Understanding the Tax Implications When You Sell Your Business
Building a successful business takes hard work, and you want to get the maximum benefit when you’re ready to sell. Understanding the tax implications of a business sale can help you do that.
You can get hit by a few taxes depending on the type of sale, the ownership structure of your business, and your financial circumstances. However, the capital gains tax is the primary tax of concern.
How a Capital Gains Tax Impacts Selling Your Business
When you sell an asset, you pay a capital gains tax on the profit of the sale. A business is no different. When you sell your business, you may have to pay capital gains taxes if you show a profit from the difference between the sale price and the basis, or what you paid to acquire and improve your company.
Your capital gain could be huge, so the consideration you give to taxes can significantly impact how much money you walk away with. If you have owned your business for less than a year and sell, the short-term capital gain is taxed as regular income. A business owned longer than a year and sold is taxed as a long-term capital gain with tax rates of 0 percent, 15 percent, and 20 percent, depending on your income and filing status.
If your basis was $100,000 to start your business and you owned it for five years, a sale for $5 million would give you a capital gain of $4.9 million. At a capital gains tax rate of 20 percent, you would pocket $3.92 million.
Depending on where you live, you might also have to pay a state income tax. Business brokers can pull together a team of professionals, including a tax accountant, to build tax strategies to help you mitigate taxes from selling your business.
The Structure of Your Business Matters
The business structure you have impacts how taxes are paid. Your business might have one of the following structures:
Limited Liability Company (LLC)
Partnership
S Corporation
C Corporation
Taxes are a pass-through for the owners of LLCs, partnerships, and S corporations. That means you pay the taxes from the sale of a business. However, taxes on the sale of a C corporation get more complicated.
The Type of Sale
Selling your business can happen in two ways: an asset sale or a stock sale. As an LLC, partnership, or S corporation, you typically will not incur additional taxes on the sale of assets. However, when selling assets as a C corporation, you could be taxed twice — at the corporate and shareholder levels.
You can avoid that by selling the stock of the company. However, most buyers prefer to buy assets because they can deduct the cost of buying your company.
Tax Considerations Before You Sell Your Business
The terms of your deal can also determine the taxes you pay.
Cash at Closing: You receive cash at closing
Earn Out: The buyer pays some cash at closing, but the rest over time
Equity Rollover: You receive cash for some stock, but hold on to some
Seller’s Note: You allow the buyer to pay over time with interest
Taking cash at closing gives you the biggest capital gains tax hit, although your risk increases with the other terms.
Plan for Taxes Before You Sell
To keep as much of your business sale proceeds as possible, consider adding tax planning long before you sell your business. Business brokers can guide you in preparing for the tax implications of selling your business.
How to Determine the Value of Your Business
Whether you’re trying to attract investors or sell your business, knowing the value of your business is critical to its success. However, many small and medium business owners admit to not knowing the value of their enterprise.
Running your business without knowing its true worth can leave you at a disadvantage when someone inquires about buying your business. It can also cause you to miss out on growth opportunities.
For business owners, it can be easy to get caught up in day-to-day operations or simply not want to pay for a business valuation. However, working with business brokers can deliver a business valuation to help you get the most out of your business now and in the future.
What Is a Business Valuation?
A business valuation is the process of determining the economic worth of a company. It evaluates such key factors as financial performance, tangible and intangible assets, growth potential, and market conditions.
When selling your business, a proper business valuation can ensure you’re not leaving money on the table or you don’t have an overblown idea of your company’s value. Understanding how much your business is worth can also help you target growth, land a bank loan, attract investors, or plan your exit.
3 Common Types of Business Valuations
Every business is different, and you can — and should — evaluate a business in many ways. Taking different approaches to how much your business is worth can provide you with a range of its true value and demonstrate to others that you’ve done your homework.
Here are three common types of business valuations:
1. Asset-Based
Consider this approach if your business has significant assets. Total your tangible assets (property, machinery, and inventory) and intangible assets (brand, customer loyalty, goodwill, and patents), and subtract your liabilities.
2. Market-Based
This method compares your business to other businesses of comparable size, performance, and industry that have recently been sold.
3. Income-Based
If your business has strong potential for growth, an income-based valuation might be best. It focuses on the business’s ability to generate profits in the future. You can use a capitalization factor to project potential profits based on past earnings or determine a value based on discounted future earnings.
Earnings multiples is another common approach that applies a multiple to earnings, such as net income or EBITDA (earnings before interest, taxes, depreciation, and amortization). Other key factors include growth potential, your management team, and industry trends.
How to Value Your Business
Consider these steps to arrive at a sound business valuation:
Determine the reason for the valuation
Gather your financial records
Pick your valuation methods
Apply the methods
Consider key factors of your business
Compare the results of the valuation methods
Business brokers with deep and broad knowledge and experience in small and medium businesses can help you arrive at a proper valuation for your business.
A Business Valuation Is Critical to Your Business
Whether you want to sell your business, find investors, or improve your operations, knowing the true worth of your business is as crucial to its success as staying on top of the day-to-day operations.
Partner With Leading Business Brokers for Successful Sales
When the owner of a small to medium-sized business decides it’s time to sell, many factors and conditions come into play. Navigating through all the ins and outs of a deal requires a dependable support team.
That’s where business brokers come in. They facilitate the details to make sure both sides of the transaction get a fair deal. Here’s what business brokers oversee and how they can help.
Experienced Intermediaries
Business brokers are facilitators and negotiators in the sale of businesses. They play several roles throughout the process: evaluating the business, planning marketing efforts, finding potential buyers, and finalizing sale terms.
Business brokers provide valuable expertise in selling your business. They prepare legal paperwork, outline tax implications, manage regulatory compliance, and build extensive networks. They can even recommend and initiate alternative financing options to complete sales.
Without a business broker for a partner, the owner must take over all the details of selling their business. That’s a major time investment on top of routine business responsibilities. The owner might overlook or misunderstand the finer steps in business valuation, marketing, and negotiations. With a business broker in your corner, you can feel assured no detail is passed over.
Benefits of Using a Business Broker
Using a business broker for selling your business brings some built-in advantages.
Expertise and Experience
Business brokers have specialized knowledge in their field — navigating complex business sales is their full-time job. The best of them have successful track records in structuring deals that benefit both buyers and sellers.
Saved Time
Even when a business owner decides to sell, they still have work responsibilities to fulfill: keeping their business operational, managing employees, and meeting other obligations. A business broker handles much of the transaction process, leaving the owner time to keep the business running.
Access to Buyer Networks
Business brokers stay connected to extensive networks of credible buyers and sellers they’ve worked with. This makes the process of finding a potential buyer much more streamlined.
Maximized Value
Even if you know how much you’ve spent to get and build your business, a broker can find unexpected areas that can add to its total value. A business broker can also suggest ways to grow value even if your business is already on the market.
What to Look For in a Business Broker
If you’re gearing up to sell your business, here are a few characteristics that make a business brokerage a solid transactional partner:
A long track record of success with buyers and sellers
A strong reputation of trust in the business community
Specialized experience in your particular industry
Strong skills in communication, transparency, and ethics
Proven ability to manage complex and fluid transactions
Talk to others in your local or regional business community who have worked with business brokers to find one who will work for you.
Make a Difference With the Right Partner
Business brokers may do all their work behind the scenes, but their responsibilities are crucial. The right one can help you move on to your next chapter after a smooth, successful sale.
Why Do Business Brokers Compare Different Businesses When Selling?
Business brokers are integral to the process of selling a business. They actively seek the right buyer in a marketplace crowded with contenders. One of their primary responsibilities is comparing similar companies to better estimate the true value of the assets they sell.
The comparison process is a key task in selling a business. It’s important to determine the business’s positioning in the marketplace and assess its value. When business brokers have comparable companies to evaluate, they can calculate a fair and reasonable value for the business they’re selling. Doing so can make the transaction smooth and equitable.
Understanding Business Value
Business brokers are experts in analyzing all aspects of the businesses they represent. In comparing similar businesses, they get a better picture of their financial performance, position in the current marketplace, and growth potential. This analysis is especially useful when they have several comparable businesses in the same general area to measure against.
By comparing multiple sale prices and value estimates, business brokers are better able to set the right price for the businesses they represent and find willing buyers.
Monitoring Market Conditions and Buyer Sentiment
The business marketplace is always in flux. Business brokers weigh various businesses’ values against the general condition of the marketplace, including common trends and expectations. Knowing the business landscape as well as they do, business brokers compare businesses so they can make proper adjustments to pricing and marketing the business.
Comparing properties gives brokers the ability to recommend the best positioning and strategies for selling a business. They can strengthen the business’s bottom line and increase the chances of a successful transaction.
Positioning Businesses for Success
Business brokers are tasked with putting companies in the best position for a sale. That often means making adjustments and optimizing current operations to be more attractive to potential buyers.
By comparing a business’s operations to other similar firms, business brokers can identify the positives of the company along with areas for improvement. This gives them the ability to establish successful models or highlight some of the unique traits of the business they’re selling.
Establishing a Fair Selling Price
Perhaps the biggest reason business brokers use comparisons is to set a competitive price for the business being sold. Comparing a business to others can give brokers a better sense of how the company measures up in price and market appeal. In turn, they can set a price that maximizes the company’s value while staying within market expectations.
Using comparisons to set a price can increase the chances of a timely and successful sale while getting the seller the best return possible.
Building Trust and Transparency
Finally, business brokers who present comparisons to their clients reinforce their credibility and trust. They prove their knowledge of the marketplace and research expertise, which resounds with both current clients and potential new ones. They earn a reputation for accuracy, forthrightness, and depth of knowledge.
Comparing businesses is the most direct and effective way for business brokers to arrive at a fair value for the companies they represent.
What Business Brokers Do to Close Deals Quickly
Whether you’re buying or selling a business, getting the deal closed is the ultimate goal. But the path to closing a deal quickly can be littered with obstacles and delays if you don’t have business brokers on your side.
Good business brokers who can get you to closing quickly at the price you want must master several skills to pull off such a feat.
Here’s a look at what business brokers do to close deals quickly.
What Is a Business Broker?
A business broker is someone who can help you buy or sell your small or medium business. A business broker typically has deep knowledge about businesses and experience buying and selling them.
Business brokers take care of many tasks, including:
Determining how much your business is worth
Marketing your business
Screening potential buyers
Negotiating deals
Managing the due diligence process
Business brokers who have honed these skills can close deals quickly.
How Business Brokers Close Deals Quickly
Business brokers who can get you to closing quickly must display their full set of skills honed over the years. They must efficiently match a buyer to a seller, stay ahead of any potential issues, analyze the market, communicate openly and often, deploy advanced negotiation techniques, and promptly prepare all documentation.
Here are the steps business brokers follow to close deals fast:
Qualify Buyers
To avoid wasting time with unqualified leads, business brokers thoroughly screen buyers to match them to a seller.
Develop a Business Presentation
Business brokers create a comprehensive business profile with accurate financial data, key operational details to help potential buyers understand the business without giving away the name, and a narrative that highlights what makes the business stand out in its industry.
Market the Business
Business brokers develop marketing materials and target their marketing through online listings and their vast industry network.
Communicate Clearly and Often
Business brokers must develop a high level of communication to keep buyers and sellers up to date, appropriately relay wishes between the parties, and promptly resolve any issues that arise.
Negotiate Strategically
One of the most valued skills business brokers have is an advanced negotiation technique. A business broker’s strategic negotiating skills can keep a business deal from falling apart or a business owner from losing out on the full value of a business. Negotiation skills can bridge the gap between the buyer’s and the seller’s expectations and help maintain a positive relationship.
Facilitate Due Diligence
Business brokers can avoid delays by making sure the due diligence process runs smoothly. They can organize financial and legal documents and facilitate the creation of other required documents from attorneys and other professionals.
With their finger on the pulse of industries and markets, business brokers understand how to create a sense of urgency to expedite the process.
Business Brokers Help Your Business Get Sold
Business brokers don’t simply follow a checklist when brokering the sale or purchase of a business. They must master the skills of communication, negotiation, emotional intelligence, adaptability, and market analysis to close deals quickly.
The Secrets of Successful Business Negotiations Revealed
When you begin thinking about selling your business, consider there is way more to the process than finding the right buyer and upfront price. You want to get the best deal, and business brokers can help you uncover the secrets to winning negotiations.
Negotiating is a skilled process that uses a collaborative approach to reach a win-win outcome for you and your buyer. Effectively negotiating your deal can be the difference between walking away with a satisfactory deal or a great deal.
Business brokers have deep knowledge about businesses and years of experience negotiating deals that get you to the closing table faster and at the price you want.
Here are the secrets to successful business negotiations.
What Is a Business Negotiation?
A business negotiation is a process where you and one or more parties are trying to agree on terms of a deal, such as selling your business. The preferable outcome is for the agreement to be mutually beneficial to you and your buyer.
The Secrets Business Brokers Use to Negotiate
Getting to a favorable agreement for both sides requires communication, compromise, and understanding of what each of you wants. The key elements of negotiating a deal that business brokers can help you with include:
Being prepared
Understanding what your buyer wants
Keying on finding mutual ground
Listening intently
Building rapport
Having a best alternative to a negotiated agreement (BATNA)
Staying flexible
Presenting more than one option
Managing your emotions
What holds all this together for you is understanding the value of your business. Business brokers can handle business valuation from beginning to end and can help guide you to finding value in your company.
Start Working With Business Brokers Early to Value Your Company
Analyze your financial statements, such as your profit and loss statement, balance sheet, and cash flow statement. Review projections for future profits and your business plan.
Gauging the value of your business before going into negotiating gives you the best chance of understanding what you should get out of the deal and helps you learn what your buyer needs.
Key Elements of a Successful Negotiation
Knowing the value of your business can prepare you to stick to your key points, communicate, manage your time, make concessions, and be prepared to walk away if necessary. Consider these key steps:
Understand Your Goals and Priorities
Outline what you want to accomplish and what you’re willing to compromise on.
Research Your Buyer
Know what the buyer is looking for and be prepared to meet that need.
Prepare a Plan B
This is your BATNA. Knowing you have an alternative gives you leverage.
Stay Focused on Your Interests
Try to understand the buyer’s demands, consider options, and adapt your position to seek out solutions.
Think Long Term
You want to arrive at the best deal possible, but consider the possibility that you may have future interactions with your buyer.
Taking on experienced business brokers can prepare you to negotiate a great deal for selling your business or to walk away and prepare for the next deal.
Business Brokers Bring Value to Negotiations
Good business brokers have negotiated hundreds of deals and understand businesses across many industries. Pulling business brokers into your team early — when you first begin thinking about selling — can add value to your negotiations to get you the deal you want at the price you want.
What Every Seller Should Know About Business Valuation
Working day in and day out in your business, you probably assume you know everything there is to know about it, including how much your business is worth. However, a M&T Bank survey in 2022 found that 98% of business owners didn’t know the value of their business.
There are many reasons to know how much your business is worth. You may want to buy out a business partner. You also can use a valuation to help guide the strategic planning for your business. Most often, business owners need to know the value of their business when they’re ready to sell it.
Selling a business is no small matter. There’s a lot to know and a lot to keep track of. Having business brokers by your side long before you plan to sell your company can help you get to closing and get the most out of your business.
When you’re ready to sell, business brokers can help you find the right value for your business. Here’s what you should know about business valuation.
What Is a Business Valuation?
A business valuation is a process used to determine the total value of your company and its assets at a specific time. Through the process, independent appraisers or business brokers qualified to evaluate businesses will assess your business’s assets, cash flow, market position, future earning potential, and comparable businesses in your market.
The business valuation is a price you and a buyer might be able to agree on.
Knowing the worth of your business can help you negotiate the price you want to get when your company sells. It also can help you recognize what buyers might see as valuable or areas you can work on to increase the value of your company.
How Business Brokers Evaluate Your Business
Many approaches can be taken to valuing a company. Here are three main approaches business brokers may use to determine the worth of your company.
Income Approach
This approach determines your company’s worth by calculating the income your business will generate in the future and discounting it back to a present value. This method is useful when you’ve established stable and predictable earnings.
Market Approach
A market approach values your company based on prices of comparable businesses that have sold or the value of similarly situated companies.
Asset Approach
This valuation focuses on the net asset value of your business. With this method, you would subtract all liabilities from your total assets to determine your net asset value. The asset approach is typically used for companies that are underperforming.
To facilitate business brokers valuing your company, you must present profit and loss statements and balance sheets for the last three to five years, licenses, deeds, any tax filings and returns, an overview of your business, and your business plan.
Plan With Business Brokers
To attract the right buyers and arrive at closing with the maximum negotiated price you’re comfortable with, consider getting business brokers on board long before you plan to sell. Business brokers can help you understand business valuation and find value in your company that you might not have known existed.
Great Benefits of Using Business Brokers to Sell Businesses
Whether you’re preparing to sell your first business or your upcoming sale is just the latest of many, selling a company is a time-intensive process that can quickly become overwhelming. However, when you work with a business broker, your broker can save you stress, effort, time, money, and more. Here’s a closer look at some of the key benefits of working with business brokers when making a sale.
1. They Might Already Have a Buyer in Mind
Depending on your industry and your business itself, finding buyers can be a challenge. One of the main draws of business brokers is that they maintain networks of active, interested buyers. This means that once your business goes on the market, your broker can quickly connect you to multiple potentially interested buyers.
2. They Keep Things Confidential
If your employees, clients, or customers learn that you’re selling your business, you might experience significant disruption. Your best employees might worry about losing their jobs and start applying elsewhere, and your customers might turn to competitors instead.
It can take significant time to sell a business, and if your company starts experiencing major issues before you find a buyer, a successful sale can become next to impossible.
However, when you have a business broker, you can avoid letting customers and competitors know you’ll be selling. Brokers can conceal identifying details of your business. Once your broker has verified that a potential buyer is qualified, they can ask the buyer to sign a non-disclosure agreement.
3. They Can Accurately Value Your Business
There’s a lot to consider when you’re preparing to sell a business — so much so that it’s easy to overlook the basics. A successful sale starts with an accurate valuation. Overvaluing your company means you’ll find few, if any, buyers. Undervaluing means you’ll potentially cheat yourself out of tens of thousands of dollars.
Business brokers value businesses on an almost daily basis. And because they’re uniquely attuned to market dynamics, they can help you price your business for a quick sale or advise you to sell later if you want to maximize profit.
4. They Can Handle the Logistics
Selling a business is far more complex than selling a vehicle — or even selling a home. From start to finish, the process is filled with logistical challenges:
Creating a marketing strategy
Communicating with interested buyers
Vetting buyers
Negotiating a deal structure that’s beneficial to both of you
Ensuring all necessary documents are appropriately filed
Addressing the tax implications of a sale
Even if you’ve sold companies before, tackling these challenges while continuing to run your company isn’t an easy feat. Business brokers can give you the peace of mind that comes with knowing that the sale — with all of its intricacies — is in good hands.
Is Working With a Business Broker the Right Choice for You?
Ultimately, whether you decide to work with business brokers or sell your business on your own is up to you. However, if you do choose to work with a broker, you’ll likely find that the sales process becomes smooth and efficient. And most importantly, you’ll have more time to focus on running your business.
Steps to Selling Your Business With a Professional Business Broker
Whether you’re looking to retire or you just want to move on to a new business venture, selling your company brings a tremendous sense of accomplishment. However, the logistics of selling that company can quickly become overwhelming.
As you may already have discovered, the challenges of selling a business are quite different from the challenges of running one. But when you work with business brokers, you can rest assured that the sale is in the hands of competent professionals — and that you’ll have the time to keep your company running smoothly right up until the sale.
Here’s an overview of how the sale process works.
Step 1: Choosing Your Broker
A successful sale starts with the right broker, so you should take your time when making a selection. Here are some tips to help you ensure you choose the right broker:
Make sure the broker has experience in your industry
Make sure they have experience selling businesses of a similar size to yours
Verify their licensing information
Ask them about their marketing plan
Ask for past client references
Take your time with this process. You should also make sure your broker is someone you feel comfortable talking to — communication skills are an essential part of what business brokers do!
Step 2: Business Valuation
Business brokers can take the time to evaluate your business and give you a highly accurate, fact-based business valuation. While you can get a general idea of your company’s value through online calculators and similar tools, a precise valuation is an essential part of the sales process.
Step 3: Finding Potential Buyers
While business brokers excel when it comes to marketing businesses, many do not need to publicly list a company to find a potential buyer. That’s because brokers maintain active networks of people interested in buying companies like yours. That means they can quickly assemble a short list of would-be buyers for your consideration.
Step 4: Choosing a Buyer
Your broker can handle communications with potential buyers, but ultimately, the choice of buyer is up to you. Your broker can discuss your available options and help you select your preferred buyer.
Step 5: Negotiation and Deal Structuring
This is an area where experienced business brokers can more than make up for their fees. Your broker can negotiate a price and various contingencies with buyers, and once you agree on the terms of the sale, the broker can draw up the necessary contracts.
Step 6: Post-Sale
A broker’s job doesn’t end when the sale is finalized. Selling a business often comes with significant tax implications, and your broker can help you navigate them.
Are Business Brokers the Right Solution for You?
While working with a business broker might not be the right choice for everyone, it makes the sales process simpler and leads to increased profits in the majority of cases. When you take the time to find an accomplished broker with experience in your industry, you’ll be well on your way to a stress-free, successful sale.
Business Brokers Specialize in Selling so You Can Continue Operations
Moving on is in the future of every entrepreneur or small- and medium-business owner. There’s no shame or guilt in admitting that. Thinking about it up front shows your business acumen and how much you care about your company, employees, and customers.
That’s because selling your business is no small matter. You may be counting on the proceeds from the sale to fund your retirement or next adventure. Also, your employees have families to care for, and customers still need their products or services.
Whether moving on to another venture or retiring, consider engaging business brokers, such as Sunbelt Business Brokers, to help plan your exit years before you hang up your hat. Business brokers can use their special skills to handle the complex process of the sale while you remain focused on operating your business.
What Are Business Brokers?
Business Brokers, or business transfer agents or intermediaries, are individuals or companies that can help you sell or buy a business. Sunbelt Business Brokers have spent years acquiring experience in business valuation, confidentiality, due diligence, compliance, and marketing, as well as skills in negotiating, closing, selling, or buying a business.
Consider the tasks and responsibilities business brokers carry out to sell your business:
Estimating the value of your business
Marketing your business for sale
Vetting potential buyers
Negotiating the terms and price of the sale
Structuring the deal
Completing the due diligence
Closing the transaction
Selling your business is no time to go it alone, no matter the level of your business skills. You also don’t want to wait until the nameplate is being changed on the door. Getting business brokers onboard years before your exit is your best chance for a successful outcome for all involved.
Why Use Business Brokers?
One of the biggest keys to selling your business when you want, how you want, and at the price you want is to continue its operation with no disruption. Your employees feel assured about their jobs, potential buyers view your company as strong and stable, and you can continue to build your company’s value.
Business brokers can handle all the tasks necessary to sell your business, including recommendations on growing the value of your business, allowing you to focus on running your business. Use Sunbelt Business Brokers’ business valuation calculator along the way to monitor the growth in your business’s value.
Business Brokers Help You Reach Your Goal
As a business owner, adding business brokers — and other professionals, such as attorneys and accountants — to your team may seem like an expense. However, it’s an investment in your company and your future.
One of the greatest specialties of business brokers, such as Sunbelt Business Brokers, is maintaining the confidentiality of sellers. Without confidentiality, word of a sale could get out, negatively impacting your business. Customers may start to buy elsewhere, employees may move to competitors, and buyers may lower their offers.
Onboarding business brokers early can keep you from wasting time and money trying to manage a sale on your own. With this assistance, you can continue operating your business to get to closing at the terms you want and for the best price possible.
Skilled Business Brokers Take the Time to Understand Your Business
As a business owner or founder, you might think no one knows your business as well as you do. However, when the time comes to sell your company, consider seeking out business brokers, such as Sunbelt Business Brokers.
Business brokers will take the time to get to know and understand you and your company, making them pivotal to maximizing the strategy and profitability of the sale.
Sunbelt Business Brokers has deep experience working with small and medium businesses, handling every detail of a sale from beginning to closing. That experience, combined with understanding your business, is key to getting you to close quickly and with the best possible sales price.
What Are Business Brokers?
Business brokers, often called intermediaries, are individuals or companies that can help you buy or sell a business. Selling a business can be a long and complex process and can take six months to a year.
Business brokers, such as Sunbelt Business Brokers, often know your industry and possess specialized skills to get you quickly from the thought of selling your business to being sold — and at a higher price than you may have expected.
How Understanding Your Business Helps
A key to a successful sale is bringing business brokers into your company long before you plan to sell. Skilled business brokers like Sunbelt Business Brokers use that time to listen, watch, learn, and provide objective guidance.
Here’s how that helps you optimize the sale of your business:
Valuation
While an online business valuation calculator can give you an estimate of what your business is worth, business brokers know an accurate business valuation takes skill. To get the most precise valuation, business brokers combine experience and specialized knowledge with a full understanding of your business and how it works.
Once you understand where your business’s value lies, you can work with your brokers to set a strategy for getting top dollar at closing.
Competitive Advantage
Skilled business brokers who take the time to understand your business know how the intangible assets can distinguish you from competitors, making your business more attractive to potential buyers. Consider these intangible assets:
• Intellectual property
• Brand recognition
• Customer loyalty
• Reputation
Knowledgeable business brokers know how to weave your intangible assets into a narrative that sets you apart in the marketplace and draws buyers to you.
Matching
Business brokers maintain a vast network and spend time with potential buyers. As a result, they have a deep understanding of the businesses those buyers are seeking. These business brokers can match you to buyers they are acquainted with in their network, giving you the possibility of reaching the negotiating table faster.
Selling a business you created and nurtured into a successful company can draw your emotions to the surface. Business brokers, who have handled many previous deals and now understand your business, can be an objective beacon to get you through to a better deal than you could have obtained on your own.
Understand What You Want From the Deal
When looking to maximize the profit from the sale of your business, reputable and skilled business brokers are willing to take the time to learn about you and your company to deliver that goal. So consider taking your time to know and understand the business brokers you plan to hire to sell your business.
4 Things New Owners Face After Buying an Operating Business
Purchasing an operating business has its advantages. You have an existing customer base, existing employees, and likely existing inventory as well.
However, as experienced business brokers can tell you, purchasing an operating business comes with its challenges, too. Here’s a look at some of the difficulties you may face right after buying an established company.
1. Assessing Current Employees
Sometimes, purchasing a business with an existing team of employees can be advantageous. They already understand how the business works and can perform daily duties, which means you don’t have to invest time and money into recruitment and training.
However, it’s essential that you evaluate the current team to determine whether the existing employees are good for the business. If your team includes unmotivated employees or those who seem to go against the grain of the culture you’re trying to create, you may be better off dismissing them.
Evaluating the current team can also help you decide whether you need to hire more people to support growing operations. In some cases, you may also determine that you need to downsize.
2. Evaluating Efficiency
Even the most successful businesses can stand to become more efficient. One of the best things you can do right after buying an existing business is to conduct a thorough efficiency audit. The sooner you can start optimizing, the sooner you’re likely to see reduced expenditures and increased profits.
You also may want to track efficiency and growth moving forward. You can often accomplish this by looking at financial records or by periodically using a business valuation calculator to see whether your company’s total value has gone up.
3. Evaluating (and Maybe Overhauling) Technology
Some established businesses may not have updated the technology they’ve used in years. More often than not, updating technology can save you time and money. For example, a lot of newer tech allows you to automate payroll, customer notifications, and other functions.
Of course, incorporating new technology might come with an upfront cost. You can end up paying more in terms of both the money it costs to purchase the tech and the time it takes to train your employees to use it.
4. Evaluating Business Relationships
In addition to other aspects of the existing business, you must also evaluate your relationships with vendors, suppliers, and other companies you may do business with. It’s particularly important to look at competitors to ensure you’re getting quality products for the best price.
Keeping the same partnerships might seem easier. However, if you can find a better deal elsewhere, it’s worth the effort to make a transition.
Buying an Operating Business Can Be Challenging — but Worth It
When you buy an existing business, you have the opportunity to assess it and optimize it accordingly. However, implementing the necessary changes is often more complex than it sounds. The good news is that when you work with experienced business brokers, they can advise you on how to best move forward once the deal is finalized.
Business Brokers Connect Business Owners to Qualified Buyers
When you’re ready to head for the exit of your business, finding the right buyer to ensure a smooth transition is no small matter. Fortunately, business brokers can connect you to qualified buyers both confidentially and efficiently.
The professionals at Sunbelt Business Brokers have extensive experience and knowledge in selling and buying small and medium businesses. They can connect you with potential buyers to move your sale forward while maintaining your privacy — and allowing you to continue to operate your business.
Here’s how business brokers connect you to qualified buyers.
What Is a Qualified Buyer?
A qualified buyer possesses the traits necessary to successfully complete the transaction, including:
Industry knowledge
Business experience
Financial capability
Strategic vision
Cultural fit
This buyer may be an individual, investor, or business. In any case, a potential buyer with the financial resources to meet the asking price is important. However, to qualify as potential buyers, the individuals or entities should be able to show similar businesses they have purchased and deep knowledge of your industry.
Essentially, a qualified buyer is someone business brokers judge from experience as most likely to maximize your business and continue your company.
The Difference a Business Broker Makes
You can post a for-sale sign in the window or online and attract plenty of calls and emails. But most of the attention will likely be from curiosity seekers, your competitors, or buyers who lack the means to carry out the deal.
Business brokers, on the other hand, maintain a broad network of buyers. By taking the time to understand you and your business, they can tap their network to find potential buyers that match the financial requirements for the sale and your values and goals.
How Business Brokers Find Qualified Buyers
The road to connecting qualified buyers to sellers begins long before the date you mark on the calendar for walking out the door. Business brokers spend years building their network of buyers, investors, and professionals they can contact about your business. Bringing business brokers on board early can give them key insight into what kind of buyer would best match your company.
Business brokers will create a confidential information memorandum (CIM) to market your business and maintain confidentiality. The CIM will contain details about your products or services, financials, customers, and other information buyers want to examine. However, it won’t list information that identifies your company.
Business brokers will conduct due diligence to present you only qualified buyers, reviewing a potential buyer’s ability to:
Meet the purchase price
Fund the transaction
Structure a deal
Cover integration costs
Business brokers work to avoid wasting your time to get a deal done. They review potential buyers’ financial records, business credit, and track record running or buying other businesses.
Sunbelt Business Brokers knows how to attract the buyers you want while protecting your confidentiality. You can get an early idea about the value of your business with Suncoast Business Brokers’ business valuation calculator.
The Value of Connecting With Qualified Buyers
As the business owner, you’ll decide on the buyer whose hands you feel comfortable leaving your business in. A business broker can find that buyer for you. Working with business brokers can go a long way in ensuring the seamless and successful sale of your company.
Top 5 Most Important Factors Affecting Business Valuation
You’re approaching the time to exit the business you built from the ground up. You’re considering selling, but one question has nagged you: “What is my business worth?”
You may feel like you don’t want anyone to know you don’t have a firm grasp on the value of your business. But you’re not alone. That’s often the first question business owners have when approaching business brokers about putting their company on the market.
The team of experienced professionals at Sunbelt Business Brokers works with small and medium businesses to quickly sell for maximum value at closing. You can get a quick idea about the value of your business with Sunbelt Business Brokers’ business valuation calculator.
Take a closer look at what key factors affect business valuation.
What Is Business Valuation?
Business valuation is an estimate — based on data — by a professional of what a buyer is willing to pay for your business. The estimate comes from analyzing such aspects of the company as assets, earnings, and market position.
To maximize the worth of your business, you need to start long before you’re ready to leave to make the improvements necessary to boost the data behind the valuation. Consider bringing onboard business brokers like Sunbelt Business Brokers, who can guide you in maximizing factors to sell your business at or above the price you want.
The Top 5 Factors Business Brokers Evaluate
How much your business is worth is supported by many factors. However, because they understand what buyers seek, business brokers tend to focus on these top five factors for business valuation.
1. Financial Performance
A buyer wants to see the financial performance of your business for the last three to five years. Additionally, a buyer wants to understand the direction your revenue and expenses are heading. Strong financials demonstrated through your profit and loss statement, balance sheet, and tax return can increase the value of your business.
2. Growth Potential
Looking back at the health of your company is important, but buyers also want an idea of where your company is heading. What are the revenue and profit projections for your business, and what supports those estimates? Your growth potential is the capacity and likelihood your company can expand, possibly into other markets.
3. Customer Base
The size of your customer base, the length of time they have been customers, and their behavior are considerations for a buyer. If you had just one significant customer, that’s a risk. However, more customers who are loyal and pay on time can reduce risk, increasing your company’s value.
4. Market Conditions
While what’s happening inside your company plays a big role in valuation, what’s going on outside impacts your company’s value, too. The market conditions you operate in can determine the value a buyer places on your business.
5. Reliance on the Owner
Buyers want to see a company that can continue without the owner. The more your business can operate without you, the higher your business valuation may be.
Bring on Business Brokers Early
The key to a business valuation for a sale is to bring on business brokers long before you plan to exit to get maximum value from your business. Working with Sunbelt Business Brokers can help you identify the state of these factors and others to raise the value of your business before going to market.
What Should I Look for in a Reputable Business Broker?
If you’re looking to sell your business, you can try to save money by going it alone. However, selling a company takes a different skill set than running one — and without guidance from someone adept at buying and selling businesses, you might find out that you’ve wasted your time and money.
Sunbelt Business Brokers maintains a broad network of business relationships and industry professionals who can connect you with the right buyer at the best price for your business. But how do you choose the right person? We’ll discuss what you should look for in a reputable business broker.
What Is a Business Broker?
A business broker is an intermediary between a buyer and seller who facilitates the transaction. They can manage the sale of your company from the marketing to the closing. Here are just a few responsibilities business brokers handle:
Valuing your business
Marketing your company
Maintaining your confidentiality
Screening and qualifying buyers
Structuring deals
Negotiating prices
Closing transactions
Reputable business brokers can make the process go smoothly — but some brokers can create stress and cost you time and money.
The typical business sale takes six months to a year, and your contract with a business broker will likely be exclusive. Your time will be well spent speaking to several business brokers and evaluating their experience before signing a contract.
You can start the process with the business valuation calculator from Sunbelt Business Brokers.
What to Look for in a Reputable Business Broker
Many business brokers have real estate licenses, especially in states that require them. However, not all states have this requirement, and there is no license specifically for business brokers.
Instead, you can ask whether the broker is a member of professional organizations like M&A Source or the International Business Brokers Association. You might also inquire about designations like Certified Business Intermediary or Merger & Acquisition Master Intermediary.
Licenses, affiliations, and certifications can be a good starting point for finding a business broker. Additionally, consider this list of qualities and character traits:
Good Reviews
Talk to people you trust — other business owners, friends, and family — to see if they recommend anyone. Review a broker’s web presence and read comments from clients about their experiences. Also, look for completed deals on the broker’s website and think about if they align with your goals.
Solid Sales Strategy and Confidentiality
Ask potential business brokers questions about their process, such as:
What the broker’s typical marketing plan is
How they locate, screen, and qualify buyers
How they plan to protect your confidentiality
Good brokers can outline their sales strategy, explain their advertising budget, and assure you about maintaining confidentiality.
Communication
You want a broker who is available to answer your questions and who responds quickly to calls and emails. Selling your business is a big event and can be complicated and emotional. A good broker will support and guide you through the process.
Dedication and Commitment
Find out whether your broker buys and sells businesses full-time or part-time. To help you get the most value for your business and meet your financial goals, you want someone who is fully committed.
Transparency
Reputable business brokers will give you quick and straight answers when asked about fees and commissions.
Choose the Business Broker Who Fits You
After searching for a qualified broker with the qualities you need, you ultimately want to select someone you trust. Take your time and pick the broker you feel most comfortable with and confident in.
Top-Rated Business Brokers Can Get Top Dollar for Your Company
No one knows your company like you do. But when it comes time to sell, handing the reins over to a business broker can help you get top dollar.
Whether you have already received an offer or have decided to put your business up for sale, an experienced broker at Sunbelt Business Brokers could get your company sold faster and at a higher price than going it alone.
Business brokers can help you negotiate the best possible price with the highest likelihood of closing. In fact, Inc.com states that using top-rated business brokers can help you haul in a price as much as 35% higher than any initial offer.
Get started by estimating how much your company is worth with the business valuation calculator from Sunbelt Business Brokers.
What Is a Business Broker?
A business broker is an intermediary who has experience in buying and selling companies. Top-rated business brokers can handle the sale or purchase of a business from beginning to end.
Your expertise is in your business, and you wear many hats. But business brokers bring to the table specialized knowledge about taxes and regulatory matters involved in the complex transaction that is selling a business.
Here are some of the many tasks performed by business brokers:
Business Valuation: Determining the fair market price
Marketing: Advertising your business to buyers and maintaining confidentiality
Finding Buyers: Qualifying the right buyers for your business
Negotiating: Leading discussions to reach an agreeable price
Handling Paperwork: Working with other professionals to prepare and file necessary documents
Closing: Guiding you and your buyer through finalizing the transaction
The industry does not require an official license. However, some business brokers choose to earn a real estate license, and some states require them to hold one.
Many business brokers seek memberships in professional organizations such as the International Business Brokers Association or M&A Source. Additionally, a broker may earn a designation as a Certified Business Intermediary or Merger & Acquisition Master Intermediary.
4 Questions to Ask a Business Broker
To find the right business broker for you, compile a list of potential brokers and ask these four questions:
What are your specific qualifications?
How do you drive business value?
What does your marketing material look like?
What services are covered under your fee?
A business broker who offers satisfactory answers to these questions will be in a strong position to sell your company for top dollar.
A Big Life Event
Selling your business may be one of the biggest events of your life. It might be the largest asset you ever sell. A business broker will manage the entire process from marketing to closing, allowing you to continue running your business as you wait for the sale.
With their focused knowledge and negotiating prowess, business brokers can negotiate a higher price for your business than you could on your own, even considering the fee or commission you will pay.
What Do Business Brokers Cost?
Business brokers may work on a flat fee or a commission. For deals less than $100,000, many business brokers charge a flat fee. For businesses sold between $100,000 to $1 million, the commission charged is typically 10% to 15%. A reduced commission may be charged for businesses over $1 million.
Business brokers will listen to your needs and guide you in selling your business the way you want.
Why Is a Business Valuation Calculator Important to Business Brokers?
If you’re ready to leave your business behind and head off into the sunset or start a new venture, a business broker and business valuation calculator might be your first stop.
Business brokers can help match you with the right buyer for your business or find the right seller, if you’re a buyer. The business valuation calculator helps provide business brokers with preliminary information to know their starting point in a transaction.
Here is why a business valuation calculator, like the one from Sunbelt Business Brokers, is essential for business brokers.
What Is a Business Valuation?
A business valuation is an estimate of how much a business is worth. The valuation analyzes many business aspects, such as assets, earnings, and management. Business valuations are used for many reasons, including buying and selling a business, raising capital, reporting taxes, and settling ownership disputes.
There are two common methods for determining the value of a business: asset-based and market-based. With an asset valuation, all the assets of a business are valued individually and then combined. This method looks at the business as both continuing and liquidating, or selling, the assets to come up with a value.
On the other hand, the market-based method considers data on businesses that are similar and their location.
What Is a Business Valuation Calculator?
A business valuation calculator provides a preliminary estimate of a business’s value. It’s designed to give you an idea of whether your business is worth as much as you believe if you’re looking to sell or whether you can afford a business you might be eying to buy.
The Significance of a Business Valuation Calculator
As professionals who assist people in selling and buying businesses, business brokers may use varying basic metrics in their calculations. But regardless of which metrics they use, brokers find the business valuation calculator important for several reasons:
Getting Quick Estimates: Provides buyers and sellers a rough value in the early phases of a transaction
Establishing a Starting Point: Helps lay the groundwork for a full valuation of the business
Making Informed Decisions: Helps set realistic expectations for buyers and sellers
The business valuation calculator works to set the direction of a deal for business brokers and is a vital preliminary step to seeking a complete assessment of a business’s value.
Potential Inputs to Business Valuation Calculators
While business valuation calculators vary for business brokers, some of the inputs might include the reason for the valuation, the industry your business is in, the number of years being analyzed, and the type of financial information being considered.
The industry is important because calculators use multipliers based on the industry of a business. A construction company would have a different multiplier than a restaurant, for example.
Buying or Selling Starts With a Business Valuation Calculator
There are many ways to value a business, and business valuation calculators may have different inputs. No matter the metrics used, business valuation calculators are important tools for business brokers to help you begin your journey to buying or selling a business.
6 Types of Information Your Business Brokers Need From You
Want to sell your business? Do you feel like it’s time to hang it up and move on to something else? Whatever your reason for wanting to sell, a business broker should be at the top of your list of calls to make.
But before interviewing business brokers, you have homework to do: gathering and organizing everything a potential buyer will want to know about your business. Buyers want clear data that will convince them your business will be profitable after you’re gone.
So if you’re looking for a smooth sale at the highest price possible, you will want to prepare the right paperwork and packaging documents ahead of time. Here are six key types of information business brokers like Sunbelt Business Brokers need to set you up for success:
1. Organized Financial Statements
If you haven’t been good about record keeping, start with organizing your financial statements first. You may want to bring in a certified public accountant if necessary. It may save you time and add to the credibility of your financial documents.
You will need the following documents:
Tax Returns: For two to three years, five would be better
Profit and Loss Statements: For two to three years
Balance Sheet: A snapshot of the business’s assets and liabilities
Cash Flow Statement: A snapshot of how much cash you have on hand
A solid package showing your financials can signal to buyers that you’re serious about selling.
2. Your Reason for Selling
Are you ready to retire? Do you want to start another business? Do you think the market is hot for selling? Business brokers can direct their strategies and marketing according to your motivation for selling and your goal of when you want to sell.
3. What You Think Your Business Is Worth
The valuation of your business can be done in several ways. While your business brokers will handle this for you, having an initial estimate of how much you think your business is worth can give your business brokers an idea of your expectations. It can also help you gather the right documents to present to your business brokers.
You can start with Sunbelt Business Brokers’ free business valuation calculator.
4. The SWOT of Your Business
What are your company’s strengths, weaknesses, opportunities, and threats (SWOT)? Providing your business brokers with your evaluation of factors like the presence of loyal customers, environmental risks, innovation, and potential regulatory changes can go a long way in developing the right strategies for your business.
5. Operational Details of Your Business
The operational details of your business include:
The name and organizational structure
A customer list
A list of employees and their roles and responsibilities
Suppliers
Contracts
Licenses
Permits
Policies and procedures
Inventory
Equipment
Beyond the financial information, buyers will pay particular attention to how the company is run.
6. Other Notable Aspects of Your Business
You certainly want to place your company in the best light, but you also want to make a potential buyer aware of any issues that might create headwinds for the business.
Compile a record of any lawsuits that might impact your business, whether your company is involved or not. You also should provide records of any issues with employees or other human resources issues.
Setting Yourself Up to Win
Putting together these six types of information for your business brokers will show them you’re serious about selling your business. Together, you can set your company up to achieve the outcome you want.
What Kind of Businesses Do Business Brokers Work With?
The International Business Brokers Association notes that business intermediaries — business brokers, merger and acquisition advisors (M&A advisors), and investment bankers — tend to segment themselves by dollar amounts of value or revenue.
While many business brokers work with what are commonly referred to as “Main Street businesses” — those valued at less than $2 million — some, like Sunbelt Business Brokers, work with lower-to-middle market companies valued at more than $20 million.
Be that as it may, as you wonder whether business brokers would work to buy or sell your business, it’s better to focus more on the complexity of your business and the transaction as opposed to strictly considering the value of your business.
Selling or buying a business is a complex transaction no matter its size; what’s most important is having a professional business intermediary or team that can handle your deal from beginning to end, allowing you to stay focused on running your company. With that being said, read on to find out what kinds of businesses work with business brokers in order to be bought or sold.
Businesses Handled by Business Brokers
The experience, skills, and services of business brokers most often determine the businesses they work with.
Nevertheless, handling everything from valuations to negotiations and maintaining confidentiality to ensuring compliance with regulations means they often work with a wide swath of businesses, including (but certainly not limited to) the following:
Auto body shops
Hair salons
Restaurants
Pet stores
Construction companies
Tech companies
Printing shops
Cleaning businesses
Lawn care
Property management firms
For you, the key is finding the business brokers that fit for buying or selling your company; if you’re selling, consider starting your journey with the business valuation calculator provided by Sunbelt Business Brokers.
Small and Medium Businesses Bought and Sold
Among business intermediaries, business brokers handle transactions for small and medium businesses from initial consultation to closing, and they often help with valuation, marketing, vetting buyers, and negotiating and structuring deals, among many other tasks.
With that said, it’s clear that business brokers come from a range of backgrounds and wear a lot of different hats in bringing buyers and sellers together, so as you work to choose business brokers to handle a purchase or sale, ask the following questions:
How long have you been a business broker?
What is your success rate?
What accreditations do you have?
Are you a real estate agent?
What size businesses do you buy and sell?
That answer to that last question, in particular, will let you know the kind of companies your prospective business brokers normally work with, allowing you to ascertain whether they’d be a good fit for you right out of the gate.
Find the Right Business Intermediary for Your Business
When it comes to business intermediaries, there are no clear boundaries establishing the types of companies business brokers work with; some business brokers, like Sunbelt Business Brokers, have dedicated advisors who have bought and sold Main Street and lower-middle market businesses. Your business might be one of the businesses on the list above, or it might have revenue below $25 million. Either way, there are business brokers who will work with you, but you have to put in the work to find the ones who will work best for you.
Is Your Business Suitable for Sale by Business Brokers?
Making the decision to sell your business is a big step. However, it’s the first in a line of many other major decisions. And in this case, the next decision is whether you should work with a business broker to find potential buyers and negotiate a fair deal structure.
Should you use business brokers to sell? Is your business one a broker would take on? Here’s a look at what factors to consider.
Is Your Business Successful?
Business brokers aren’t obligated to take on every single business they come across. There may be some who know buyers interested in buying and flipping failing businesses, but most people interested in buying a business want to make sure that it’s at least somewhat successful.
If you’re trying to sell a profitable business, there’s a good chance you can find a broker who will work with you.
Do You Have Experience Selling Businesses?
Business brokers essentially act as guides for business owners as they navigate the sales process. Unless you’ve sold businesses before, selling your business can be baffling and time-consuming. And if your buyer has a business broker, there’s a good chance you’ll get swindled. If you want the best possible price, it’s worth getting a broker.
Do You Have a Buyer in Mind?
When you work with a business broker, you’re not just paying for the broker — you’re paying for their network of eager buyers. In this situation, the broker’s fee is more than worth it, as you may not have even found a buyer otherwise.
However, if you already know who you’re selling the business to, you may not need a broker. A good example is if you’re passing your business down to your children. Because you don’t need a broker to find potential buyers and interface with them for you, it might not be necessary to hire one.
Are You Confident in Your Company’s Valuation?
It might seem like a small thing, but one of the most critical services business brokers offer is accurately determining your business’s value. Having a spot-on value is key before you start the sales process.
If you undervalue your business, you’ll potentially miss out on thousands of dollars you’d otherwise see. But if you overvalue it, potential buyers will turn away the second they see the price. Essentially, unless you have a highly accurate valuation already, hiring a business broker is a good idea.
Don’t Miss Out on the Benefits of a Business Broker
In most situations, business brokers can help you in your quest to sell your business at a profit. They can also help you ensure you don’t run afoul of tax laws when reporting the sale, and they can handle the time-consuming work of interfacing and negotiating with potential buyers.
Ultimately, the decision is up to you. Take a close look at your business, determine whether you know any potential buyers, and evaluate your own knowledge about selling a business. You might conclude that you’d benefit from the guidance of a business broker along the way.