c. Putting an asking price on the business
The asking price, determined by using the previously described Seller's Discretionary Earnings, will be used to sell the business. The more accurately this initial price is determined, the more confident the business owner and his/her broker will feel about it, and the closer to the transaction price it will be. A common question asked by business sellers is whether or not business buyers know about this method and whether their offers for the business take this method into consideration. The answer is that many buyers have never heard about it. However, buyers compare many businesses before making an offer. One of the first criteria buyers consider is how much profit they will get once they buy the business compared to how much investment they will need to make. In other words, buyers compare the income multipliers for each business they are considering. Therefore, even without knowing about the Seller's Discretionary Earnings method, buyers still come up with an intuitive valuation that finally is very close to this method. Buyers also factor in their own criteria. Among these criteria are the attractiveness of the business, the attractiveness of the industry, the risk and likelihood of continuity of profits after the sale, and so on. In summary these are the same criteria we consider when calculating a multiplier in the Seller's Discretionary Earnings method.
4. Preparing a Business Profile
After determining the optimal asking price for the business, business sellers need to present their business as accurately as possible to potential buyers. Some documentation is necessary to present a real picture of the business to potential buyers. The following is a list of the documentation to be prepared before putting a business on the market:
Financial statements for at least the last 3 years (preferably the last 5)
License(s) required to run the business
Basic information about customers and an activity breakdown
A business profile is a short summary of the business for sale, providing initial information about the business. The profile should be detailed enough to generate enough interest that buyers end up contacting the broker/seller for more information.
5. Preparing a Marketing Plan
The marketing plan details the activities that will be launched to help sell the business. A deep analysis should identify a list of categories of potential buyers for the business. For example, if the business is a possible strategic acquisition for a larger company then a description of the ideal buyer should be done and a list of potential strategic buyers should be compiled.
6. Advertising the Business for Sale
Once the target categories of potential buyers is determined, a detailed advertising plan is dressed to reach the potential buyers identified in the marketing plan. Internet advertising is becoming a key advertising medium for selling businesses. An important number of web sites specialized in selling businesses provide excellent leads of business buyers.