You’ve accomplished what many have sought but few have achieved: a profitable home-based business. Now, you want to turn your sweat equity into cash by selling your business. Maybe you intend to travel & play, start another business, or just sit by the pool and relax. Whatever your intention, you will need cash to do it.
There Are Plenty of Prospects for Your Business, but Few Are Buying
In 2010, the number of prospective buyers looking for home-based business opportunities is at an all-time high. Corporate layoffs and cutbacks have left many Americans short on cash and looking for ways to supplement their household income.
In spite of the abundance of prospective buyers, business brokers say that 4 out of 5 small businesses listed for sale will not sell. Those that do not sell are either taken off the market, sold at auction, or just closed down. Why, with so many willing sellers and willing buyers, are 4 out of 5 businesses not selling?
Financing is Difficult to Get
The 2010 economy is defined by tight credit. Currently, banks rarely make small business loans, even to long established bricks-and-mortar companies with hard assets like machinery and real estate. Banks almost never loan money to purchase a home-based business. Buyers of home-based businesses generally don’t have the resources to pay cash for a business. Even though the seller is willing to sell and the buyer is willing to buy, there is no money available to complete the transaction.
In this article, I’ll hit on a few key points that will make your business more attractive to buyers. Then, I will tell you the one slam-dunk approach that is guaranteed to sell your business, in spite of the economy.
Make Your Business More Attractive to Buyers
Buyers are motivated primarily by income and opportunity. To prove income, you must have kept good books and have your tax returns in order. If you have kept your books yourself and done your own tax returns, have your records reviewed by a CPA. Have your CPA re-cast your financial statements to show your Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). EBITDA evaluation removes business all discretionary expenditures from your financial statements and boosts your stated income. The higher your income, the more your business is worth. Use the re-cast income to value your business; you’ll get more money for your business. The Business Reference Guide published by Business Brokers Press lists a Multiple-of-Income for businesses like yours. Multiply the “Multiple” by your annual income to arrive at a ballpark selling price for your business. The Reference guide is expensive, though, and you may do just as well to use the online valuation software provided by BizBuySell.com.
It must be easy for a new owner to take over your business; have your operating procedures, suppliers and contacts written down. Your business must also offer a buyer the opportunity to use their abilities to make the business their own. Entrepreneurs want to be their own boss, to do things their own way. If your customers buy from you because they really like doing business with you personally, the new buyer is at a disadvantage from the start. Make sure that your business is, indeed, transferable, and offers a genuine opportunity for the new owner to grow.
How to Guarantee the Sale of Your Business
The primary reason a home-based business does not sell is lack of financing. A seller who offers to finance the business purchase for the new buyer greatly increases the chance of selling the business. Done correctly, owner financing can be a low-risk and profitable undertaking. If you decide to offer financing for the business, be sure to have the note drawn up by an attorney and have your interests filed at the county courthouse.
What Are the Advantages of Owner Financing?
The biggest advantage of owner financing is that your business will actually be sold, and sold for the asking price. Buyers don’t argue price with sellers who are providing financing. Also, the seller collects interest on the selling price, which increases the net gain from the sale. There is advantage, also, to the buyer: the loan is repaid from the profits of the business.
How Can I Be Sure I Will be Paid?
There are four keys to insuring repayment of an owner-financed loan: 1. Get a substantial down payment 2. Secure the note with the business itself 3. Make sure the buyer has attachable assets outside of the business (real estate, CD’s, stocks) 4. Get a personal guarantee. If these four bases are covered and the buyer defaults on the loan, you can repossess the business and/or attach his personal assets for repayment. Again, discuss these details with an attorney.
What if I Don’t Want to Wait Years for My Money?
Most sellers who finance their own business do not wait years for repayment; they sell the note at a discount to a note broker. Usually, if the buyer has put a 25-30% down payment on the loan, the interest is sufficiently high and the term no longer than 60 months, the note is eligible to be sold to a note broker. In as little as 3 months, a seller can cash out the note they are holding and walk away without ever collecting another monthly payment. The note broker becomes the owner of the note, and collects all the payments. If your intention is to sell your note to a broker to cash out your sale, it is best to work out the details with the note broker prior to the sale. For more information, Google the search term “secure your business note”.
If you manage to sell your home-based business, you are a remarkable entrepreneur, indeed. You have beaten the odds twice: you have created a successful home-based business, and then sold it for a profit.