Every business owner eventually decide now is the time to sell their business. You wake up one day and read their tired, your health has changed, or you have decided that you would like to cash out and get a healthy return for all your years of building that business. That’s fine, and you deserve it! But shortly after the realization that you want to sell your business comes to mind, most business owners immediately wonder “how do I actually sell my business?”
That’s where the professional business brokers that Sell My Business Cleveland come in. For over 20 years, we have help business owners exit their companies successfully. Businesses that we have helped have been in industries that range from: wholesale manufacturing and distributing, laundromats, car washes, Insurance brokerages, mortgage companies, software businesses, sporting goods stores, restaurants, and many different types of franchises.
Cleveland based business owners are no different than any other small business owners looking to sell. selling a business is definitely a different process than running the day-to-day operations of a business. That’s why professionals in the mergers and acquisitions world exist.
How to Sell My Business in Cleveland
If you want to sell your business, there are many questions that you need to work through it to prepare the business for sale. It can be helpful to hire a business broker like those at our firm to work through these questions and it help prepare the business to go to market. Examples of these questions include:
- How much net income has the business produced in the past 3 years?
- Who are the key customers of the business? Who are the key suppliers?
- Are you, the owner, replaceable or do you need to stay involved?
- What items are on your balance sheet?
- Do you have any key customer concentration issues? Do you have any key supplier concentration issues?
- Have there been any extraordinary or one-time expenses inside the business in recent years that we need to normalize?
As you can see, the questions and issues you need to work through to even prepare a business for sale are lengthy. That is the role played by a business broker or M&A advisor in helping owners to navigate the process. We will ask the important questions up front, and help you prepare the answers you will need when you get into discussions with a buyer.
How Much is My Business Worth?
Many owners are rightfully curious about the purchase price they can expect to achieve if they put their business for sale on the market. We say “rightfully” because the purchase price is the single most important factor that will influence if you are willing to accept deal. It is almost the most important factor in determining if a buyer for your business will be willing to buy it. You need to have a reasonable value expectation from the beginning. If your business is profitable and has been growing its net income, or maintaining a relatively stable net income for the past few years, you are in good shape when heading out to the market.
However, if your business is not profitable or is losing money, it is likely not as easy to sell the business. Few buyers will want to put out capital to acquire an operating business that is going to lose them money. There are circumstances where this happens, of course, like when buyers will buy a business simply to obtain its real estate, inventory, employees, brand or name, intellectual property, patents, website, or customer list. These sales are typically much less valuable than the sale of an ongoing entity that is producing good net income and has the prospects to do so going forward.
The questions we need to answer about your business to create a business valuation begin with your existing net income. We will work with you to review your financial statements over the past few years. Like your eventual buyers, we need to see the scorecard of your company’s performance in recent times. Hopefully, you have maintained clean financial records and have worked with a licensed CPA to have your financial statements prepared or at least reviewed (this includes your yearly tax filings). Your income statement is a great place to start – how much money has your business produced in net income this year? Last year? Let’s dig into those income statements and also do some recasting of any expenses that were one-time or discretionary in nature. One-time expenses can be pulled out of net income to increase your bottom line if they truly are something that will not recur on the go forward. An example of a one-time expense that can be added back would be extra legal work needed to prepare a patent application for your products. Discretionary expenses like your personal salary (if it is paid at an above market rate), or something like your auto expenses or family travel that you have expensed to the business, can be added back to net income as well.
Once we have nailed down a re-casted net income figure, we will look outside of your business and into the greater market to determine a value. This happens in a few ways. First, professionals like those at Sell My Business Cleveland, well we do this for a living. We monitor the sale of businesses of all types in Cleveland, around Ohio, and across the U.S. If you have a commercial cleaning business and we are working together to try and derive the purchase price to take to market, we can look at data that is available on recent sales of commercial cleaning businesses in the U.S. We can also look at similar businesses, like other commercial service businesses like HVAC, window cleaners, commercial plant and landscape leasing businesses, and the like. How much have these businesses sold for recently? What multiple was applied to their net income to arrive at the purchase price? Who purchased them, a strategic buyer or a financial buyer? Is private equity doing a “roll up” in your industry?
All of these questions are relevant to ask and important to answer to derive your valuation. Think of it like how real estate agents review comparable sales of similar sized homes in your area, when figuring out what price at which to list your house. In their case and in ours, we are reviewing the market to see what it will bear.
The “multiple” we mentioned is the other key component. A multiple is a financial calculation that is applied to the earnings of your business to arrive at a purchase price. Many smaller businesses sell for a multiple of net income in the 3 to 5 range. Meaning, a business that makes $200,000 in net income can sell for a multiple of 3 at a purchase price of $600,000 (or 3 x $200,000 = $600,000). If we see that commercial cleaning businesses are selling at a 4 times multiple around Cleveland, we know that we can likely price your business at 4 times an average of the last few years’ adjusted net income, or adjusted EBITDA.
How Can I Find Buyers for My Business?
Finding buyers for your business is another main reason to work with a business broker or M&A advisor. Our process begins with reviewing your financials and helping to recast them, then we focus on business valuation, but the next step is to market the business to potential buyers who are actively acquiring in your industry. We will help prepare an investment memo, sometimes called a confidential business review (or CBR). Think of this memo like a brochure on your business. It may include anywhere from 10 to 50 pages of information focused on aspects of your business that buyers will want to learn, like:
- Business History
- Financial Performance
- Re-casted Financials
- Product or Service Description
- Service Area (e.g. metro Cleveland)
- Org Chart / Employee List
- Key Customers
- Reason for Sale
This memo will be our marketing tool. Business brokers like our group utilize our connections and network to spread the word about a new potential sale. We have worked with dozens of investors, entrepreneurs, and investment groups like private equity firms, to sell our clients’ companies in the past. Our database of connections is something we will tap to market your company’s sale. We will also actively market a teaser of the business (this would include the industry, that it is in Cleveland, recent sales volume, and purchase price expectations) on business listing websites like BizQuest.com. Buyers monitor these websites to find new opportunities that fit their investment charter.
Once a buyer inquires, we will make them sign a non-disclosure agreement to protect your information and interests. We will vet the buyer by having an initial conversation to gauge their interest, answer questions about your business, and to verify their source of funds. If things progress positively, we will introduce the buyer to you and manage conferences calls and/or meetings for you to get to know the buyer. During this process, it can be helpful to have a third party advocate like our group acting in the middle between negotiations.
From there, we will accept any offers in the form of a letter of intent (LOI) from interested buyers. It is up to you if you want to accept the terms of any LOI. We will help provide guidance on what terms are typical for a business of your size, or in your industry type.
Want to Learn More?
This is only a small introduction to the process of selling a business. If you are in Cleveland and are thinking about putting your business on the market to sell, please contact our group at Sell My Business Cleveland by calling 216-902-5822.
Sell My Business Cleveland Brokers
5005 Rockside Rd #600
Independence, OH 44131