Typically, surgeons don’t perform their own surgeries, and lawyers don’t represent themselves in legal issues. Therefore, it makes perfect sense for business owners to seek the help of a professional when looking to sell their business.
Business Broker Sal Acosta believes having qualified professionals uncovering and addressing every detail of a sale is far more advantageous than trying to handle the complexities yourself. For one reason, Acosta says a broker can bring objectivity to the transaction. In contrast, do-it-yourself sellers might harbor more emotional ties that end up getting in the way of good business.
Acosta, educated as an engineer and possessing an MBA, has vast business experience. He found brokering as his niche when advancement in his current placement meant moving overseas. Not wanting to leave the US, Acosta began to think about his specialty areas, so he could branch out and go his own way. He landed on brokering. Specializing in small businesses that typically get less attention than larger corporations, Acosta has become a leading name in the industry.
With 30 years of experience in business and most of those focusing specifically on helping people sell their business or acquire a new one, Acosta offers some sound advance for anyone looking to sell.
Start early
Acosta says the process of selling your business can take anywhere from six to twelve months. Most people are past the point of wanting ‘out’ when they begin the process. Having an exit date and a plan is essential for a smooth transition, and a broker can assist with the details. It’s never too early to consult your broker and get help designing your exit.
Reverse due diligence
Acosta also recommends a process he calls reverse due diligence. This term means putting yourself in the buyer’s shoes and making a list of all of the information you would want to know. Then make sure all of your paperwork and documents are in order to address these potential questions and concerns from the buyer.
Acosta says it is imperative to look deeply into the process and correct all issues before the buyer comes to the table. Too often, failure to plan makes the buyer feel uneasy and can leave the seller with no sale.
What to prepare
Acosta suggests assembling three years of financial statements before ever meeting with the potential buyer. These documents should include the following:
Balance sheet
Year-to-date records of quarterly taxes paid
Lease information and financials
Bank statements showing profitability
Pictures of the business, inside and out
What will a broker’s services cost
Acosta says different brokers charge in different ways. Some prefer a flat percentage of the sale, with 10 percent being somewhat standard. Some others have an upfront fee and then charge a success fee (usually a percentage) after the sale. Acosta says he has a hybrid method that taps into both of these usual methods. He charges a low monthly retainer and then a 7 percent success fee at the end.
More details
So, how does a business owner know when it’s time to sell? Acosta says each person and business will have specific details that motivate a sale; however, there are some common categories such as divorce and retirement. And he states that other causes might be the owner or a loved one becomes incapacitated, or it becomes necessary to move away from the area, and the business is not mobile.
Whatever the reason, Acosta says all sellers want to make money and get the best deal. A rule of thumb for sellers should be receiving 3X the available discretionary earnings or actual cash in the seller’s pocket after expenses.
New tax laws
Business owners definitely have their eye on potential new tax laws that will most likely be put into place next year—specifically, President Biden’s plans for the capital gains tax. If his plans pass, business owners who sell could see up to 50 percent of the sale going directly to the federal government.
Acosta warns that business owners entertaining the idea of selling need to get started now to avoid this loss since selling a business can take from six to twelve months.
For more information and good business buying and selling tips, get your hands on a copy of Sal Acosta’s book Secrets to Buying or Selling a Business, available on Amazon.com. Or, check out Sal Acosta on LinkedIn.