This is very bold, still getting small businesses and stuff. The reason that many small business owners start a company is to sell it, they want to get some kind of monetary value for all their hard work. And you're not going to get what you think because you are stuck in this area, you're not building value, because the company still is mostly about you. Without you at the company, the value of the company is drastically reduced. Now, being the center of your company may build your ego it may build your confidence, but it does not build value, because your company is not sustainable without you. Let's think about where the value a strategic buyer may find in your company.

First of all, it could be in your intellectual property that could be products, services or your brand. It could be in the people beside you, the management team that the way that you do succession, it could be in customer annuities that you've had longtime customers that keep coming back month after month after month. The value could be in the distribution channels, where it's really difficult to get a product like yours distributed to the customers. It could be in the scalability of your company's product or service. And it's treated buyer looks at can they accelerate the products or services once they buy you. For example, this is why Instagram and WhatsApp were sold for billions of dollars because their buyers knew that once they got on their customer list, they were able to grow the business way high.

So let's talk about the questions that have to get discussed when Selling your business? What is the right time to sell? What do you have to do to prepare to sell? What's the process really? Like? How can you maximize the money that you make?

And who should be out there to help you? Let's take the first question. when is the right time to sell? I believe that the correct time is when there's profit. But there's no more passion. You need to have profit, you need to make sure that the company is still growing and has cash flow.

But if you don't have any passion associated with it, now is the right time to go out there and sell the business. Whenever I help someone to actually sell their business. I asked them this very key question. What will you do the day after you sell your company? Let me repeat that. What will you do the day after you sell your company?

This is a very important question because if you don't know what you're going to do the day after, you're going to have Have buyers or correct me sellers, remorse somewhere along the line and saying that you're going to pursue your hobbies really is not a good answer. Think about what you're going to do without that company that you built. The second most important question is, how much money are you going to be able to keep after taxes on the day of the sale, this is a very critical thing to look at, because there might be bragging rights if you sold the company for a lot of money. But if it's not done in the correct way, you're gonna end up owing a lot of taxes, or maybe you get that money later on, which will be very difficult to collect. We have to remember when selling a company, there always is a tug of war between the seller and the buyer.

They want different kinds of things. So for example, how much money should be paid at closing. Of course the seller wants all of it, the buyer Well, they don't want to give you anything they want. To pay over time, what kinds of warranties and guarantees should there really be in selling the business? The seller, of course, wants very few, but the buyer wants a lot to make sure that you're telling the truth, and you're liable for anything that goes wrong. What about financing?

Well, of course, the seller doesn't want to do any self financing, and the buyer would like the seller to finance everything so they can pay it as the profits of the business. What about earn outs, money that perhaps the seller gets over a period of time, based on how the company does in the future? Well, the seller doesn't want any because they want all their money up front, and the buyer wants many they would love to be able to base the sale price on however the company performs in the future type of transaction. It's very favorable for a seller to be able to do a stock transaction. But of course, the buyer would like to do an asset transaction the government ensures which would be of no surprise That's somewhere along the line, someone pays the taxes. And as far as escrow putting money away during the transaction during the due diligence, of course, the seller would like at least 10%, and the buyer would like none.

So the seller and buyer have to get together in all these different areas to make the transaction happen. Let's discuss what buyers really value. What you're going to want to do is sell the company to someone who is a cheap buyer. How will buying your company enhance the value of their company should change it buyers are also looking for 25% profit after all the Add backs and the most important part here to keep the value of your company high. And this goes back to when we talked about getting wealthy in the financial section of this video series is that good financial information that ties exactly to your tax returns will be power The due diligence phase. Good numbers mean good value.

Let's talk about the 10 steps that go into the sales process. First, you have to answer that all important question, why are you going to sell the business? And what are you going to do the day after you actually complete the sale. The second thing is you have to assemble all the materials, you need to actually sell the business, all the due diligence that will be required. If you don't assemble this information ahead of time, then when they ask for the information, and you're slow, it will be a bad reflection on you and could impact the transaction. You should then choose a registered broker to help market the company and then with the broker put together a sell document.

This is almost like a business plan. Why is this company valuable and what is it really selling for? The broker will then make introductions, he or she will schedule calls and visits if they're appropriate. And then you'll get multiple non binding letter of intent. What's the letter of intent? It's a two or three page document that lays out the basic business terms of the deal, what the price is going to be, when is it going to be paid some of the reps and warranties how long you have an exclusive with that buyer, and when the transaction be completed, please understand that every letter intent is non binding.

So during the due diligence process, it can be cancelled without penalty to either side. Then you go through the due diligence process where they ask for all sorts of information you provide to them and they review how your business has been operating over the years. During this period of time. You'll also get the lawyers together and you'll negotiate a purchase agreement, and then you go through close this entire process, believe it or not, could take six months or longer. That's what you really should plan for now. What really holds back this process.

The first thing is bad financial records. If you have not kept good financial statements over a long period of time, then this will hold up the process as well as bank financing from the buyer, or governmental licensing or other contract approvals that need to happen for the sale to go through. What also holds up. This process is a lot of professionals that can get in the way. I mean, lawyers and accountants, sometimes accountants don't want to share information with the buyer, because they think that perhaps they did something wrong in the process, or they may want to charge the seller to make the information available. You should not stand for this.

But I've seen it done many, many times. The lawyers also can get in the way, because sometimes there are big egos in each side. And when they try to write an agreement, each one wants to win. We should understand the size of the company that we're selling, and we should not Repeat should not have in our agreement, what happens if the sun explodes, and that's from a real life example, make sure that the lawyers get along, and that the two sides really want to do this deal. Let's discuss what should be in the sale packet. Mostly, it's a one page executive summary with three years of financials that match the tax returns, including all the Add backs, a price that you want to sell the company for, and a confidentiality non disclosure agreement they sign before they know who the company is, and they get the financial statements.

Very intrinsic to this entire process is we call is add backs. Add backs is cash or expenses that the owners have charged towards the business that the new owners would not have to incur. In this case, money that you've been able to legally expense off to the business, like a car like an off home office are in your own insurance, those kinds of things are actually good because they get added back into the EBIT da for the company and will yield a higher purchase price. Again, some examples of these are your travel, your supplies, things you've done with your relatives, your cars, your telephones, your insurance, and perhaps excessive rent that you've paid for yourself for a business, a building that you own, that your business is currently in. A lot of folks ask me, What is my company worth? And the simple answer that is, well, whatever someone will pay for it.

In general, businesses are usually worth and it does vary by industry, somewhere between two and a half times to 10 times cash flow. How do we define cash flow? It's that EBIT da plus all the owner add backs put into the equation. So for example, let's say your company made $250,000 last year, and when you put the ad backs back in, that's an additional $50,000. So your cash flow is $300,000. And perhaps your company is worth four times that, that would be $1.2 million.

But remember, the value is in the eyes of the beholder, and a strategic buyer, someone that knows when they take your company, and it could really improve their current business, they will pay a much higher price than just a cash or a financial buyer. Your most powerful weapon really is in the numbers. Good financial records will really be the best thing you can use to make sure that you get the highest price. One thing that you need to be aware of is any skeletons that you have in the closet. Anything that might come out Perhaps you don't want to come out or shame to come out in the due diligence process. I guarantee you, the savvy buyer will find those skeletons in the closet.

So the important thing really is to disclose those early on, so they do not become an issue. Again, a lot of people ask me, What is due diligence actually, like when someone takes a look at your company about how it's been operating all these years? I'll give you two examples. In one way, it's like someone calling your child ugly. You love this business. It's beautiful.

And they come in and they just tear it apart. It's also like a lobotomy where they go and they look through every single part of your business and tell you how bad it's looking. You just have to let go of that. You can't take it to heart. Remember, a buyer doing due diligence, their job is to come in and find faults in your business. So it lowers the purchase price.

What is really neat During due diligence, when most important parts, as I said before is three years of financial statements that match the tax returns. Don't ever give any due diligence to a buyer. Unless you have made sure you know the answers their questions, you're going to want to give them documentary proof of all add backs, you'll have to give them payroll information without the names of the employees, your insurance policies, any last run reports the last five years, and any explanations that really needs. You will also need to provide stock certificates and show that in your state, you are a corporation in good standing, you'll need to give them all the agreements with various vendors and employees. You'll also need to show them any mortgages or lines of credit you have, are there any litigation pending against your company. And you'll also have to give them any environmental phase one or phase two that you've done in the past to make sure that we're ever Your company is it safe to operate.

The biggest deal killers are inaccurate or inconsistent information. If your story keeps changing from the time there was a letter of intent, through due diligence, that will sink a deal will also make a deal go south is during this due diligence process if your revenue is actually trending lower, because then the buyer is going to get real nervous. Remember, during this entire process, confidentiality is really key. Do not let anyone in your organization know that this is going on, except for the people that have an A must know basis because if the deal doesn't happen, you don't want the word to get out that you're actually selling the company. Let's talk about what this should cost in terms of fees. The business broker that will help you will actually charge a percentage of the deal typically they get a retainer up front, somewhere between five and $10,000.

And they They will charge you somewhere between five and 10% of the total price of the deal and they get paid as a success fee, the lawyer will probably charge you an hourly basis and for small businesses, a lot of transactions of this type can cost somewhere between 15 and $20,000. As far as the accountant goes, their extra work may amount to several thousand dollars. This is the way the sales process really works. Make sure that you're building value in the company. As we said in step one, the business cannot be all about you. Or you will not have a very valuable company and never be able to sell it for a lot of money.

Think about what your one change you're going to make to bring more value to your company. This is Barry mold still getting small business unstuck. Have a great day.