Eventually, every business owner wakes up one day and says, “I want to sell my business.” Whether the reason is for retirement, health, to realize cash flow and capital gains from a potential buyer, or simply because the business owner wants to move on and do something else, every business owner who wants to sell faces this tough question. So, how do you sell a small or medium-sized business to a buyer?
How to Sell My Business in Tampa
Tampa-based business owners must first answer several questions and get to work on preparing their business for sale, before ever engaging a business broker or Tampa investment bank. If you want to sell your business, first think like a potential buyer. What questions would a buyer want answered about your business?
- How much net income and free cash flow does the business throw off each year?
- Who are the key customers of the business?
- Are sales trending upward or downward?
- How involved are you, as the owner, involved in the day-to-day operations?
- What does the balance sheet look like?
- What potential upcoming capital expenditures will be needed to keep the business operational (or grow it)?
- Are you looking for an asset sale or a stock sale?
These are just a small sample of the questions you will need to answer to take your business to market in Tampa, or anywhere really. Sound like a lot of work? It is. That’s why many business owners realize quickly that running a business profitably is very different than selling a business to a new owner. It is a different skill set, with different vernacular and requires a lot of time. That’s why the majority of business owners who do sell end up listing their business for sale with a broker or investment banker. For a fee – usually a small up front fee and a percentage commission of the eventual sale price – brokers will work with you to prepare your financial statements, write a brief or confidential investment memorandum (CIM), and put the business for sale on online marketplaces as well as contact their respective buyers’ lists. Business brokers in Tampa should have existing contacts with private equity groups, investors, entrepreneurs looking to buy businesses, search funds, and local banks.
Selling a Business is Like Selling a House
If you want to sell your business, think of how you would sell a house. You’d hire a real estate agent. You’d clean up odds and ends around the house. And you’d price the house based on comparable sales in the area in recent months. That’s much like how you will sell your business. You need to learn up your financial statements, first and foremost. Hopefully, you have a history of clean financial records including income statements, balance sheets, cash flow statements and tax returns prepared by your accountant or CPA. Also include a customer list to show who your top customers are and any concentration in customers for the business. Buyers get nervous if they see a large percentage of sales going to one or two key customers, or key customers fluctuating greatly year-to-year in their purchases.
With your financials pulled together – and if you don’t have them clean and easy to read for the past 3 years, you should get to work in advance with your Tampa CPA and arrange your financial statements. When those are compiled, the next step in preparing to get a business valuation is to work on your add backs. What are add backs? Add backs are adjustments to your financial records to take into account different expenses that benefit you as the owner of the business. The intention is to arrive at an adjusted net income, or adjusted EBITDA (earnings before interest, taxes, and depreciation), to show the true owner benefit the business produces. Different business brokers and business buyers will look at this figure using separate approaches, but it begins with you as the small business owner taking stock of what expenses you run through the business that do not show up in the net income.
Your salary, your personal expenses run on the business, which may include your car, travel, phone bill, insurance contributions, and any other cash flow you pull from the day-to-day operations of the company. Consider this example. Let’s say your income statement for the year shows a net income of $200,000. But you also pay yourself a salary of $75,000, and run another $75,000 in related expenses through the business that benefit you as the owner. These $150,000 in combined other expenses should be “added back” to the net income to arrive at your adjusted net income or adjusted EBITDA. This is because those additional expenses are directly coming to you as the owner of the business. Any potential buyer should understand this adjusted figure as the ultimate owner benefit from a cash flow perspective of owning your business.
How Do I Value My Business
The adjusted income figure is an important calculation to make in determining the ultimate value of your business and setting the purchase price for the business when you list it in Tampa for sale. Most businesses in the $100K-3,000,000 in net income range will sell for a multiple of adjusted net income in the three to six times range. So once you’ve arrived at your adjusted net income – remember the example of $100,000 in net income on the income statement then added to $150,000 in owner add backs for a total of $250,000 in adjusted net income. That is the number that you will multiply the business valuation multiple against to arrive at a purchase listing price.
Let’s say your business is a wholesale business that sells in Tampa, as well as to surrounding customers throughout Florida in places like Miami and Fort Lauderdale. By looking at comparable sales online and through your business broker, you see that recently wholesale businesses in your industry have been selling for a multiple of four times. Simply multiply your adjusted net income figure of $250,000 by 4, and you have your listing price of $1,000,000. Just think, if you didn’t do the add backs to net income, you’d be applying the business multiple to a net income of $100,000 and arriving at a purchase price of $400,000. That’s a big difference when compared to $1,000,000!
Now of course some buyers will scrutinize your add backs. Don’t expect them to take add backs at face value, let alone any of your financial statements or business records. It is not easy to sell a business. In fact, less than 20% of businesses listed for sale in the United States publicly are successfully sold to a prospective buyer. If you want to sell your business, the best way to approach this challenge is to have clean financial records, have honest add backs to income, and to work with the best business broker in Tampa that you can find.
Should I Sell My Business?
Knowing that some 20% of businesses listed for sale in Tampa will ever sell, it’s a fair question to ask if you should sell your business or not. Of course, no one can make that decision but you. It will be a lot of work to put your business up for sale unless you know a prospective buyer and can work with them directly. The financial auditing you will have to undergo from prospective buyers and their bankers is time-consuming. And a buyer’s valuation of your business is often not as simple as the example above as we have described. You rarely get to take last year’s net income – or better yet, this year’s projected net income – throw on your add backs, multiply by 4 and get $1,000,000 free and clear from a buyer.
Buyers will look at your business and figure out what owner benefit of free cash flow they will potentially enjoy as the new owner. Maybe you work inside the business 40 hours per week and contribute a lot to the business’ sales. The new owner may live out of state, and not want to work in the office in Tampa making sales. If so, the potential buyer will have to do their own financial projections to cover the costs of hiring a replacement to run the day-to-day operations once you have moved on. That will bring down the adjusted EBITDA number, and if you’re still operating under a 4x multiple, have a material affect on the eventual purchase price for the business.
Our Atlanta Office
Our brokers also help business owners who own businesses in the greater Atlanta area. Contact the head of our Sell My Business Atlanta offices through our sister website based in Georgia, or call the office at 678-843-2900. We’ll be happy to help you sell your business as fast as possible in any industry there in Atlanta.
What If I Want to Sell My Business Fast?
If you are in serious need of selling your business due to health reasons, age, financial problems, or other personal reasons, your best bet is to list the business for sale with a broker in Tampa at a low market price. If everything else is okay with the operations of the business, list it for sale for just 1-2x the yearly cash flow. You’ll likely find a buyer more quickly than if you list the business for sale for a price that is double that or more, which is more in line with typical business valuation multiples seen across the United States right now.
Contact a business broker via SellMyBusinessTampa.com here today, and we’ll help you determine the value of the business and the best next steps for you to list it for sale on the different marketplaces and buyer’s lists.