HOW TO SELL A COMMERCIAL BUSINESS

How to sell a Commercial Business - Or how to value a business so that you can sell it.

Steps

Understand how to value the business and what the market is for that business. this entails you spending some initial time gathering data for your valuation determination.

 Determine what your business valuation is, is to find what your SIC code is and to determine which category your business would fall into. Is it a small Pharmacy or a Graphics business whatever it is will determine your value ratios.

For example: if you own a small newspaper in a small town you have a glorious position that everyone in your area looks up to. This is considered an A+ business type and your valuations could be as high as 10X your net profit or your EBITDA (Earnings Before Interest Taxes Deductions and Adjustments). If you own a small graphics studio in a small town your income to sales ratio will most likely be less than 5X net income or EBITDA. This differentiation is due to the sizzle factor. People pay higher prices for businesses that have more prestige and more sizzle.

EBITDA is defined as follows: What do you take from the business as income. In this number you need to know exactly what your net profits are and what everything else you take from the company is IE: car payments, life insurance, Lunches, vacations etc.

Once you have determined what your selling price is, look around at who in your area is the best business Broker you can find assuming you do not want to sell it yourself. Look at the advertising as if you are interested in buying whatever business you have. call several and ask them about businesses they have listed and what it would take to buy one. Choose the best one you find but be sure you ask them this one important question. HOW MANY BUSINESSES HAVE YOU SOLD THIS YEAR? You will then find out who is smoke and mirrors and who is a real producer.

Consider selling it yourself. If you want to sell the business yourself there are several ways to do this. You can actually list your business for sale in the local MLS system by paying a fee. They cannot deny you even though you are not a licensed broker. You can also advertise it in several business related websites like Manta.com or loopnet.com or many others that provide a portal to online advertising of your business. Ultimately it depends on your personal comfort level at representing yourself.

Remember the one thing most business owners do is overvalue their business. Just because you have been in business for 10 years does not mean that your business is worth millions or billions; its not. Its only worth to someone else what they can make from it. If you earn N30m in EBITDA for the last three years your business is probably worth N150m. if however you have earned only N1.5m each year for the last three years your business is worth N7.5m. A business should pay for itself in 5 years.

There are several other ways to value a business. Due to the complexity of business valuation and selling there is no one clear method.

Tips

Always count everything you take from the business

Look at your business as if you were going to buy it.

Be dispassionate when you analyze your business

Warnings

If you haven't made a profit in 3 years it probably isn't worth anything

When you interview a Business Broker, ALWAYS ask how many businesses they have sold this last year

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