically a percentage of the purchase price or a pre-set fee; whichever is greater.) - What is the length or term of the listing agreement? For example, 6 months, 12 months, 18 months. - Does the broker charge a cancellation fee if you withdraw the listing? - Does the broker charge a trailing fee if, after the listing agreement expires, you sell the business to a buyer who was referred by the broker? • References: - Will the broker provide names and contact information so you can interview recent clients? As you interview brokers, use the form titled Broker Interview  Notes in the Digital Toolkit. It lists the questions to ask and provides  space to record broker responses. Complete one form for each broker  interview to make later comparisons easier. Access the digital toolkit by  visiting

https://www.bizbuysell.com/seller/guide/selling-a-business/

. Determining the Need for an Appraiser If the price of your business will include the value of difficult-to assess assets, plan to obtain a formal business appraisal that will hold 62 4: Launching the Sale of Your Business up under the buyer’s review during due diligence:  • If your business owns valuable intangible assets, including  such assets as trademarks, patents, copyrights, trade secrets,  proprietary processes, or a valuable brand, obtain valuation  advice from a business appraiser and preferably one with a  professional designation from a recognized trade association.  Although your accountant or broker may be able to provide  such an appraisal, especially if the assets have high value, to  avoid buyer challenges or objections during due diligence, seek  an appraiser with one of the following credentials: CBA - Certified Business Appraiser | ASA - Accredited Senior  Appraiser | CPA/ABV - Certified Public Accountant Accredited  in Business Valuations | CVA - Certified Valuation Analyst |  CBV - Chartered Business Valuator. • If your business owns valuable real property, seek assessment  advice from a real estate appraiser. Maintaining Confidentiality Customers, competitors, suppliers, employees, and creditors  will all react, and often against your interests, if they learn that your  business is for sale. Even buyer prospects often have negative reactions  if they learn a business opportunity hasn’t been kept confidential. Chapter 5 details how to protect confidentiality when dealing  with prospects. However, even before listing your business and  attracting buyer interest, work with your legal advisor to create  confidentiality agreements for use when dealing with sale advisers  and other confidants. Otherwise, you risk disturbing the confidence  of your staff, suppliers, or customers, which is the last thing you want  when you’re working to keep your business value at its highest.  The Mutual Confidentiality Agreement Sample Template  in the Digital Toolkit presents the conditions covered in most  agreements.63 BizBuySell Guide to Selling Your Business Step 1: Key Takeaways Business sale-team advisors include: • An accountant: Essential to provide financial and tax advice during  sale preparation, pricing, due diligence, negotiations, and closing. • An attorney: Essential to provide legal counsel during sale  preparation, due diligence, sale negotiations, and closure. • A broker: Important throughout the sale process, especially for  owners who have limited sales experience, whose buyer pool is broad  and difficult to reach, and who lack time to both run the business  and sell the business without endangering business strength. • Consultants: Valuable when the business selling price could be  significantly higher and when sellers have an exit time frame that  allows for significant business improvements. • An appraiser: Important when business pricing includes intellectual  property, proprietary processes, a valuable brand, other intangible  assets, or real property. Brokers and accountants can often provide  appraisal assistance but a credentialed appraiser with a professional  designation from a recognized trade association is often required to  reduce buyer challenges. • Confidentiality is essential throughout the sale process. Be prepared  to obtain confidentiality agreements from sale advisers and other  confidants.Step 2: Compiling Financial Records  and Necessary Documents During the sale process your prospective buyer – and the buyer’s  accountant, attorney and legal counsel – will not only want but will  require you to share facts about your business along with documents  supporting your claims about the strength and health of your business.  You need to be ready with: • Professionally produced financial statements, records, and  contracts.  • Facts and records that verify the condition of your business. 64 4: Launching the Sale of Your Business • Confidentiality agreements to present for signature before  divulging facts about your business. • Business sale agreements and contracts. CAUTION: Be sure financial statements are produced in  accordance with generally accepted accounting principles (GAAP)  and that all documents accurately represent the conditions of your  business. Work with your financial and legal advisors in advance to  make necessary pre-sale adjustments to avoid discrepancies that could  be discovered during sale negotiations or due diligence, when they are  most apt to upset the deal and most likely to cause price renegotiations  and cost you more in legal and accounting fees. Financial Condition Documentation A buyer will require a full set of professionally produced financial  documents that present the financial condition and financial trends  of your business for the current and past several years, along with  backup records that support your financial statements. Work with  your accountant as you prepare to present the following: • Financial statements for the year to date and the past two to  three years, including income statements, balance sheets and  cash flow statements. If your business owns assets that you  want to exclude from the sale, for instance your automobile,  seek advice from your accountant regarding the possible need  to restate your balance sheet prior to the sale, at which time you  will probably also remove any cash or investment accounts from  the balance sheet, as those won’t be part of the sale. • Seller’s discretionary earnings (SDE) statements for the past  two to three years. Also called an adjusted cash flow statement,  the SDE statement recasts the income statement to provide a pro  forma estimate of how much the business generates annually for  the benefit of its owner. Use the SDE Calculation Worksheet  in the Digital Toolkit and work with your accountant as you  prepare to present this information. • Three-year financial trends, which can be presented in an at a-glance chart using the Sales and Profit Growth Chart in the 65 BizBuySell Guide to Selling Your Business Digital Toolkit. • Financial documentation including accounts payable and  accounts receivable aging reports, and the current ratio, also  called the liquidity ratio, of your business. Depending on the  nature of your business, you may also need to present your  inventory turnover rate, which is an indicator of efficiency in  manufacturing, distribution, and retail businesses. • Back-up records that support the accuracy of your financial  records, including bank statements and Corporate or Schedule  C tax returns. Business Condition Documentation You’ll need to assemble the preceding list of financial condition  documentation before even listing your business, so that you’ll be  ready to meet with prospective buyers.  Later, as your sale proceeds to the due diligence and closing  phases, you’ll also need the following documentation. Although you  can gather it later, be aware of what’s required and begin to assemble  the information early-on, so it’s ready when you’ll need it. • Business formation documents, licenses, registrations, and  certifications. • Partnership or investor agreements, if any.  • Business licenses, certifications, and registrations. • Professional certifications. • Intellectual property ownership and valuation documents. • Inventory list with value details. • Listings of tangible assets, valuations, and depreciation schedules. • Building and equipment leases and maintenance agreements. • Contracts for major clients and for suppliers and distributors. • Insurance policies. • Information on outstanding loans and liens. • Information on business operations including client lists, staffing  lists, product and services lists with pricing, organization chart,  employment policy manual, business plan, marketing plan, and  procedures manual.66 4: Launching the Sale of Your Business Legal Documents Required During the Sale Process Be prepared with the legal documents you will need during the sale  process, including the following: • A non-disclosure confidentiality agreement (NDA), which sale  confidants and prospective buyers will be required to sign before  you divulge information about your business and its sale.  • A note for seller financing, which will be required if you plan  to accept a portion of the business sale price over time and with  interest, a condition that enhances most sale offerings and leads  to higher asking-to-closing prices. • A blank personal financial statement, which the buyer will be  required to complete to allow verification of financial capability  to make the business purchase. • An offer-to-purchase agreement, which itemizes the price,  assets, terms, and conditions involved in the upcoming sale and  clarifies the rights, obligations and responsibilities of the buyer  and the seller. Detailed in Chapter 7, in all but the simplest sales  this agreement will be developed with advice from your broker  or written by your attorney or the buyer’s attorney. CAUTION: Take this document-compilation step seriously.  The initial description of your business that you present in early ads  and communications will attract buyer queries, and your personal  assurances and explanation will further interest. But it is highly  unlikely you will develop purchase intention until you share hard copy documents presenting provable facts, figures, and financial and  operational facts about your business. Be ready when the need arises  – and it will! As you assemble, review, and finalize the records and materials  you will need to present during the sale process, use the form titled  Business Sale Documentation Checklist in the Digital Toolkit.  It lists documentation requirements with space for you to indicate  whether the document is ready for presentation, whether it needs to  be created, or whether it needs to be revised, either to bring it up to  date or up to professional presentation standards.67 BizBuySell Guide to Selling Your Business Step 2: Key Takeaways Necessary financial records and business documents include: • Professionally produced financial statements, records, and  contracts.  • Facts and records that verify business condition. • Confidentiality agreements. • Business sale agreements and contracts. Financial statements should be produced in accordance with generally  accepted accounting principles (GAAP) and all documents must  accurately represent the conditions of your business.Step 3: Finalizing Your Asking Price Chapter 1 helped you answer the question on the mind of all  business owners as they begin to think about a business sale: What’s  my business worth? It helped you arrive at an early estimate of the  value of your business and guided you toward improvements that  could maximize its attractiveness and worth. Now, with your business prepared for a sale, it is time to answer  the question on every buyer’s mind as they think about a business  purchase: What is the purchase price? Doing the Math The number you arrived at as an early valuation estimate will  almost certainly differ from the price you set for your business  sale, which will be based on your final, accountant-verified annual  earnings, the conditions of your business and the terms of your sale  offering, and expert input from your sale advisors.  Based on widely accepted valuation approaches (detailed in  Chapter 1), pricing your business will likely involve a formula that  multiplies seller’s discretionary earnings (SDE) by a number between  1 and 5, using this formula: 68 4: Launching the Sale of Your Business Current Annual Earnings called seller’s discretionary earnings (SDE) or adjusted cash flow x Multiple of Earnings  usually a number between 1 and 5  that is based on comparable market research and condition of business strength and attractiveness  adjusted to account for business weaknesses or risks  and further adjusted based on attractiveness of sale terms = The Starting Point for Pricing Your Business The price you arrive at through this multiple-of-earnings  calculation will almost certainly be adjusted with input from your  business sale advisors.  Once finalized, it will establish the asking price for the tangible and  intangible assets of your business – probably not including such assets  as cash, accounts payable minus accounts receivable, non-operating  assets such as your car, or real estate owned by the business. When  structuring the sale, covered in Chapter 6, you will either exclude  those assets from the offering or sell them separately. Making Price Adjustments To finalize the price of your business, work with your sale advisors to  consider the following adjustments: • Have you accurately judged the attractiveness of your business,  and therefore its earnings multiple?  • Will you be providing seller financing by accepting a portion of  the business sale price over time and with interest – a condition  that supports a higher price and in most sales leads to a higher  asking-to-selling price ratio? • Is your price in line with prices of comparable business sales?  Go to

bizbuysell.com

to access the Valuation Report. It provides  recent listing and sale data that will help you benchmark the  prices and earnings multiples of for-sale and recently sold  businesses similar to yours in terms of industry, location, and 69 BizBuySell Guide to Selling Your Business financial performance. The findings will help you compare the  prices of comparable businesses, keeping in mind that asking  prices and selling prices nearly always differ. (See the Chapter  1 section titled “Market Approach to Valuation” for more  information.) • How much will the asking price be adjusted to account for price negotiations? Most buyers negotiate the asking price and for that reason, most businesses are offered at prices up to 20 percent, though more often 10-15 percent, higher than the price the seller expects to achieve. The aim is to state a price that accommodates the anticipated asking-to-selling price variance without stating a number so high that it reduces buyer interest and inquiries. • Will the final price be adjusted to include the price of business owned real estate, if any? Real estate is typically valued and sold separately and not included in the initial business sale price. As you calculate your selling price, use forms titled Earnings  Multiple Assessment Worksheet and Seller’s Discretionary  Earnings (SDE) Calculation Worksheet in the Digital Toolkit.  Both are described in Chapter 1 and each includes in-form instructions  for entering your business information. The forms calculate results  automatically. Step 3: Key Takeaways Business pricing steps involve: • A pricing calculation that multiplies seller’s discretionary earnings (SDE) by an earnings multiple, usually between 1 and 5, that accurately reflects business strength and attractiveness. Pricing adjustments to account for: • The positive pricing effect of favorable sale terms. • Comparable-sales valuation research. • Anticipated downward price negotiations that contribute to higher asking prices. • The value of real estate and excess inventory or working capital that is being purchased by the buyer.70