Selling a Small Business – Why Selling a Smaller Business is Different

If you are a business owner thinking of selling a small business, the process is somewhat different than selling a much larger, more involved company.

Smaller businesses are bought by investors for different reasons and, depending on the size of the company, attract completely different buyer profiles. This article looks at some of the differences in selling a small business from the owner’s point of view.

Micro-Businesses
What is meant by “micro businesses” are businesses that are valued at less than $100,000. There are many different types of micro-businesses and each can attract a different buyer profile. For instance, if you own a small, home-based business valued at $75,000 or so, this usually attracts a potential buyer that is completely different than the person looking for a business valued up to $250,000. To expand, businesses valued under $100,000 or so usually fall into a number of categories. They can be home-based businesses where a good buyer candidate can be a stay-at-home parent looking to augment an income. At this lower price range the business may also be a service based business such as landscaping or home inspection, as an example. This type of business is attractive to the “do it yourselfer” who is purely looking to ‘buy a job’ and a book of existing accounts. The $100,000 and under price range might also reflect a business that could be larger but has suffered a setback and has the potential for stronger earnings going forward, with right management in place. Micro businesses do not necessarily mean ‘micro earnings’. Many smaller companies have excellent income potential and could make a great investment for the right buyer. The point is, when you are selling a small business (especially a micro business) please don’t merely characterize the type of potential buyer based on price. Smaller businesses are attractive to many people for many different reasons.

Small businesses valued in the $300,000 price range
The price point of $300,000 is a ‘sweet spot’ for selling a business in that it is a price that is ‘doable’ by a relatively large pool of buyers. Businesses valued at approximately $300,000 (typically) earn an income to an owner/operator that is over $100,000. This size of business is attractive in that it allows an owner to operate it and pay off debt and earn a comfortable living off of the business income. That price range is within reach for many people, especially home owners who can finance a portion of the business purchase with home equity. If you own a small business in the $300,000 range and if your business is profitable, priced right, stable and showing consistent returns, there should be a relatively large pool of buyers for your business.

Small businesses valued up to $750,000
If you own a business valued in the neighbourhood of $750,000 this is still characterized as a “small business” but it would attract a completely different type of buyer (or investor) to your company. Selling a small business in this higher price range usually attracts a buyer with more financial resources or perhaps a partnership or group of buyers. Many times, the idea with buying a business at this price range is that it can earn enough income to justify hiring a manager with enough cashflow left over to pay the debt and earn a return for the buyers.

If you are thinking of selling a small business think about the type of buyer that would be ‘ideal’ to purchase your company. Think in terms of price and financial ability but also pay attention to things like aptitude and lifestyle choice. There are many small business resources on the internet to answer some of your questions. Talk to a business broker to help you sell a smaller business.

Tips to Successfully Sell a Small Business

When you started your business you planned to grow it as a lifetime enterprise. Now, for whatever reason you have decided to sell your business and cash in on all your hard work. Maybe you want to stock up all over again in another field of business or maybe you just want to put up your feet and relax. Since selling a business is normally a once in a lifetime venture, it is unlikely that you would have any prior experience unless you have started or sold several small businesses in the past. Here is some good advice to get you started with selling your small business:

Defining your business sell expectations
In order to conclude a successful sale of your small business you need to plan the sale meticulously and the first step is to define your expectations:

  • Do you want to sell your business for cash or will you accept payment in another form such as stock or debt instruments?
  • What is your price expectation
  • What expectations do you have of the buyer in terms of business continuity and tradition?
  • Do you want to sell out to the public in an IPO or to your employees in a ESOPs scheme?

Timing and financing
It can sometimes take a long time to negotiate and conclude a sale of a business especially if there is complicated tax issues involved. The majority of small business sales involve some form of seller financing such as deferred payments so that you may not see a large lump sum of cash payment up front. Give some thought to the risk and how you would like to structure the small business seller financing.

Valuing the sell of your small business
You would need a detailed and sensible valuation of your business in order to justify the price that you will be asking for it. Decide on the method that you’ll use since methods may vary with the kind of business involved. The judgment on whether you will use asset value, replacement cost, or capitalization of earning or some combination thereof depends largely on your judgment and what a potential buyer will accept.

Re-doing your small business financial statements
As long as you are running your business, how you present your financial situation is largely dictated by tax considerations so as to minimize your tax bill. You will probably need to recast your accounts to show the true earning potential to backup any business valuation that you undertake. Though you should probably be cautious as to whom you show these records and consult an attorney in the process.

Sell small a business with privacy
It’s a good idea to sell your business with concerns for privacy. You should conduct all your sale negotiations in secret and restrict people in the know to as few information as possible. If word gets out that you are selling, you will find key employees leaving the company or being recruited by competitors, you’ll also find suppliers pulling lines of credit. This will simply impair your ability to get a decent price for your small business. The sale of a business usually screams financial troubles, you don’t want the wrong perception to get out in the public about your small business.

Use a competent small business broker
If possible use a competent business broker. Get referrals, shop around, and research. S/he will help you set a realistic price, identify and approach potential buyers in the strictest of confidence. Remember that s/he has a vested interest in getting the highest possible price since their rate for services rely on commissions of the sale.

Selling a business can take time, but due diligence will prove to breed success. One can expect a sale of their business if they’ve took the needed measures to ensure that their small business is aligned in a direction of growth and they are able to prove such statistics.

Small Business Marketing Tips

Small business marketing tips are guidelines regarding potential opportunities in small business marketing. They help to plan and implement an effective marketing strategy. Small business marketing faces many constraints such as poor budget and lack of essential resources. Marketing tips serve to overcome these constraints. They help to improvise the marketing strategy with a step-by-step planning process. Tips can be the short cut to utilize and benefit from a particular situation. The ultimate aim of these ideas is to enhance the business. Marketing tips are also a guide of do’s and don’ts in the marketing field. Small business marketing tips come up with innovative and practical ideas for a cost effective marketing strategy.

Small business marketing tips attempt to enhance the marketing according to the prevailing conditions. It helps to choose effective resources for marketing, suitable to attract the attention of customers. The tips are available for all the steps in marketing including planning, formulation of the strategy, selection of marketing materials and effective marketing procedures. It enables a product to grab consumer attention and to position itself in the market. Effective marketing tips will generate sales quickly.

Small business marketing tips also aim to maintain product identity. Most of the tips prefer branding of the products for a unique selling proposition in the market. Creative marketing ideas such as newsletters, business post cards and trade booths are provided. It explores alternate marketing strategies such as bartering system, mail outs and offers. Tips suggest that referral marketing is one of the best techniques to highlight a product. Cause related marketing is also harnessed as a marketing opportunity.

Small business marketing tips are usually formulated from the experiences of people. Many provide free tips through Internet sites and newsletters. Books on marketing tips are also available. They impart a fresh perspective on business marketing as a whole.

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