Spokane-based businesses for sale enter into a market that is locally-dominated by investor groups and entrepreneurs. Most small and medium-sized business owners struggle with figuring out how to sell their business once the time comes. Consider the situation – you’ve built or shepherded a business from scratch, built it to profitable times and enjoyed cash flow, and now you’re ready to find a buyer. Well, selling a business is much different than owning a business. If you are searching for an answer to the question: “How do I sell my business in Spokane?” you’ve come to the right place. Here are the steps to follow to successfully sell your business to a prospective buyer that will give you a good business valuation and hit the purchase price you desire.
“Should I Sell My Business?”
Ultimately, the decision to sell your business is up to you. Building a profitable business is no small feat for a small business owner. If you are tired of the day-to-day operation and feel like the time is right to speak with a business broker or an investment banker about the sale of your company, this is a great place to start. Finding a business broker is much like finding a real estate agent to sell your house. Who is the best business broker in Spokane? Or the business business broker for your industry type in the state of Washington?
These are important questions. At SellMyBusinessSpokane.com, we focus on educating small business owners about the process of how to sell a business. Whether it is because of retirement, or a desire to get cash out, a local business owner in Spokane has options to work with a broker, work with a banker, or even stand up and say, “I want to sell my business online and I want sell my business fast.”
Fair enough. Even if you do want to sell your business fast, the process typically takes several months (if not longer). To first prepare a business for sale, you don’t need to go find the best local business broker. You need to look any your business and ask yourself questions like:
- What is the yearly free cash flow of my business?
- What assets do we have inside the business? What debt does the business have?
- Can the business function under different ownership?
- Who are our key customers and suppliers?
- Is my business trending upward or downward in revenue?
- Do I want to retain ownership in the business or sell all of the business shares outright?
- Am I willing to carry some of the purchase price as a note? This is an important question because almost all sales of small businesses require the business owner to carry a note. You are unlikely to get the purchase price you want for your business and at all cash.
“I Want to Sell My Business”
Great. The first step after answering the questions above and deciding to proceed, is to get your financial statements in order. Hopefully, you’re financial records are clean and in good shape. Working with a Spokane CPA and Spokane attorney to get these items together in a professional manner is also a good idea. Potential buyers, whether they be private equity companies or individual investors or entrepreneurs (not to mention any banks that get involved) will look first and foremost at your business financial statements to gauge how much to pay for your business. No matter how small your business is, the financial statements are your universal scorecard showing the performance of the company.
Is there free cash flow? Is the business making money? Hopefully the answer is yes. A business broker is much more likely to want to take on the task of selling your business if it is profitable.
Gather a List of Your Customers
The next step is to gather a list of all of your key customers. List customers out by volume, from highest to lowest. Potential buyers will want to know who your top customers are, what percentage of your business each customer represents, and the nature of your relationships with each customer. If one or two customers make up a large portion of your sales, this is called customer concentration. Private equity buyers and investors get concerned when they see too much customer concentration. Even if the customers are local to Spokane and are businesses you have worked with for 20 years, that does not mean they will be customers tomorrow. Especially if your customers get news of a change in ownership, there can be an increased likelihood that the customer may change their mind about ordering from your business again.
Adjust Your Financials
After compiling your financial statements for the past 3-5 years – this includes income statements, balance sheets, and tax returns – you will need to come up with your “adjustments”. Often described as “add backs” or an “adjusted EBITDA”, the goal for you is to present the true financial benefit provided to the owner of your business in a given year. Many small business owners in Spokane (and anywhere, really) will run personal expenses through their small business. Your car payment, your gas for that car, your cell phone bill, some travel and meals and entertainment. A percentage of these costs can be “added back” to your financials to arrive at an adjusted EBITDA figure. It is the adjustments to your financials that will give you the baseline to work with your business broker on to arrive at a purchase price.
An Example Adjusted EBITDA
For example, let’s say your business’ income statement shows $100,000 in net income for 2017. If you were to go strictly off of that $100K in income, and a buyer comes in and is willing to pay four times that income to purchase the business (or 4 x $100K = $400,000), then your purchase price is $400K. However, think about the expenses of the business. Do you pay yourself a salary? What about health insurance? And your car, gas, cell phone and the aforementioned expenses. All of these are owner benefits that the new owner of the business will enjoy once they buy your company. Assume your salary is $80,000, and the other expenses add up to another $20,000. Your adjusted net income or adjusted EBITDA is then $100,000 plus $80,000 plus $20,000, equal to $200,000. That is twice your original net income. At a 4 times multiple on the purchases price, you are now getting $800,000 for selling your business versus $400,000. Pretty big difference!
Once you have figured out your add backs, you should review these with a financial advisor like a CPA or your business banker. Get their professional opinion on your reporting and your categories of expenses being added back. Too often, business owners are quick to add too much back to their net income. Depending the potential buyer for your business, they may or may not have plans to work inside the business the same way you do. Meaning, buyers may look at your financials and think “Well, I need to pay someone to run this business once I buy it.” They may ask you to adjust for a market salary for a manager to operate the business. Obviously, adding the expense of paying a manager will lower the net free cash flow of the business each year for the new owner. Their financial projections may require them to lower the presented adjusted net income, and thus make it harder for them to financially back out your desired purchase price.
How Do I Sell My Business Fast in the Spokane Business Marketplace?
In Spokane, businesses in the size range of $25,000 in net income up to $4 million in net income are selling at an average pace in 2017. Most Spokane business brokers and local bankers report that now is a good time to sell your business. The real estate market is strong, interest rates are low, and the size of private equity funds across the United States are larger than they have ever been in history. Simply, there is no shortage of cash or interested parties who could be out there looking to buy a business in the Spokane area. Top industries include manufacturing, wholesale and distribution, software, and professional services businesses.
Can I Sell My Spokane Business Online?
More and more, business owners are turning to the internet to list their business for sale. Aggregator listing websites like BizBuySell.com and BizListings.com offer the opportunity to list your business for sale in Spokane on a nationwide marketplace, complete with all the information you’d want to present to potential buyers.
You may also try to list on Craigslist or similar Spokane-specific listing websites. Most business owners will require the help of a professional business broker or M&A firm to sell their business. After all, this will likely be one of the biggest transactions of your lifetime. You should enlist a professional to help – and not just a broker, but also an attorney and a good CPA.
Business brokers local to Spokane will immediately have access to potential business buyers in the marketplace, including investors, entrepreneurs and larger funds investing in the area. Much like selling a home, your chances of successfully selling your business go up when you work with a professional who has the marketing, connections, and experience to get a deal done.
Many business owners find that trying to “sell my business” is a lot different than “running my business” and you can’t do both at the same time. If you are active in the day-to-day operations of your company, it may not be practical to even attempt to manage the sale process and entertain buyers on an ongoing basis. Remember, it can take many months, or even 1-2 years, to sell a business. If you’re tied up in the sale, who will be minding the shop? You have to be sure that there’s still a successful and profitable business left for the new buyer to take over!
For those that today are thinking I want to sell my business, no matter if it’s going to be an asset sale or a stock sale, for all cash at the purchases price or you carry a note and retain some of the real estate for your prospective buyer to then rent, the first step in the process is to educate yourself on sites like Sell My Business Spokane. You may contact us here to get more information about the steps to sell your business today.