Frequently asked questions

The process of selling a business typically follows several key stages. Here’s what you can expect:

1. Business valuation: Your broker will assess the market value of your business by analyzing financial performance, growth opportunities, and intangible assets.
2. Client interview: The broker will interview you to understand your goals for selling and collect the necessary information to present your business effectively to potential buyers.
3. Engagement agreement: You’ll sign an exclusive listing agreement with the broker, allowing them to market your business and find qualified buyers.
4. Preparation and marketing: The broker will prepare a detailed prospectus and list your business on various platforms. This process is discreet to protect sensitive information.
5. Screening buyers: The broker will vet potential buyers and ensure they are financially capable and a good match for your business.
6. Letter of Intent (LOI): Once a serious buyer is found, they will submit an LOI outlining the price, terms, and conditions. Your broker will guide you through negotiating and accepting the offer.
7. Due diligence: The buyer will review your financials and operations to confirm the business’s performance.
8. Closing: After all terms are agreed upon, the funds are transferred, and the business is legally handed over to the buyer. A transition period will be arranged to help the new owner take over smoothly.

Pro tip: Staying organized and responsive during these stages can significantly reduce the time it takes to close the deal.

It’s important for buyers to be aware of red flags that may indicate a deal isn’t right. Here are some key signs that may suggest you should walk away from a business acquisition:

• Revenue decline: A sudden drop in revenue or profits during due diligence.
• Seller evasiveness: If the seller avoids answering questions or is not forthcoming with information, it can be a sign of deeper issues.
• Aggressive add-backs: Overly optimistic or unjustified add-backs in the financials can indicate inflated earnings.
• Employee dissatisfaction: Key employees expressing reluctance to stay on after the sale can signal instability.
• Spike in expenses: Unexplained increases in expenses, especially advertising costs, might suggest short-term strategies to boost revenue.

Pro tip: Trust your instincts. If something feels off during the due diligence process, it’s worth considering whether to proceed or walk away.

Seller’s Discretionary Earnings (SDE) is a key metric used to assess the profitability of small and medium-sized businesses. It reflects the business’s earnings before interest, taxes, owner compensation, non-recurring expenses, and certain non-cash items.

Why is SDE important?

• True earning potential: SDE shows a potential buyer how much profit they could expect to make if they take over the business.
• Adjustments for new ownership: SDE excludes expenses that are specific to the current owner and unlikely to continue after the sale, making it a clearer indicator of future profitability.
• Valuation foundation: Many businesses are valued based on a multiple of SDE, so having an accurate SDE calculation is critical for determining the sale price.

Pro tip: Ensure your SDE is accurate by working with a knowledgeable broker who can help you identify all relevant adjustments.

When buying a business, there are several financing options available to you. Here are some common methods buyers use to secure funding:

• SBA loans: The Small Business Administration offers loans that are commonly used to finance business acquisitions. However, these can be harder to obtain for online businesses due to the lack of hard assets.
• Seller financing: In some cases, the seller may agree to finance part of the purchase price. This can be a flexible and attractive option for buyers who cannot secure the full amount through traditional financing.
• Bank loans: Traditional bank loans can be challenging for online businesses, but if the business has strong cash flow and a solid track record, some banks may consider offering a loan.
• Alternative financing: Options like home equity lines, private investors, or other types of loans can also be explored to cover the purchase costs.

Pro tip: Discuss financing options with your broker, who may have connections to lenders that specialize in business acquisitions.

The typical timeframe for selling a business varies depending on several factors, but most businesses take between 3 to 6 months from listing to closing. A well-prepared and organized seller can significantly speed up the process. Here are some key factors that affect how long it may take:

• Organization and preparation: Sellers who have clear financial records and a well-organized due diligence package ready can expedite the process. For example, we recently closed a deal in under a month because the seller was well-prepared.
• Valuation and flexibility: Being realistic about your business valuation and flexible on deal structure can make your business more attractive to buyers, helping to close deals faster.
• Business attractiveness: A strong business model and solid cash flow are essential in shortening the selling timeframe. Buyers are looking for reliable and scalable businesses with growth potential.

By working with an experienced business broker, you ensure that the process is managed efficiently, allowing you to focus on running your business while we handle negotiations, screen buyers, and guide the transaction through to completion.

Pro tip: Having your due diligence documents ready early can instill confidence in buyers and lead to faster closings.

To maximize the value of your online business before selling, careful preparation is key. Here are the most important steps you should take:

• Organize financials: Ensure you have up-to-date financial statements ready for potential buyers. These should include at least 3 years of Profit & Loss (P&L) statements and any other financial documentation relevant to your business. Tools like QuickBooks can simplify this process.
• Optimize cash flow: Buyers are primarily focused on cash flow, so ensure your business is operating efficiently and generating strong, consistent profits. While social media metrics and traffic are important, it is the profitability that drives the valuation.
• Streamline operations: Make your business easy to transfer to new ownership by documenting processes and simplifying operations. Businesses that don’t rely heavily on the owner’s involvement are more attractive to buyers.
• Tidy up your digital presence: Make sure your website is user-friendly and aesthetically up-to-date. First impressions matter, and buyers are often attracted to businesses that look professional and are easy to navigate.

Pro tip: Focus on areas that add real value to the buyer, such as enhancing cash flow and simplifying operations, rather than cosmetic changes that might not increase the sale price.

Yes, reducing your involvement in the business is crucial if you want to increase its value and appeal to buyers. Here’s why:

• Easier transition for new owners: Buyers prefer businesses that can run smoothly without the current owner’s day-to-day involvement. This reduces the risk for buyers and makes the business more attractive.
• Broader buyer pool: By making your business less reliant on you, you’ll appeal to a wider range of buyers, including private equity firms that may not have an immediate operator ready to step in.
• Delegation and documentation: Start delegating key responsibilities to trusted staff members. If necessary, bring in new team members to ensure the business can operate without you. Properly document key processes and workflows to make the transition easier for the new owner.
• Increased confidence: Well-documented processes not only make the buyer confident about the transition but also reduce the need for a lengthy transition period, allowing you to step away sooner after the sale.

Pro tip: Transitioning to more of an absentee owner before selling can significantly increase your business’s value and shorten the sale process.

Accurate financials are essential when selling your business, as they are the foundation of a successful sale. Here’s why:

• Builds buyer confidence: Buyers will perform thorough due diligence, and discrepancies in your financials can quickly undermine trust. Accurate numbers instill confidence and make buyers feel more secure in proceeding with the deal.
• Avoids deal collapse: Inaccurate or incomplete financials are one of the top reasons deals fall apart. If buyers discover inconsistencies, they may walk away or attempt to renegotiate the price.
• Facilitates smoother negotiations: Accurate financials help you and your broker confidently present the business’s performance, leading to more straightforward and transparent negotiations.
• Helps determine the right valuation: Providing clear, verifiable financials allows for a precise calculation of your business’s value, ensuring that the sale price reflects the true profitability of the business.

Pro tip: Be proactive and work with your broker to prepare at least 3 years of Profit & Loss (P&L) statements, ensuring all personal or discretionary expenses are properly adjusted or explained.

If you plan to sell your business in the near future, taking proactive steps now can increase its value and appeal to buyers. Consider the following:

• Focus on growth trends: Demonstrating consistent growth will attract buyers who are looking for businesses with strong performance and future potential.
• Diversify revenue streams: Businesses with multiple sources of income are more stable and appealing to buyers. Consider expanding into new markets or product lines to reduce reliance on a single revenue stream.
• Build operational efficiency: Ensure your business is well-organized with standard operating procedures (SOPs) in place. The easier it is to transfer operations to new ownership, the more attractive your business will be.
• Strengthen your competitive advantage (MOAT): Emphasize the unique aspects of your business that create barriers to entry for competitors, such as strong branding, intellectual property, or exclusive contracts.

Pro tip: Investing in areas like SEO, content marketing, and product development can drive growth and enhance your business’s attractiveness to potential buyers.

When preparing your business for sale, it’s important to include add-backs in your cash flow calculation to reflect the true profitability of the business. Common add-backs include:

• Owner’s salary and discretionary expenses: Personal expenses or salary that would not carry over to a new owner.
• One-time expenses: Non-recurring costs, such as legal fees or equipment purchases, that are not expected to continue under new ownership.
• Non-cash expenses: Depreciation and amortization are typically added back, as they do not represent actual cash outflows.
• Non-operational expenses: Costs unrelated to the core business operation, such as investments in side projects.

Pro tip: Work with your broker to ensure you’re including only justifiable add-backs. Clear documentation is essential to avoid raising red flags with buyers during due diligence.