The more you know about the market and the more you prepare your business for sale, the easier it will be to set realistic expectations and have a successful sale. Pat Nolan, a franchise business owner from Austin, is a great example of how careful preparation, strong marketing and an adaptive financing approach can attract more potential buyers and ultimately lead to a higher sales price.
Prioritize Your Exit Motivations
After 30 years in the corporate world, Pat wanted to spend some time in a community-based business. He decided to skip the hassle of hiring and managing multiple employees, and narrowed his search down to single owner operator businesses. During his search, Pat came across the Canadian franchise Bin There Dump That, which provides residential size dumpster rentals for people renovating their home, downsizing, cleaning, etc. The franchise was looking to expand into the United States and Pat decided it was an opportunity he’d like to pursue.
After a hands-on training session at the Bin There Dump That headquarters, Pat became one of the first Americans to open a Bin There Dump That franchise in the U.S. Business quickly grew beyond expectations and within four years, Pat was already struggling to manage his Austin-area business all by himself. He found himself at a crossroads. He could either expand his branch into a full-fledged company with more trucks and workers, or sell and enjoy retirement. Pat decided the best move was to find a quality buyer who could grow the company even further.
Lesson #1: Even if your business exit is much further down the road, it is important for owners to determine what could make them decide to sell. Are you simply looking to exit at the highest price? Do you want to retire soon? Do you value free time over an increasingly time-consuming business? Knowing what will motivate a sale can help owners prioritize their goals and better time their exit. It’s typically best-practice to create an exit plan and timeline when you start your business and update it yearly based on your current priorities.
Organize Necessary Information for Buyers
After getting a few tips from the Bin There Dump That franchise leadership team, Pat started to prepare his business to be listed for sale. He did his own research online and used the BizBuySell.com resource pages to help him determine how best to prepare and market his sale. He then organized his business’ financials, which led him to an asking price of $203,500 based on a gross income of $150,000 and $60,000 cash flow. In order to draw in more potential buyers, he also offered to provide the buyer with 3 months of free rent in the existing storage yard and a month of his time to help train the new owner on how to best run the business and personally hand off existing clients. Finally, he wrote up his listing and posted it on three business-for-sale websites, including BizBuySell.com. The responses came in quickly.
“I posted my listing on three different business-for-sale sites but every single one of my responses came through BizBuySell and it was by far the easiest site to use,” Pat said. “If I was to offer advice to other sellers, I’d let them know they only need to list on BizBuySell.com.”
In total, Pat received about 40 different responses requesting information in the next few months. To help address some of the more common questions about his business, he put together a packet of information for each prospective buyer.
Lesson #2: From a buyer’s perspective, accurate financial records bring a level of objectivity to the buying process. If you can’t back up your business’ asking price with solid bookkeeping, buyers might walk away. Creating a packet of financial and essential business information like Pat did will not only help prospective buyers better assess and understand the business, it will also help establish trust between you and the buyer. In order to save time, however, ask some general qualifying questions to make sure the buyer is serious and capable of purchasing your business before providing details. If you need to keep your sale confidential, having the prospect sign a NDA is also an important first step.
Once you proceed further, buyers will ask to look at the business’ profit & loss statements from the past 2-3 years, current balance sheet, cash flow statement and eventually, the business tax returns from the past 2-3 years. Other financial documents related to the business’ current lease(s), insurance policies and supplier and client contracts should also be included. Finally, well-organized financial information can also make it easier for buyers to obtain financing from banks and lenders– something both sellers and buyers can appreciate.
Qualify Buyers Early In the Sales Process
After handing out packets of information and engaging in initial talks with potential buyers, Pat started to evaluate his leads more seriously.
“It’s great once you get your first inquiry, but pretty quickly I would suggest having a serious conversation about their ability to buy. A buyers ability to finance the purchase is the single biggest hurdle to overcome.” Pat said. “You’ll quickly realize how many people aren’t capable of buying and are okay just spinning your wheels.”
To determine which buyers were serious, Pat talked with them about their available capital and loan options. He also asked them for a Letter of Intent. This quickly weeded out many inquiries in which the buyer was not a real fit or lacked the necessary funding. One prospect, for example, had the background and passion needed to run the business, but was unable to secure a large enough loan. While it was almost a fit, Pat knew he had to focus only on those who were ready to acquire the business now. In the end, Pat narrowed his search down to three qualified buyers.
Lesson #3: It’s important to not waste valuable time and energy on unqualified buyers. To identify the best fits, ask interested buyers about their previous business experiences. While a lack of ownership experience shouldn’t necessarily be a deal-breaker, the buyer should have some related experience, previous leadership experience and any necessary certifications. Similarly, you might find it important for the buyer to share an enthusiasm for the business and have a skill set and mindset that aligns with your customers, vendors and employees.
It’s also critical to address the prospective buyer’s ability to pay for the business early on. It’s entirely appropriate to ask prospects to complete a Personal Financial Statement, which shows whether they have enough capital to fund the down payment and the first year of operation, or a letter of intent. Qualified buyers should also be able to demonstrate their ability to secure any necessary financing for the remainder of the sale.
Seller-Financing Can Boost Speed, Price of Deal
To help attract more buyers, Pat offered seller financing, which is a loan provided by the business owner to the buyer, and is common in many small business sales today. Typically, the buyer will make some sort of down payment to the seller, and then make installment payments on a regular basis over a set period of time until the loan is fully repaid. During final negotiations, Pat and the buyer carefully outlined the terms and conditions of the seller-financing agreement. In the end, Pat was able to sell his business for just above $200,000.
“I really wasn’t too unhappy about doing seller-financing,” Pat said. “Yes, getting all cash would’ve been great, but I’m at an age now when I’m no longer working to generate an income, so it’s nice to get a monthly check from a company that I know will earn a steady income.”
Lesson #4: Offering seller financing in your business listing can attract buyers and speed up the business sale process. The ability to pay over time allows buyers additional time to collect capital and they are often willing to incur a higher overall price in return. Many listing sites like BizBuySell.com allow sellers to indicate if they would consider seller-financing. Potential buyers can filter for these businesses and some buyers may be more likely to reach out if they know there is some payment flexibility.
For Baby Boomers or any other sellers retiring after the exit, seller financing can provide a steady paycheck over a set amount of time. The ability to spread proceeds across multiple years can also have a beneficial tax impact. Of course, like any other investment, an owner-financed sale carries with it a certain amount of risk. If the owner succeeds, everyone wins. If the owner struggles, however, you could suffer a loss of income and need to involve the court. Evaluate the risks and determine if you are comfortable enough to invest in the new owner.
Decide Your Level of Post-Sale Involvement
From listing his business to signing the final agreement, the entire sales process took Pat about nine months. Pat made it clear, however, that he was willing to stay on for a short period of time to help with the ownership transition. As part of the final sale, Pat provided the buyer with a month of his volunteered time, up to 24 hours per week.
“During that month, I introduced the buyer to clients, trained him on procedures, made sure everything transfers over to him and continued driving the trucks around,” Pat said.
Lesson #5: Although some buyers may prefer a clean break from the previous owner, others may jump at the chance for them to remain engaged with the company. If serving as a post-sale consultant is not of interest to you, be sure to bring this up early on in sale conversations. For most deals, however, post-sale involvement can be especially valuable for both sides. The new owner gets hands-on help during the transition and the old owner can confirm he left the business in good hands. This is particularly beneficial to a seller who offered seller financing and therefore, has a financial stake in the business’ future success.
Outright saying in your listing that you’re willing to help with the business transition can differentiate your business listing. If you do decide to stay on for a period of time to help with the transition, the final sale contract should include a clear description of what your role will be and how long you will fill the position.
Overall, Pat’s Bin There Dump That sale shows that a franchise sale can be a very similar process, and hold many of the same lessons, as an independent business sale. With proper research, preparation and organization throughout the sales process, Pat was able to attract multiple buyers and earn the sale price he was hoping for.
“BizBuySell really allowed me to take control of my sale and find the right buyer without much outside help,” Pat said. “The online resources and listing tools made it easy to get started and the amount of buyers I heard from shows how much buyer traffic they receive. It was an exciting experience. I was truly amazed at the level of quality contacts I made with BizBuySell compared to the other websites combined.”