Advice on selling a business

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steve_p

Senior Member
Hi,

Family matters have me moving to another part of the state.

I have a thriving one man shop and would like to sell the business / customer base.

Don't want to deal with a broker.

I am in a beautiful resort town, great weather.

Figure someone up one of those cold areas must be looking for an escape.

Any advice on where to advertise? Also what to do to prep?

Thanks,

Steve
 
Also what to do to prep?

Get your books, customer lists, inventory, etc in order.
Decide whether you're selling the entire business or just the assets* of the business then closing the existing corp./proprietorship. (If nothing else, do you want the new owners to operate under the same name?)
Talk to a lawyer and CPA about the sale; you want them to make sure all the paperwork is in order, that you're covered if the new owner screws up or doesn't pay someone, etc.
Plan for how you're going to wind down your involvement, for instance, would you send a letter to customers about the change or let the new owner do it? Will you answer the phone if the new owners call with a question?

*assets aren't just they physical inventory; customer lists and goodwill also count as assets.

Think about it from the other side- buying the business. What would you want to know before signing?
 

petersonra

Senior Member
Location
Northern illinois
Occupation
engineer
I have been through several such changes in ownership as a customer. My chats with the people involved suggests that most small businesses have a lot less value to a buyer than the seller hopes for.

Many small business owners are making less running their business than they could just working for someone else. That kind of business does not really have any value at all.

Run it by your lawyer and accountant as someone else suggested.

I would also suggest a clean break. Letting the guy pay you off over time may sound like a good idea as a way to get more out of the deal, but if he cannot get a bank to finance it that way, that ought to tell you the deal is financially not especially viable. The bank does not want to finance a loser, and you should not either.
 

steve_p

Senior Member
Thanks for the last two bits of advice.

The business is doing well, can't keep up with demand. Someone younger and willing to hire some help would do well.

I am looking to do a cash buy out. Don't want a broker involved to keep the price down.

Just looking for some funding for the relocation.

Many thanks.

Steve
 

kwired

Electron manager
Location
NE Nebraska
I have been through several such changes in ownership as a customer. My chats with the people involved suggests that most small businesses have a lot less value to a buyer than the seller hopes for.

Many small business owners are making less running their business than they could just working for someone else. That kind of business does not really have any value at all.

Run it by your lawyer and accountant as someone else suggested.

I would also suggest a clean break. Letting the guy pay you off over time may sound like a good idea as a way to get more out of the deal, but if he cannot get a bank to finance it that way, that ought to tell you the deal is financially not especially viable. The bank does not want to finance a loser, and you should not either.
I have to agree with most of this.

Thanks for the last two bits of advice.

The business is doing well, can't keep up with demand. Someone younger and willing to hire some help would do well.

I am looking to do a cash buy out. Don't want a broker involved to keep the price down.

Just looking for some funding for the relocation.

Many thanks.

Steve
I would be in about same situation as you if I decided to leave my location. I don't expect to sell my business, maybe sell some assets but not the business as a whole entity. I don't know who would want it, I myself wouldn't buy it and would start my own small business instead. Customer base, especially for a one man shop - they are customers because of that one man, there is no guarantee they like the guy that takes over and you can't really buy a customer base. Large businesses can buy customer base to some extent, but they are buying large blocks of customers as well as existing contracts, agreements etc. more so then they are buying each individual customer. So unless you have agreements or contracts to sell what does the purchaser have to gain? And even those items will usually expire at some point which may effect their value some.
 
Location
NE (9.06 miles @5.9 Degrees from Winged Horses)
Occupation
EC - retired
I happened to listen to a talk radio show a few weeks ago and the discussion was about buying a business. Bicycle shop in this case. Shortened version, the inventory was the only thing that had value.

On a side note, about 7 years ago I had a friend that retired and wanted to sell out. He ended up giving me the material. Delivered. Some good 2nd hand stuff, but mostly new in boxes.

Now it is getting time for me to retire and I have his good stuff and new, plus my own.
 

steve_p

Senior Member
Thanks, I think ????

So I decided to contact a larger shop near by, anyway the shop owner does want to buy the business.
Big enough shop that he would be able to get cash.
He wants to get a service division going.

It looks like we can work a deal. Some seed money for the new area is what I am looking for.

Initial discussion would be buying the business, using the phone number,, keeping the name as a subsidiary , not sure if that is the correct term.

Thanks for all the help, now to value it.

Steve
 

kwired

Electron manager
Location
NE Nebraska
Thanks, I think ????

So I decided to contact a larger shop near by, anyway the shop owner does want to buy the business.
Big enough shop that he would be able to get cash.
He wants to get a service division going.

It looks like we can work a deal. Some seed money for the new area is what I am looking for.

Initial discussion would be buying the business, using the phone number,, keeping the name as a subsidiary , not sure if that is the correct term.

Thanks for all the help, now to value it.

Steve
Put yourself on the other side of the fence and ask why you would buy such a business over just putting more effort into what you aready have? Most any small business has no real value other then whatever it can liquidate assets for, and the faster you want to get rid of them the less they generally will go for.

If you had patents on an item or something like that that maybe worth something, maybe a prime real estate location for a shop or office maybe worth something (but maybe the real estate is all they are interested in and not the rest of your business) or like I said if you have current contracts that can be sold or transferred then those might be worth something, but otherwise you have to ask why would someone want to buy you for what you may think you are worth?
 

cowboyjwc

Moderator
Staff member
Location
Simi Valley, CA
Back in the day, I looked at buying my old bosses business. I'd worked for him for six years and we were never slow. I took the books to a CPA and he basically told me that the business was not showing a profit and hadn't for a couple of years. Now it may have just been creative book keeping on my bosses side, but it seemed that it would make more sense to just open my own shop.
 

petersonra

Senior Member
Location
Northern illinois
Occupation
engineer
Back in the day, I looked at buying my old bosses business. I'd worked for him for six years and we were never slow. I took the books to a CPA and he basically told me that the business was not showing a profit and hadn't for a couple of years. Now it may have just been creative book keeping on my bosses side, but it seemed that it would make more sense to just open my own shop.

A friend of mine and his wife opened a retail store. They did a pretty good business. From the outside looking in it would appear to be doing quite well. The guy told me the full story.

He maxed out on SS and medicare from his regular job. His accountant had structured the business so it appeared like all the profits were going to him even though his wife actually ran the business. This saved them from having to pay the self employment tax on the money the business made.

he had really decent health insurance from his employer that he was able to cover her for at a relatively low cost so there was no health insurance cost for her charged to the business.

Between them they typically worked about 70 hours a week on the business. He told me the net profits amounted to less than $10/hour. That is not even $35,000 a year. For a 70 hour/week job.

This is not an unusual situation with self employed people.

they retired and sold the business to someone else for what profit the store showed for the last year they ran it. The new owners closed it up a few years later. I think the new owners were supposed to pay them 1/3 per year of the sales price for 3 years. i think they ended up getting part of the payment the first year.
 

cowboyjwc

Moderator
Staff member
Location
Simi Valley, CA
That could have been true for him too.

Funny how in retail that a mom and pop can't compete with the big retailers, because of buying power and the ability to keep costs down, yet in our trade and probably construction as a whole, a small guy can usually underbid the big guy, to a point.

I don't know why anyone would want to open a business these days unless you have something that no one else has and everyone wants.:happyno:
 

petersonra

Senior Member
Location
Northern illinois
Occupation
engineer
That could have been true for him too.

Funny how in retail that a mom and pop can't compete with the big retailers, because of buying power and the ability to keep costs down, yet in our trade and probably construction as a whole, a small guy can usually underbid the big guy, to a point.

I don't know why anyone would want to open a business these days unless you have something that no one else has and everyone wants.:happyno:

Opening a business has always been risky. Not real long ago I saw an article (Forbes maybe) that said 8 out of 10 new businesses fail within 18 months.

I have also seen articles that claim 50% make it to 5 years.

Whatever the number is, it us pretty daunting.

You pretty much need a niche you can work to be profitable business of any kind, especially a start-up.
 

kwired

Electron manager
Location
NE Nebraska
That could have been true for him too.

Funny how in retail that a mom and pop can't compete with the big retailers, because of buying power and the ability to keep costs down, yet in our trade and probably construction as a whole, a small guy can usually underbid the big guy, to a point.

I don't know why anyone would want to open a business these days unless you have something that no one else has and everyone wants.:happyno:
To a point yes. When economy was completely in the toilet, I recall small operators complaining about being undercut by bigger operators in this trade - if anything just to find something for their guys to do during a slow period instead of having to lay them off.

A small guy that has not built up any reserve equity is the one that can't afford to have a slow period even for only a couple weeks - it kills his business, or at least makes it very difficult and takes more then the duration of the slow period to recover - I have had experience in this area:(
 
Location
NE (9.06 miles @5.9 Degrees from Winged Horses)
Occupation
EC - retired
To a point yes. When economy was completely in the toilet, I recall small operators complaining about being undercut by bigger operators in this trade - if anything just to find something for their guys to do during a slow period instead of having to lay them off.

A small guy that has not built up any reserve equity is the one that can't afford to have a slow period even for only a couple weeks - it kills his business, or at least makes it very difficult and takes more then the duration of the slow period to recover - I have had experience in this area:(

All you need is a wife with a good job...and to make sure the house is clean, supper in the oven, and kids with freshly diapered bottoms when times are slow.
 
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