Mistakes to Avoid When Selling Your Business

Mistakes to Avoid When Selling Your Business

To ensure a successful transaction

Are you selling your business? If so, make sure you avoid the mistakes listed here to ensure a successful and profitable transaction.

Selling your business?

In 2018 there were 30.2 million small businesses in America. In 2015 small businesses employed 47.5% of the private workforce in the U.S.

But there comes a time in every entrepreneur's life when they are ready to move on and sell their business. While the reasons for selling your business may vary, the goal is to walk away with a tidy profit. 

You have to know what you're doing to ensure you sell your business for the most money. And there are tons of mistakes you can make. 

If you're looking to sell your business, keep reading. We're sharing with you the biggest mistakes entrepreneurs make when selling a company. 

Always Be Prepared Before Selling Your Business

Just like a well-thought-out business plan can help you grow your business, you need to do the same with your exit strategy. It's hard to get exactly what you want when you don't know what that is. 

Collect Your Documentation

You'll need to gather a few key pieces of information in order to sell your business successfully such as:

• Financial documents

• Sustainable profitability projections

• Identify and address lease issues

• Identify and address staffing problems

No one wants to buy a business that isn't well run and well organized. This information will also help you set the price for your business that's on par with the current marketplace. 

Plan Ahead and Start the Process Early 

If you really want to be prepared to sell your business, begin the preparation process at least two years before you list it for sale. 

Qualify Your Buyers

Another common mistake is not properly pre-qualifying prospective buyers. While you may think that qualifying a buyer too soon will scare them off, usually the opposite is true. 

Instead, the pre-qualification process helps draw those buyers deeper into the sale. If you're worried about giving buyers access to sensitive information, have them sign documents such as a confidentiality agreement and financial background information. 

This process will help you attract only serious buyers which means you won't waste your time wooing the wrong buyers. 

Hire the Right Team 

While it may seem like a good idea to try to save some money when selling your business by not hiring professional help, it's usually not. There's just too much at stake. 

An investment broker and/or business broker can help you present your company in the best light. 

How a Broker Can Help

They know exactly which databases to advertise your business on. They also know how to do the following tasks:

• Preparing documents

• Identifying buyers

• Generating interest

• Soliciting offers

They'll also help close the deal as quickly as possible.

How Other Professionals Can Help

But you may also want a transactional attorney to help with the following tasks:

• Preparing an asset purchase agreement

• Negotiating an asset purchase agreement

• Handling documentation such as bills of sale and officer certificates

An accountant can help you structure your deal and help you plan ahead of potential taxes you'll have to pay. And a business appraiser can help you evaluate your business so you know what it's really worth. 

Work With Us

Selling a company is a difficult process. It's important to surround yourself with the right team to help you save time, money, and prevent potential problems from arising. 

We can help. Our team of knowledgeable experts can help make selling your business easy. Click here to learn how. 

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PREPARING TO EXIT YOUR COMPANY

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THE BIZNEXUS ROUNDUP

Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.

How to Buy a New Franchise When You Want to Own a Business

Want to Own a Business

Buy a Franchise

You don't have to struggle to buy a new franchise. You can use this guide to choose and purchase the best franchise for you. If you're trying to buy a new franchise, you'll need to seriously do some homework; it starts by doing your preliminary research into it to see if it's a viable option. Checking into the best location for a business is a necessity, especially if you are opening a franchise.

Buy a New Franchise on Your Terms

The potential for growth is abundant since you're getting the keys to a business that already has an established brand to piggyback on. However, you'll need to make sure you're handling this franchise purchase with some intact strategy. 

Consider these points so you handle the deal accordingly. 

1. Thoroughly Research the Franchise and Its Viability

If you're trying to buy a new franchise, it starts by doing your preliminary research into it to see if it's a viable option. 

Since your individual franchise is a micro success of the larger company, you'll need to research the brand as a whole. Pre-screen the franchise and figure out how lucrative this purchase can be, and how much you should be paying for the opportunity. 

2. Scope Out the Best Location

Checking into the best location for a business is a necessity, especially if you are opening a franchise. 

You'll want to open the franchise in a thriving city with room for growth, while also choosing a location that is in a neighborhood or district that gets plenty of traffic. In addition to researching the demographics of different locations, check with the local Chamber of Commerce for more resources and advice. 

3. Be Sure You Pass the Prerequisite Requirements

Buying a franchise requires you to apply with the company selling it. This means understanding their prerequisite requirements, such as credit score, business plan, net worth, and business experience. 

Having these details in line upfront will help you keep your application on track. 

4. Hire a Legal Team to Assist With Negotiation and Preliminary Paperwork

You owe it to yourself to put together a team of pros that can assist you with securing the business. Start with talking to some accountants and lawyers. 

A business lawyer can cost you about $150 per hour and will be worth it when it comes to negotiating and handling preliminary matters. 

This way, you'll have resources at your disposal to make sure your application is handled properly and will comb through your finances to ensure that you're making the best decision. 

5. Handle the Application, Understand the Agreement and Get Financing

Finally, take your time and go through the process of filling out your application. 

As your application rolls along, start to keep copies of everything from purchase agreements to rezoning permits. You'll also need to reach out to finance companies that can help you with a loan when you need it. That way you're able to complete the purchase of the franchise as soon as the application is approved. 

Buy a New Franchise on Your Terms

If you are trying to buy a new franchise, these are the five tips that you'll need to bear in mind. This can be a lucrative enterprise that helps you round out your portfolio with a strong earner. 

Check out this guide for buying a new franchise and don't hesitate to reach out to us for further help. 

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BUSINESS ACQUISITION

An In-depth Step-by-Step Guide to Buying a Franchise

Approximately 1 out of 12 businesses in the USA is a franchise business. Opportunities like franchising and entrepreneurship through acquisition are some of the great ideas for business minded people looking to run a business without the struggle of creating a new business from scratch. However, establishing a successful franchise takes more than merely finding an ideal franchisor and financing your business. It is a complex step that requires careful planning and strategizing. You need to conduct comprehensive research, review the necessary documents, and follow the steps below.

Conduct Rigorous Research

Finding out the necessary information is the first step you should take when you need to buy a franchise. Thorough research will ensure that your venture into a field of your interest, within your budget and your qualifications. You need to ensure that you meet the basic requirements necessary to start a franchise and also assess your resources, skills, and interests. Your research needs to involve:

Talking To Franchisees

Take time to talk to current franchisees. Gaining an insight into their experience with franchising will help you avoid mistakes in yours, and examine what they did right and maybe use it for your business. Through franchisees, you will also identify the pros, cons, challenges, and hidden costs of running a franchise.

The Type of Franchise

Choosing the right franchise is an important step. To arrive at the right decision, you will need to examine your skills, the type of environment you want to work in, your interests, and your goals. Depending on your needs and budget, you can find companies willing to sell a start-up or already established business. You should also determine the amount of money you are ready to invest and the profits you would like to make from the franchise. This information will help you choose the right franchise.

The Qualifications Requirements

Franchisors set minimum requirements for their franchisees to protect their bottom line and ensure that the franchisees are qualified both financially and professionally. Qualifications vary depending on the type of franchise and the franchisors, but the standard requirements include a credit score, management experience, industry experience, net worth, outside income, and cash in hand.

Fill Your Initial Application Forms and FDDs

Once you have done your research and identified the franchise, the next step is to choose 1 to 3 companies to consider. These companies will give you a representative who will provide you with information about their company. You will also fill the first application forms and preliminary questionnaires. If the franchise is satisfied with your answers, you will receive a copy of the franchise disclosure document (FDD).

The FDD is a 50+ page document that indicates the fees you need to pay, your responsibilities as a franchise, information about the franchisor, and your responsibilities as a franchisee. Make sure you study this document to ensure that it is a good fit. The federal trade commission mandates franchisors to provide franchisees with the FDD at least 14 days before making any binding agreements.

Review The Agreement

If the franchisor decides that you are the right candidate to acquire their business, they will draft and offer a formal contract. Reviewing the agreement ensures that you understand everything before you sign it, so take time to read through the document and hire a franchise lawyer to help you better understand the terms of the contract. The contract gives you the legal right to own a franchise under its rules and regulations. The contract should indicate the rules on the transfer of ownership, royalty fees, hiring staff, protection of territory, pricing, suppliers, among others. Any promises made verbally also need to be put in writing, and any discrepancies between verbal and written terms should be clarified.

Investigate The Company

Once you have settled on a franchisor, you will then need to investigate the company. Buying a franchise involves developing a relationship with the company; it is vital to make sure that it is the right relationship, therefore, take time to talk to its executives, ask questions and also gather information about the company on your own.

Attending a discovery day is a good opportunity for the franchisee to get to know the franchise. It is an opportunity to learn about their culture and understand the people who will be working with you. Make sure you ask questions and voice your concerns during discovery day. A typical discovery day involves one-on-one meetings, interviews, a visit to the franchise location, and group presentations.

A discovery day is also beneficial to the franchise company. It allows them to get to know you better and assess whether you are a good fit for their company. They will also evaluate your level of enthusiasm and commitment at which will dictate their decision to sell a business to you.

Acquire Finances

You cannot run a business without finances. Before you buy a business, make sure you acquire finances to cover the costs of running a business. Franchisors may help arrange finances, but you will also need to qualify for financing on your own. A credit score of 700 gives you a better chance of securing funding. You can finance your start-up through SBA loans, traditional bank loans, search funds, rollover for business start-ups (ROBS), or a government grant.

Create A Business Plan

A business plan is not only a guideline for your business, but it also aids in acquiring finances. It keeps you focused, helps you achieve your goals, keeps you on the right track, and thorough market analysis gives you a better understanding of your market. Document every detail of your business to ensure that everything runs smoothly.  

A business plan shows investors that they are investing in a company with a vision and one which will last and grow. It helps them understand your vision and passions and shows where their money is going. Franchise opportunities require careful considerations, and creating a business plan helps assess your franchise's visibility.

Talk To a Franchise Attorney

If you are considering franchising, make sure you talk to a franchise attorney. These attorneys specialize in franchising, and they have a vast knowledge of franchising. A qualified franchise attorney will help you know everything that you need to know about franchising. This is because they know what to focus on in the FDD and the franchise contract; writing and working on similar documents gives them better insight. They know what to look for when reviewing the documents.

A good franchise attorney also helps the franchisee choose the best entity for their business. The right entity determines the legal rights and liabilities of the business and its taxation. You can also rely on your attorney for help when things do not work out as you expected. They also form an invaluable asset for the business as they can help negotiate the terms and conditions of the agreement and offer guidance to the vague aspects of the contract.

Picking a Location

Take into consideration the guidelines and recommendations of the franchisor to help you find an ideal location. In some cases, the franchisor may have strict rules for commercial real estate, including the number of parking lots, territory requirements, and the minimum squire footage.

Leasing a space is cost-effective, and less risky; however, if you intend to be in the place for more than seven years, consider buying your location. Whether it is leasing or purchasing a space, consider the safety of the area, the location of your employees and customers, the square footage, and negotiate the price. 

Acquire The Necessary Skills And Knowledge Of Running A Business

Before you open your business, take the opportunity to acquire the necessary skills and knowledge to run a franchise. Typically, the franchisor will provide training sessions that will tackle everything you need to know about the business, including the policies and guidelines, the products and services the systems you will be using. Working in a store is an ideal way of determining how a franchise works and whether your skills and personality match the company culture.

Open Your Business

This is the final step; it comes after you have finalized everything, and the franchisor representative approves your location. The franchisor will give you a hand during the actual opening. Marketing your grand opening is an excellent way to promote and market the business. It ensures that you build your customer base quickly. Before the grand opening, potential alert customers of the existence of your store, and you can also do a soft opening to identify and deal with the operation problems before the grand opening. The franchisor has pre-determined promotion ideas, signage, and ads for the grand opening in most cases.

It is worth noting that franchising does not eliminate the risks of owning a business. However, it allows the entrepreneur to handle the responsibilities that come with owning a business. It comes with an already Get Matched Now.

BizNexus -Learn More From Our YouTube Playlist:

BUSINESS ACQUISITION

Have you checked out our podcast?

THE BIZNEXUS ROUNDUP

Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.