Selling Your Business, What is Fair to Those People Close to You?

When selling a business, as in the rest of life, if you don't know what you want you are sure not to find it. Our next several posts will involve balancing all of the factors you must plan for when selling your business. Solving this riddle is the essence of a successful business succession and exit plan.

Knowing what you want involves balancing many competing interests. The first area we will talk about is determining what is fair for the people closest to you.

Spouse:
Most couples have talked about how they will handle the sale of the business for years. In most cases the spouse is fairly straight forward since downstream financial support is usually the main issue.

Children:
One of the most difficult situations is deciding what is fair treatment for your children. Each child has different interests and abilities. Some will work in the business and some may not. Sometimes a child will want to run the business after you retire but just does not have the ability. These are all difficult decisions. They take great soul searching. Each situation is different and depends on the people involved and the underlying business. In the end you must do what you think is right.

Key Employees:
These can make great buyers. If they are not interested in buying their commitment to stay with the business for at least a year or more after a sale can greatly enhance value. You need to think about this and work out something fair to all.

We advise that you start talking about these issues to these key people in your life at least 5 years prior to your projected sale/retirement. By making it clear that you are planning for the somewhat distant future you can begin gauging interest and possible solutions without the upset that an immediate decision "sprung" on people can cause. www.harvestbusiness.com

Why New Franchises Sell Better than Existing Businesses with Poor Financials

We are frequently asked by business sellers why a new franchise with no actual financial history will sell before an established business with good revenues but poor overall financial performance. Selling a new franchise is like selling a dream. It is a dream that is backed up by other successful performances, proven systems, and a qualified central management team. Yet the buyer’s future operation is still only someone’s vision. There is no historical financial performance that clouds the stellar possibilities with the reality of average or below average performance. The ugly possibilities remain tucked away. Because of this the untested new franchise appears to have much less risk than a poorly performing established business.

A business with poor financial performance is in a difficult spot. The normal due diligence process involves looking at financial performance before any other aspect of the business. The ugly possibilities take front and center. For this reason a “good” business with poor financial performance will be seriously looked at by very few qualified buyers.

On the other hand a business with well performing financials clearly has less risk than a new franchise. It is proven. Cash flow has been established. A buyer’s conservative accountant can review the information and come up with a valuation that is in the range of what will be paid for the business.Available third party financing follows this trend. A successful existing business is quite easy to finance through the SBA or sometimes local lenders.

A new franchise is fairly easy to finance through the same routes when demographic factors justify the operation. Yet when we get to poorly performing existing businesses the only financing is from the buyer or seller’s pockets. Generally there are few third party sources. New franchises sell before financially challenged existing businesses because of the perception that there is less risk associated with the purchase. The way to capture the buyer before they purchase a new franchise is to reduce the buyer’s risk. Unfortunately this is usually a combination of lower price and seller financing.