Retiring Soon? Preparing to Sell Your Business Dean Landers Landers Appliance, Baltimore MD...

Retiring Soon? Preparing to Sell Your Business

Dean LandersLanders Appliance, Baltimore MD

[email protected]

How this class came about

• Buying and selling businesses

• Consulting with clients in helping them prepare their businesses to sell and actually selling their businesses

• Talking to many appliance business owners about this very topic

Audience Participation is a Requirement

My Goal Today is to:

• Raise and Answer Questions!

• Provide Information!

• Help you develop an action plan for your own business!

So you can:

• Properly prepare to sell/retire!

• Develop a realistic picture of your companies value!

• Improve your profit margins immediately!

• Sell for the highest price!

Business valuation is:• A process and a set of procedures used to estimate

the economic value of an owner’s interest in a business. Valuation is used by financial market participants to determine the price they are willing to pay or receive to perfect a sale of a business. In addition to estimating the selling price of a business, the same valuation tools are often used by business appraisers to resolve disputes

Continued http://en.wikipedia.org/wiki/Business_valuation

http://en.wikipedia.org/wiki/Valuation_(finance)

http://en.wikipedia.org/wiki/Valuation_(finance)

Business valuation is:Continued:

related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of partners' ownership interest for buy-sell agreements, and many other business and legal purposes.

http://en.wikipedia.org/wiki/Business_valuation

Write this # on a piece of paper

Q: What do you imagine is the fair market value of your business today (without doing anything to prepare it for sale)?

A: Only you know!

5 Categories of Business Valuation Methods

depending on their focus: • Business assets, including book value and

liquidation value methods• Historical earnings, including debt-paying

ability, capitalization of earnings or cash flow, gross income multipliers, and dividend-paying ability methods

http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P11_2240



5 Categories of Business Valuation Methods

Depending on their focus:

• A combination of assets and earnings, namely, the excess earnings method

• The market for similar businesses, including comparable sales, industry rule of thumb, and p/e (Price to Earnings)ratio methods

• Future earnings, namely, discounted future cash flow or earnings methods





Averages to Use to Assess Value

• 38% Percentage of blue sky (Total gross less saleable assetts = blue sky

• 3.5 times cash flow on top of blue sky Cash Flow shows how changes in balance sheet accounts and income

affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities.

• Come up with other valuation processes

http://en.wikipedia.org/wiki/Balance_sheet

http://en.wikipedia.org/wiki/Cash_and_cash_equivalents

What method is better?• Which ever will get you more money for your business!

But … Let’s have a reality check

• It doesn’t really matter. You are only going to get what someone will pay you for your business!

Not what your accountant tells you it’s worth!

A Better Question to Ask:• How much money would someone have to

invest in order to create a duplicate to your business?

• If the same amount of money can build an business equal to your business why would I buy from you?

It Helps Tremendously if You Know:

• Your Companies Financial Health! • Current Profit and Loss Statement• Balance Sheet• Cash Flow

• What Makes Your Phone Ring?

• Your Cost of Doing Business (CODB)?

What am I buying from you?• Good will• Bad will• Phone #• Current AP of an going business concern• Long Term AP • Customer List – Data Base• Building? • Assets?

We’re going to look at preparing your business for sale from two

important vantage points:

• Urgent Issues!!!!!!

• Long Term Issues!

Urgent - Tips to Prepare for Sale

• Write out your marketing plan for the past 3 years. List what you’ve spent money on to generate new business.

• Determine or track the percentage of repeat/referral calls compared to the total number of calls you’ve run.


• How do you pay your tech’s / What is included in their benefit package?

• Determine ratio of non-income producing employee VS income producing employee.


• Identify your geographic radius & total population of your service operation by zip code.

• Review your business management software. Are you tracking all the data a prospective buyer wants?


• What is your average service ticket $’s for all completed COD calls?

• Assess your business location. • If leasing can you sublet? • If you own building would you sell it as

part of the business? What’s it worth? Gather data


• Service Fleet Assessment

• Make sure you are current in paying your bills.

• Can you financially justify your percentage of warranty and third party service sales?

• Review & Renegotiate Your warranty rates


• Review your current inventory

• Get rid of ALL old stock that hasn’t been used for two years or more.

• Your carrying inventory must be realistic.

• Adjust according to average turns

• Now Let’s transition and look at long term issues

Tips to Prepare for Sale – Long term

• Write out your marketing plan, regardless of length. Include a detailed budget.

• Conduct Cost Of Doing Business (CODB) analysis. Compile and compare all previous CODB.

• Review your charging methods. Are you charging professional rates? Flat Rate (I HOPE)

• Determine # of completed calls run per month.

• Determine what percentage of your calls are COD vs warranty?

• Inventory - The Black Hole! A new buyer probably won’t want it!


• Profit & Loss statements and balance sheets for the last five years formatted and reviewed by a CPA familiar with structuring service business financials.

• Financials should show growth in sales and profitability over the past few years (or you better have legitimate and believable reasons why they don’t.)


• A buyer will usually ask for five years of Federal and State tax returns. Have them ready.

• Using various business-valuation formulas, calculate the value of your business using each formula.

• Then come up with a reasonable price based on reality!

• Identify a list of potential buyers.


• PLAN AHEAD. Don’t think you can maximize your selling value in six months. The more realistic figure is five years.

• MAKE YOUR BUSINESS ATTRACTIVE to a buyer/investor, be invisible to its daily operation. Will it work without you for day-to-day operations? What things do you do that can be delegated to staff?

• HIRE EXPERTS as your attorney and tax advisor when the buying process comes down to financial and tax details.


• If you are incorporated, have an attorney review your corporate Minute Book and be sure all is in order.

• Realize that a buyer would likely not buy your business and run it as you did.

The real value in your business is your database,

phone number and reputation!


1. Don’t reduce your marketing budget prior to selling.

2. Know what makes your phone ring.

3. Potential buyers are looking for growth: Can you show steady growth in sales and profits for several years?

If not, write out a sensible, realistic explanation with detailed reasons as to why.


If You Only do the minimum:1. Get your financial documents in order!

2. Take an accurate inventory and get rid of dead stock!

3. Review profitability picture! Make adjustments (cut expenses & increase revebue) as needed!

4. Don’t reduce your marketing budget!

5. Make a list of potential buyers!

Revise Your Sale Price

• Your business is only worth what someone will pay you for it!

• You will only get people to pay what THEY think the business is worth, not what you or your accountant thinks it is worth!

60 Second Commercial

• Personalized Questionnaire:• Consultants normally customize a list of questions for

clients based on our initial conversations.

[email protected]@[email protected]

mailto:[email protected]



Retiring Soon? Preparing to Sell Your Business Dean Landers Landers Appliance, Baltimore MD...

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