By Laura Babcock
Selling a business is complicated. You’ve put years of hard work into building up a company that is a significant part of your life. Maybe you also sunk a lot of cash into the business to help get it started and then again through all the rocky moments along the way.
Between your sweat equity and capital investment, you have an expectation of what your business is worth. So you want to sell. Cash out. Retire to Arizona or Florida. Never mind what your business tax returns show. You know what your business is worth. You deserve it! You’ve earned it!
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Selling a business is also tricky because it can get emotional. This is your baby. Something you may have started from scratch and built into a thriving business. You’re proud of your accomplishments, and you should be. You expect compensation for what you’ve created.
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But what happens when no one wants to buy your baby? You think, “No one sees my vision, understands my passion,” or you think they want an easy way into business ownership.
Have reasonable expectations
According to BizBuySell.com, only one in five of their business listings get sold. That either means there aren’t many people looking to buy a business, or there are a lot of sellers with unreasonable expectations (in other words, overpriced businesses for sale). I’ll put my money on the latter option.
Take Gerald for instance (all names have been changed). Gerald owned a paint store in a smallish town in southern Minnesota. He and his wife Evie owned and managed the store for thirty-plus years. Gerald had one key employee and would sometimes hire part-timers to fill in during busier times. The paint store had several customers who were regular clients, mostly painting contractors, who had done business with Gerald for years. Business was good. Life was good. Gerald and his wife owned the building that housed the paint store, they had put two sons through college, they vacationed in Florida, and they paid very little income tax.
But then Gerald and Evie had some serious health scares and decided it was time to sell the business. Neither of their sons wanted to take over so they contacted a business broker. They were excited. Gerald and Evie started looking into the cost of homes in Florida. They were sure the business was worth more than what a vacation home cost. Woo-hoo!
Then the broker asked to see inventory records and agreements with the paint supplier. He asked to see the deed on the building, financial statements for the last three years, and . . . ba-boom: tax returns.
Gerald asked if this was all necessary. Couldn’t they base a sales price off their annual revenue? Sales were good. Anyone could come in here, own the business, and make a decent living. Why did it have to be so complicated?
Now, in Gerald’s defense, he knew he wasn’t the best recordkeeper, so he used an outside bookkeeper. Problem was, Gerald never took the time to understand what she was keeping track of. The records were confusing, and as the broker found out, incomplete. As for taxes, Gerald’s tax preparer had for years suggested ways to minimize their tax liability by taking certain deductions. It was all legal, but it didn’t make the business look profitable.