Secrets on How to Sell Your Business At the Highest Price
When a business owners whats to sell their business, they obviously want to sell their business at the highest price. In this video we share the secrets con how to sell your business at the highest possible price. There are many factors that you need to consider when selling a business. In this video you will learn the importance, of market knowledge, timing, buyer sentiment and many other factors you need to know in order to sell your business at the highest price.
You can call Mr. Airam Diaz at 407-724-6530 to start the process of selling our buying a business.
This video is intended for education purposes and should not be taken as legal, financial or tax advice. You should consult with a professional about your unique situation before acting on anything discussed in these videos. Freedomtax Accounting and Multiservices Inc., Freedom Insurance Financial Inc., Freedom Realty Source Inc., and Freedom Immigration International Inc. are providing educational content to help small business owners and individuals become more aware of certain issues and topics, but we cannot give blanket advice to a broad audience. Freedomtax Accounting and Multiservices Inc., Freedom Insurance Financial Inc., Freedom Realty Source Inc., and Freedom Immigration International Inc. or its members cannot be held liable for any use or misuse of this content.
Carlos H: If you are a business owner, there is a time in the life of every business that you want to sell your business and obviously you want to sell it at the highest price. But that’s not always that easy, but there are many things that you can do to make sure that you sell your business at the highest price, and that’s what we’re going to talk about in this video.
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If you’re a business owner, there’s a time that comes by that you say “You know what? I’m going to sell my business”, and obviously you want to sell it at the highest price. And there are things that you can do to make sure that you sell your business at the highest price, and for that we’re going to bring in my coworker Mr. Airam Díaz, how are you Airam?
Airam Díaz: Good! How are you?
Carlos H: Airam is our business broker here at Freedom Group. So, Airam as we all know when a lot of our clients either they want to buy a business or they want to sell a business, that’s your specialty and obviously if we get a client that wants to sell their business, they always tell you “I want to get as much as possible”. What do you tell them at that point?
Airam Díaz: First, we have to value the company, that’s one; and maybe the second question is, most of the time “How much is my company really worth?”. It’s not as easy as it is to appraise a house, there’s a lot more data with Zillow’s and Griffin and the MLS, and there’s a lot more data where people could more or less come close to the price of a house. But in a business, there’s so many moving parts that it’s really difficult to assess a real valuation and separate fantasy from reality as far as “how much this business is really worth?”
We understand why; some of these businesses people have been working on these businesses for 10, 20, 30, 40 years, they are emotionally involved in every aspect of the business. If it’s a family business and it’s coming from a second, third, or fourth generation, then sometimes it makes it even more difficult; so, that is the number one. The second question is “How much is my business worth and how can I get the most of it?”. In some cases, once again, they are really far away from reality, because of what we’re going to talk about today, there are many steps, I will say that close to 52 areas where we can improve a business, but depends on the complexity of the business, some businesses are a lot easier than others, because there are businesses that are very simple, they provide a service, they are not public companies, it’s not a big corporation, etcetera. But in some cases, at least you should know these 5 most important steps that every business, whether small, medium or large, should take that business to the highest most potential as far as value, and the valuation to reach what the business owner wants.
Carlos H: And we see that we have a presentation ready; do you want me to go into it now?
Airam Díaz: Yes sir.
Carlos H: Okay, so here we go
Airam Díaz: The real estate secret of maximizing and protecting your investment. A business for a lot of people is everything when it comes to their financial health, and the sale of that business and the health of that business is probably one of the biggest investments in most business owners, together with their property and the real estate.
We could go next, this is an organization chart of an army of experts that we bring to the table and when we bring this army to bear on a transaction, you are getting the best advice possible that money can buy; I haven’t seen a combination like this. I’ve seen other companies and of course there’s a lot of good business brokers, but combined with an accounting firm, I haven’t seen it yet. And when you see the transactions that all our advisors, there could be nearly 50.000 transactions between our legal team and between the business brokers and the business advisors; there are about 220 years of experience combined.
We could go next, where are we getting all this information? I took a few courses on alternative investment from Harvard, and what is called smart money, that’s what we’re trying to put together for our sellers. If we make your business so desirable that even a venture capital or private equity or a savvy investor would invest and buy your business, then we’re doing good for you, because not only through our database in the accounting firm and all the hundreds of clients we have, we have represented many buyers and we know exactly what they’re looking for. So, we took and we wrote in this book, what are the requests from buyers.
In their Harvard course it teaches you what a good real estate fund is, what a good private equity fund is, what good investors are looking for, what is a company that is financially healthy, and we brought all those advice or strategies on this eBook, we’re going to make it as a guide, as a workbook, that way you could really sit down and understand how you could take your business to value the most possible valuation for that business.
Buyers determine most of the time, buyers will determine how much they are going to pay for your business, so the more you understand where they’re coming from, the better of you will be and the better position you will be to get the most from your business.
Time to grow or sell? That is a good question, in some cases it depends on your reason why you have to sell and if you have to sell as an emergency, a fire sale, if there are health reasons, in case of marriages, if the husband passed away and has no heirs, or the wife doesn’t know anything about the business, then it gets a little bit more difficult; but if you have time to grow your business, we have advice to many of our clients that the timing is not correct, especially if from 1 to 10, you find yourself at a 1, or at 2, meaning you are 80% away from maximizing value and you are 80 or 90% away from the highest valuation for your business.
Now, the business cycle determines a lot about a business. On a recession, houses go down, businesses go down, because businesses 50 or 60% of the value of the business is how much money they’re making, so of course if the economy is going through a recession; the business will not be making as much money as the business would be making in times of expansion.
Now, it’s really important to understand how much a business cycle could affect the price of your business, because if we are 10, 11, 12, 13 months away from a recession, maybe you should consider selling now at the peak, especially when we explain you how beneficials are low interest rates and some other factors; but when it comes to selling high, you want to make sure that you sell at the right time. If the same business or if by the time you make the decision to sell, or if by the time the emergency shows up, we are not at the peak of the cycle but we are on a recession, then we might advise, you of course it depends on the details, but one of the advice will be “you’ll be better off waiting six months a year, let’s see how the recession when would end; and let’s structure the business for the next six month or the next year, so when the recession ends and the expansion begins and the recovery begins, then you could sell your business for the most money”. Those are the opportunities, the hidden opportunities and common mistakes that people make, especially if your business broker has no idea about economic cycles and they don’t understand the local economy, the economy at a national level and at a global level; depending on your company, it could be affected by a global recession or by a global expansion or demand outside the United States.
Business value: fantasy or reality; we talked about this a little bit at the beginning. Many business owners since they don’t have a clear number and they don’t really know how much their business is worth, most of the time they value their business way higher than what the market is willing to pay; we obviously could do an appraisal in your business, if your business is simple we could get it done in two, three, four days; if your business is a little bit more complex, then it’ll take us a week or two, but we could give you an appraisal, although we’re representing you and we want to sell your business for the highest price at the highest violation possible, but valuation will not get there if most of the time the business doesn’t meet all the requirements that we’re going to talk about, and if it’s not positioned the right way.
The second point, we have the internet’s impact on the sale. Interest rates are crucial, maybe the second or third most important aspect of selling a business, especially if the sale of the business will be financed or part of that sale will be financed. Having a low interest rate would allow the buyer to give you a higher offer. You could buy a business and the difference between 3 or 4% and 6, 7 or 8% it’s incredible; when it comes to finance, the monthly payments to satisfy the loan to buy the business will be a lot more if the interest rate is high, therefore it will give a lot more value to your business if you sell when the interest rates are low like they are right now, we are at a historic low in about 40 – 50 years.
Next step is preparing and presenting financial statements. This is crucial and I believe this is why the alliance with the Freedom Group and FreedomTax Accounting Services is so special and it’s second to none, because we could give you advice and we could help you structure your business and your financial statements in a way where your company look strong, where your company looks healthy, and that is what buyers are looking for. In some cases, this is an endeavor that will take a few months, sometimes a year, it depends on what changes are necessary and how far away is the business owner or the business itself, from all these things that we’re going to talk about. In some cases, it’s only one or two changes it’s pretty easy, in some other cases it’s a little bit more complicated and it takes longer, but it’s worth it. If you could sell your business for half a million dollars instead of $300.000, then it is worth it to wait to structure the business and to get your financials in order to sell for half a million; $200.000 different, in some cases we’ve seen more, in some cases less, but at the end of the day waiting six months or a year for you to sell your business for the highest value, it’s worth it.
Insightful buyers vs inexperienced sellers. We see this all the time. Let me give you an advice right now and don’t forget it, “Never sell or never answer an unsolicited offer”. If you’re not selling your business, most buyers will give you an offer that is very aggressive, that is totally on their favor, because they have been thinking of buying your business and you have not been thinking of selling your business, or you don’t have a team of advisors that will help you navigate the sale of your business and get your business ready, positioned the right way for you to sell and get the most money.
And the last on this page is timing. Timing is everything for what I just told you. Interest rate, the cycle, the business cycle, the expansion of the city or the region, the services you’re providing, if you are providing a product or a service on an industry that is dying, you’ll be better off waiting, fixing the problem and growing your company; but if the industry is dying and your product and your services are dying faster than your ability to restructure your company and get everything else in order, then we should be more aggressive to sell your business, because next year your product and your services will be more obsolete that they are today, and we see that all the time.
Empathy for the buyer is really Important. A lot of times, not all the time but sometimes, especially when the business owner is not a sophisticated executive and when they have not been educated the right way, I will say that they have very little empathy for the buyer in some cases; the buyer coming in to buy this business it’s making obviously a huge and a really big decision so the easier you make the terms, not the price, if your goal is to reach the highest valuation for your business, then we should stay focused on that; but we should try to be flexible and have empathy for the buyer, because the easier we make it for the buyer the higher valuation we can sell your business.
Clearly you need to present your history and explain the potential of the company and that’s where we can help you, because we could make your company look exceptional, and then obviously we’re going to enhance in what is strong about your company, and we will have to either mitigate or try to hide what is weak from your company, but we’re not going to hide it in a way where we’re going to totally lie about it; what we’re going to do is we’re going to fix it and show that as an opportunity for the buyers to fix its growth and increase revenue for your business.
There are 12 steps that we have put together, they are the essential steps of selling and that will help you to avoid many mistakes. We see it all the time, and sometimes either you lose a good buyer or you destroy a transaction for not really understanding what the process is.
Next, how to reply to a potential buyer’s offer? Well, obviously if you have professional help, you should send them to your broker, because at that point we will find out exactly who the buyer is, we will qualify the buyer etcetera, and if it’s credit worthy, and if the person has the funds to purchase your company, then we will engage obviously on your behalf. The first time you buy a business it’s more difficult than when you have done it 2, 3 or 4 times, so the experience of the buyer it’s also important when you sell a business. If we have two identical offers for the same price, and buyer A is the first time buying a business, buyer B is an experienced executive, an experienced operator with clear goals, that have purchased many businesses in the past, that is a better client, because the transaction will be smooth, it will be able to negotiate at a more sophisticated level and that is what you want.
Next point is how to answer the famous question: “Why do you want to sell your business?” and this is key. In presidential politics they ask people “why do you believe you should be the president?” and that answer if it’s not done right, it has destroyed candidates from becoming president, in some cases they never came back and they lose the race and somebody else becomes president because they were not ready for the answer and they were not ready for the question. Same thing when you sell a business, if you have a story that doesn’t convince the buyer, then there’s some red flags and the business will lose whatever it was that was attractive to the buyer; we’ve seen it over and over. So, we got to have a real question and answer for that question that will really solidify and will make the buyer comfortable with buying your business.
From the buyer’s prospect, who defines a ready-to-buy business? And that is a question that we see a lot. Like I said before, it gives us an edge to help sellers when we have represented so many buyers and when we understand, as I said at the beginning, what it is that smart money is looking for. When a private equity fund takes over a business or a buyout, or a company goes to an acquisition spree, what are they looking for? and that is what we bring to the table. The idea here will be that if we tell you exactly what buyers are looking for, and the people within the market that are looking for a business like yours, what is it that they’re willing to pay for? What is it that they’re really after? What would they pay more for? And what will they pay less? You need to know that because at some point if we position the business the right way, the buyer will give you the highest offer, and you will make more money when you sell your business.
How to increase your business’s value before selling it? This is key and we see a lot of entrepreneurs and a lot of business owners that are not ready for this point. The increase of a business value, sometimes it’s not something that you could do overnight, it takes planning, it takes preparation, and it is necessary that you educate yourself, and if you don’t want to do it yourself, you should then hire a group of advisors that could help you work on each and every single of these areas for you to make your business worth, like we said before, the most possible amount. You need to start getting ready for an exit strategy; we see business owners all the time and they never had an exit strategy; it is not like that when smart money purchases or invests in a business, even before they go in they have a strategy and a very clear exit plan. When you don’t have an exit plan or when you don’t have buyers lined up, and when you don’t have a goal, then you are all over the place and you have no direction. In businesses, just like every other area in life you need direction, you need some clear goals, some clear outcomes in order for you to take your business to that level, to the highest level.
Next, now how to determine the correct worth for your business according to the market? Each industry is different and each industry has a multiple, an average multiple. Cities, states, tax, laws, tax implications, interest rate, business cycle, all of that will take part on a business valuation and on the appraisal of a business. It is different, we will have to go and see exactly what business are you selling and go into the details, the devil is in the details, and we’ll have to take a look at your business case by case, but the market is very, very, very good right now. This is the time, if we talk just about two of the biggest if we could call it segments or requirements interest rate, and we are at the peak of an expansion; it might last another year, two maybe, but this is the time to sell because we are at the highest level and the economy is growing fast and money is cheap interest rate are low, the demand is overwhelming, it’s definitely overwhelming supply that’s why prices continue to go up; and we see it not only in houses but we see it in cars, we see it in in most businesses and services.
How do you get the best buyer for a specific business? Good question and that’s another thing where we are better than most people. There are about 80 million baby boomers, it’s probably the largest or the second largest generation block in the United States, about 13 to 14 million of them own businesses, and they’re going to be selling those businesses; and about 65 million are retiring, 10.000 a day are turning 70 years old, and now after working 40, 50, 60 years, they have enough equity in their house, they have enough expertise to start their own business. When you have a buyer that understand your business or when you have a buyer that is willing to pay more for your business, especially in this cycle where we are now, we see that the perfect buyer for your business is one that either one understands the business and knows and has a clear vision on how to grow your business. So that is very important, because if you attract or if you are in negotiations with somebody that doesn’t really understand the business, most of the time you have a low offer when it comes to price, and they need a lot more help so they’re going to demand that you stay in the business, or the transition from the seller to the buyer will take longer due to the fact that the buyer is not an expert on that business, on that service, on that product, or on that industry for that matter.
Survey the possibility to sell your business to employees or to the market in general. That goes back to the previous point, if you have an employee that really understand the business the ins and outs of the business, and for the past 10, 15, 20 years this employee has been thinking on how to grow the business and they love the business as much as you do, of course, in many cases that employee is willing to pay a little bit more than the market, especially if the employee knows exactly what changes needs to be made, and if they have a clear goal and a strategy to take the business to the next level and increase revenues and increase profit, in this case net profits next.
How to drive and negotiate the different aspects of your business sale? That’s another area where we are superior second to none to other companies. If a business has real estate, we should appraise the real estate separately and see what is worth more, the business as a business? Is the business losing money or is the business making money? Is this business in an industry that is dying? Is your product or your services becoming obsolete? Those are questions that we need to have an answer to, an honest answer, because depending on the product, the service and the industry, sometimes you will make more money just selling the real estate or adding the real estate to the business as a package. In some other cases, that is not the case, in some other cases the business owner will keep the real estate, will sell the business, and either lease back or rent the property to the new owner. In some other cases, if the business is losing money and it has a lot of inventory and really good equipment, then it’ll be better for you to sell the business in different parts, to sell the inventory and to sell it as an asset sale, to sell the assets of the company whether is a really powerful rental agreement on a really good location, or the real estate, or machinery, or inventory, or a patent, or a service etc.
Different forms of payment, equivalent or better than cash. That depends on your goals, if you need cash then obviously there’s nothing better than cash, but some business owners what they’re looking for is flexibility, time off, so they might be looking for a partner, they might be looking to sell 20, 30, 40, 50% of the company only; in some other cases they are willing to stay at the company for the transition period and for a little bit longer because they don’t want to retire, they don’t want to have the responsibilities of running the day-to-day operation where they are in charge of every single major decision and the stress that being at the at the top of the organization it does bring stress, so if they sell and they catch out some of their money, especially at this time where they could get the most for their business, a lot of them will not mind to stay and do a different arrangements either financing part of the business or entering it into a different deal where if the buyer… and we’re going through that right now with Infinity Sign, a business that we have for sale, it’s a commercial sign company, the valuation for this company is 2 million dollars, when we first started working with our client about a year and a half ago the appraisal came to $690.000 dollars, so we are about 1.3 million dollar higher than a year and a half ago. Now, obviously not only that the business is worth more, we have a private equity firm from Latin America trying to purchase the business and expand the business, Infinity Sign works 98% of its business is done within central Florida, even though they have a 45.000 square foot warehouse, and they have about $850.000 dollars worth of machinery, they do not serve in bigger cities than Orlando and the Orlando greater area. Now that they have the headquarters here in central Florida, the idea for this new company coming in will be to create satellite offices in a sales team, that we are helping them develop in a sales strategy, so we could serve Miami, Tampa, Fort Lauderdale, obviously if we are saving 3 or 4 or 5 cities as big, in the case of Miami, Tampa, Fort Lauderdale are bigger than Orlando, then of course the revenues of the company will grow; we’re not engaging in a really expensive expansion, we’re not buying new machinery, we’re not investing in a new warehouse, we’re not buying a million dollars worth of machinery, we’re just going to develop a sales team with satellite offices that will serve different markets in bigger cities.
Now if the strategy succeeds, this business could be worth 10 to 12 million dollars in the next 5 – 6 years, obviously if I sell my business for 2 million it’s extremely attractive for our clients, the seller, to sell the business for 1.5 million and finance the other half a million and either at a high interest rate, or to keep some equity of the new company coming in, meaning the present owner, our client, will keep 10 to 20%, we are negotiating those terms, from the new company; but let’s say that he is only able to keep 10% ownership on his business, but the business does grow not to 12 million valuation, let’s say that they only reach 70% of the target and they take infinity sign from a 2 million dollars company to a 8 million dollars company, well 10% ownership will give an extra $800.000 dollars to our seller; if the valuation does go all the way up to 10 million, then 10% will be another million dollars; so he will almost get what he won right now, and a chance and a piece of the promise of a very aggressive expansion with a group that we are evaluating, and we know the company and the operation they run in Latin America these people have done it before, they have the capital and the expertise, so I believe that our seller is looking at this transaction and I believe we’re going to get it done. So, we could help you structure something like that. If the offer is good enough, and you have time, and you feel comfortable with the buyer, then sometimes it’s good to finance part of the business or to keep part of the business so you redeem or you have an exit strategy 5 – 6 years from now but on a company that will be much bigger.
Maximizing the impact of taxes when you decide to sell your business. Once again, that’s another area where we are positioned, we have a very unique position a very strong position, because one of our sister companies FreedomTax Accounting services is one of the best tax accounting companies in the state of Florida, and we work together with them all the time on the strategy to minimize the tax burden; if we, do it right you could end up paying thousands of dollars less in taxes. I tell you another real case that we’re working on right now, there are going to be most likely some changes on the tax laws and I’m not a tax expert, I’m the business broker co-founder and president of Freedom Realty and all the divisions within the freedom realty, which is Freedom Business Brokers, Freedom Realty, Freedom Construction and Maintenance, and the tax experts all the time we need them they are available. Now, in some cases and we are seeing it right now, I have a client that will make more money if he sells the business this year, that if the new law takes place and he sells the business next year; instead of 1.8 million he sells the business for 2.2 or 2.3 million, because he will get more benefit if he sells; now that’s a big incentive, if you can sell your business now and still make more money that you would, even if you sell it for more, just because the tax change or the tax laws are changing, of course that’s something that it will save you thousands of dollars, and that’s what we have the accounting firm working together with us and in advising all these transactions into getting you ready, so when the time comes they could give you what’s best for you, whether it is to rush the sale and to be aggressive or to hang on and structure a few things and sale later. Sometimes we see it, and Carlos you can talk about this even more than I can, in some cases the changes are pretty simple, one, two, or three changes and it makes a big difference.
Carlos H: Yeah, that’s true! Every year there are some tax changes, tax laws change all the time, and I think that’s part of the success that we have had in helping our clients sell their business, is what you mentioned. It’s very hard to find a business brokerage that has such synergy with an accounting and a tax firm that has been serving in this area now for over 20 years, and you gave a lot of good information, Airam.
As we always tell our clients that want to sell a business, out of everything that you need to know, two things are the most important; give yourself time to prepare to sell your business, because you just can’t say “I want to sell my business in three months” even though if that’s your plan, you may sell it, but you won’t get the highest price for it, so we always advise our clients give yourself enough time and that may be easily 18 months, because there’s a lot of things that we need to do. And the second most important thing is, not only to give yourself that time, but work with an advisor during that time, and work with the correct advisors; it’s not the same thing to work with one business broker than to work with a team that’s behind you, that they not only help you with the real estate, with the evaluation, with the accounting, with the financials, tax planning, all that, that’s why you need to give yourself time and I think that’s what we bring to the table as the Freedom Group for anyone buying or selling a business.
Airam Díaz: Especially when it comes to buyers. Through Freedom immigration we have many clients applying for an investor visa, in most cases they have to invest, that’s why the nature of the investment visa is for, in some cases it takes you all the way to citizenship and some other cases it doesn’t, but if you have buyers in the need to invest, obviously that’s a better buyer than a person who’s looking for a good deal and is going to lowball your company and is going to give a very aggressive offer on their behalf; that also takes time for you to prepare and make your company look so attractive and we start looking for the right buyer, and start sending promotion materials, and get into conversation back and forward, it takes time; even if from 1 to 10 you have, we don’t see it often unless they are our clients, but from 1 to 10 even if when it comes to your corporate structure, let’s say that you are a 9, the presentation itself takes time, and in some cases the business is making money, the management team is in place but the taxes will hurt you, because you are moving money the wrong way or because you did structure the company not in the best way for your product or your services, or for your goals and what you want to do. So, you are correct, the right experts and the right advice in time will make a big difference. Another thing is that some changes, if you make them too fast could be illegal, some changes need time for you to be able to pay off bills, and transfer money, and credit another company for that expense or for that income and so on. All of that, like you said, it takes time and it takes the right advisors to help you navigate the strategy.
Carlos H: Perfect. So Airam, you have shared awesome information with our audience. So, if there is someone out there that wants to sell their business with our help, where can they contact you?
Airam Díaz: 407-724-6530. If they want a copy of the eBook and the workbook, we are translating into Spanish and English, and it’ll be a good guide, of course some things are easy, some things are a little bit more difficult, so you should just give us a call and request the eBook and go from there.
Carlos H: Perfect! I’m also going to put the link to our websites in the description of this video. Airam, thank you for your knowledge, it has been awesome, very good.
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