As a small business owner you might ask the question “Why should I sell my business through an agency?”.

You could easily sell your small business privately but in doing so you will be responsible for every aspect of the sale, including the valuation of your business, the marketing of your business, arranging the viewings and the final price negotiations.

The obvious saving you make by selling your business privately is you will not have any agency fees to pay and you don’t have to sign a contract giving anyone exclusive rights to sell your business.

However if you use a business transfer agent they will be able to advise you of the value of your business having regard to its size, profitability, its location, the industry in which it operates and any other factors they consider relevant.

Business transfer agents usually have business buyers already on their books actively looking to buy, so they will be able to immediately present your business to these active business buyers. Whether your business is sold to a registered buyer or a new buyer the agent will negotiate the sale of your business on your behalf and in some cases (depending on the business broker) they will attend the viewings.

I have decided to write this article about the keys to selling a business, as I get really frustrated with vendors of businesses and with brokers that do not seem to know what they are doing!

Today, for example, I emailed a broker regarding the purchase of a business that they were advertising - ‘Offers invited for a quick sale’, which turned out not to be the case – so business sales brokers need to get their act together.

Secondly, business owners and business sales agents need to get to grips with what vendor finance is, as not many are aware of this, including brokers and to know about it and to accept it as a part of the sale price is crucial to ‘Get your Business Sold. The above same broker did not fully understand the term vendor finance either.

Another way to describe vendor finance might be ‘buy out’ or ‘earn out’, which all amount to the same thing – the vendor of the business is effectively lending to the buyer in order to get the business sold.

Of course the terms of such lending or ‘earn out’ must be agreed to by both parties and can include the charging of interest and it can also be aligned to the business achieving certain results. To protect yourself as the vendor, the earn out or ‘Loan’ should be secured against the business, so that should the buyer not pay up, then you get the business back. You might think that this is a problem, but so long as the new owner has not completely ruined your business in the interim, and so long as you got some money up front, you now have the business to sell again.

I would always suggest that buyers of businesses look at the one third rule: one third own capital; one third bank finance, and; one third vendor finance.

The important thing to remember is that you are ‘Selling your Business’ and for a reason and if it sits on the market for months or even years (which of course does point to an over valuation), you are not achieving your goal. By allowing a staggered payment structure to your business sale you are more likely to make a sale, as you open it up to a larger audience that might not have all the capital or borrowing powers.

The business sales market is always in the buyers favour the majority of the time any way, as the are always thousands of businesses for sale and only a few buyers in comparison, so why not make it easier for the few that there are. Treat a potential buyer with respect and as if they are like gold dust – make the buying process easy for them and make sure you have all the information, like accounts etc. to hand when it is asked for.

When you come to sell your business – ask your broker if he understands vendor finance or staggered payments, if he looks at you blankly or advices against this then I suggest you get yourself another broker.

If you have a question on this subject please register at our business forum and let sus know ‘Business vendors’ and ‘Business Buyers’.

How do I sell my business is often asked by business owners and can be answered by using the following check-list:

1. Price it right – do NOT over value your business.

This might be an obvious point to make and just like selling a house with business sales, if the price is set too high you will probably not even get any viewings and will certainly not sell.

Valuing a business to sell is not as easy as valuing a house and the only true value is where you end up with a willing buyer and a willing seller. However, having said that you will need to have it valued and to do so you will probably use a business broker – which leads nicely onto my next advice.

If your business has been on the market for more than three months and certainly for more than six months then I would suggest that it is over valued.

2. Use a broker to sell your business

Not all business brokers know their stuff, so I would recommend getting a valuation from at least two brokers or probably three. Be careful not to use the broker with the highest price, as this might not be the correct business valuation, it might be to entice you to use their services, as a high valuation will be music to your ears.

3. Be willing to accept ‘Vendor Finance’

I see too many business owners and for that matter too many business brokers not willing to accept vendor finance as part of the sale. For example, if your business is worth say £600,000, I would suggest accepting £200,000 as vendor finance, which will give the buyer a bit more room to manoeuvre with their own capital and bank finance. If they are using bank finance, then subject to the present economic situation, banks will lend upward of 60% of the purchase price. In this scenario 60% of £600,000 is £360,000, added to the vendor finance of £200,000 eaves the buyer to find £40,000, which opens the sale of your business to many more buyers. However, not all banks will see this quite in this way and may prefer the buyer to put up more than £40,000, but the idea is what I am trying to get across here.

4. Remember what you have had out of the business

When you are at the point of selling the business always remind yourself why you decided to sell it and reflect on what the business has provided you over the years, assuming you have had it for a while. Too many business owners forget that they have used the business to buy their home, to fund their life for X-years and so on; they then think it is so valuable and forget the reason they want to sell and end up with it on the market for months, if not years and then blame the agent. Blaming the agent might be valid if the valuation is wrong and where the business has been over-valued, but ultimately the final decisions rest with you.

5. Prepare your business for a sale.

Buyers of business are put off by sellers that how out of date information. Make sure you have up-to-date accounts and have your management accounts as up-to-date as possible and at your fingertips, this will serve to impress the buyer and give them confidence in the business.

6. Make yourself redundant

Leading up to the sale of your business you should look at making yourself redundant from the business. Delegate your work as much as possible so that the business will operate without you as much as possible. By doing this will open your business up to more potential buyers and in turn make it more desirable and more valuable. If necessary recruit someone to replace what you do in the business and spend time training them up before you put the business on the market.

You might be thinking that this will reduce the profits and thereby reduce the value of the business, but not necessarily. Let me explain by way of an example:

Option1. Business X is making profits of £120,000 per annum and the business is very dependent on the owner with him working 6 days a week from 8am to 7pm each day.

Option 2. Business X employs two people to replace himself at a total cost of £50,000 to the business thereby leaving a net profit of £80,000.

The value of the business using option 1 would be a multiple of between 1 and 2 so let us say 1.5 times profit, so a value of £180,000 – but this business will be difficult to sell, as the new owner will have to consider stepping into the shoes of an over-worked vendor.

The value of the business using option 2 would be a multiple of upwards of 3 and if it were a 3-times multiple this would be £240,000 and a more attractive option to buyers/investors. So even if the cost of replacing the employees cost up to £60,000 the business value would not be affected greatly, but you would have a much more attractive sales proposition to business buyers.

In option 2 the owner could spend a few months focusing on business plans and focus on improving the business in other ways, now that his time is not taken up running the business, which in turn would make it much more profitable and in turn more valuable for sale.

7. Employ a consultant

You could opt to employ a consultant to help you get your business into a saleable condition – email me for details – info@in-business.org.uk. A few thousand pounds spent sorting your business out before it is put on the market could earn your tens of thousands back in the asking price and a quick sale.

Honesty in business is as it is in life and a must and extremely important.

If you are about to sell your business or if you are in the middle of selling it then make sure you are honest from the outset…not only with the broker, if you are using one, but also with potential buyers.

If you tell lies at the outset or during the initial stages then it is very likely this will be found out at the due diligence stage of the selling process. The problem with telling lies is that if they get found out you may put off potential buyers and lose their trust.

Put yourself in the shoes of a buyer and you will know that they will feel both stressed and worried about the whole process. Don’t make it worse for them by putting any element of doubt in their mind…they may be thinking if you are lying about one thing you might be covering up any number of other things and they may well walk away from the deal.

I remember going to look at a business which was being advertised as turning over around £8,000 per week, when in fact it was only turning over around £4-5,000 per week. Admittedly, at some point in the past this business had been doing this level of turnover and more, but the broker had not bothered to update their advert. This then wasted my time and their time in looking at a business which was highly over valued.

Always remember that with the majority of business sales that it is a ‘Buyers Market’ and rarely is it a ‘Sellers Market’ – which means that when you have a buyer on the hook, as it were, you want to play them well and nurture the whole business sales process from start to finish.

Article by Russell Bowyer

If you are looking for a business for sale online then probably one of the best sites that I have found so far is businessesforsale.com.

With this site you can register for free and browse the businesses for sale without having to register until such time as you want to make contact with a seller of a business.

You can opt to upgrade to a Premium Buyer if you wish for £14.99 per month or £89.99 per annum which entitles you to certain added benefits, like seeing newly advertised businesses 14 days before the non-premium buyers.

In my opinion there is no need to upgrade, as it is highly unlikely that a business would be sold within 14 days so you are paying out money unnecessarily.

If you are looking to sell a business and you are looking for a site to use, then I would also recommend this site too. I would recommend that you disclose as much information as you can too and as a minimum the buying price, the business turnover and annual profit. There are many businesses on this site that do not quote these figures, which in my opinion is crazy and will limit the number of enquiries.

Before you put your business particulars on the site – take a look at what the others have said. Read the ones that would make you interested and then write your advert and read it back to make sure you feel it would make your businesses inviting to potential investors.

Always be honest with the information you provide about your business, if you don’t the true picture will always be found out at the due diligence stage of the purchase, which should be carried out by the buyer – the sale could then fall through. This would be crazy to have this happen, as it can take a long time to sell a businesses and it will also cost solicitors fees to get to that stage.

Click here to go to businesses for sale.

We have a few polls and would like to have your vote here at our in-business forum

The polls we are interested in are:-

- Where do you see the bottom of this financial crisis? – Vote here

- Should government bail-out companies in trouble? – Vote here

- Is it better to set up a business from scratch or buy an existing business? – Vote here

We look forward to your vote!

in-business is proud to present its new business to business forum launch today.

This new business forum is for business owners and for would-be entrepreneurs about to venture into the business world! The forum has the following categories to post, discuss and comment:

 - Business to business forum – for general business discussion. Click here

 - Marketing, selling and PR – For marketing advice and ideas, advertising and business press releases and networking places. Click here

 - Business administration – The legals about business and accounting software advice, tax advice and tax savings ideas. Click here

 - Online businesses – SEO, PPC and online marketing, e-commerce shopping cart and online payment. Click here

 - Start out in business – Buying a business, starting from scratch and business franchises. Click here

 - Selling your business – For business owners looking for advice on selling their business. Click here

 - Forum feedback – We also invite your feedback on the forum and ideas for new forum headers. Click here

Why not be the first to register and first to post – we look forward to seeing you online Click here

New business to business forum Click here

Vendor finance is where someone selling a business is happy to effectively lend the purchaser money to buy it.

If you have not heard of this before, then you may well be thinking, why would I lend someone money to buy my business? This is a good question and is worth explaining.

Let’s say for example you are selling a business for £180,000 and you have a purchaser that is willing to pay you this £180,000. However, it might just be, and especially with the present credit crunch situation, that the buyer is unable to raise the finance through the banks. This could be for a number of reasons, one of which is that there is no security for the loan, either on the business itself or the purchaser has nothing to secure it against. In most cases, people tend to use their house as collateral to raise money, however, with recent events loans are harder to come by and house prices have fallen. Therefore, a loan that might have been easier to get say 12 months ago, might not be available or the amount available might be less.

In the case where you, as a seller of a business, are lucky enough to have found a purchaser would be silly to turn someone away simply because they are not able to raise all the funds by normal means. You could therefore, for example, ask for say £60,000 up-front with two further instalments due in 12 and 24 months time. Of course you could have any other combination of payment options and could even ask for it on a monthly basis.

You could also go for charging interest on the loan and I would urge you to take some form of security for the payment of the money lent, which might include their home and/or the business itself. So if in the event the purchaser does not pay you will get something back for your troubles. Getting the business back might not be what you had hoped for, but the purchaser, in this example, will have already paid you £60,000 up-front so if you can on-sell the business again, you will have cleared an extra profit at the expense of the “failed purchase”.

Benefits of “Vendor Finance”

One quite obvious benefit is simply you will be able to sell your business sooner rather than later, rather than leaving it until you find someone with the cash or with the necessary security to get bank finance.

The other not so obvious benefit is that you will be showing your would-be purchasers a level of confidence in your business, over and above someone who is not, if you are happy to accept finance secured on it. You may also find that this is an “Industry Norm” to take payment by instalments, for example the accounting industry it is normal to buy and sell accounting practices over 2-3 year period.

Disadvantages of providing “Vendor finance”

There are of course disadvantages of you letting someone pay over time, not least the person that buys your business may go out of business and you end up with no money, or just with the initial deposit paid at the outset.

The other disadvantage is that you will not receive all you money straight away, but if you charge interest, and you may well be able to charge a higher rate than you would normally get from the banks or building societies, you will earn something on your investment too.

The other disadvantage is that, should things go wrong then you may end up with the business back and it might be in a bad way, after having been run by the new purchaser for however long. There other thing is the business might go broke and, unless you have taken other security over the purchaser’s house or some other asset, you will have lost your money.

I would certainly advise you to make sure you do receive a substantial payment up-front of probably no less than a third of the selling price, thereby qualifying your purchaser. You don’t want to sell your business to someone and then a few months down the track, they have messed things up and you have no money up-front.

I would also advise you to do some form of credit referencing on the purchaser to make sure that the have no bad credit history, thereby making the whole transaction a higher risk.

Finally, if you are reading this article as a business purchaser, then I would suggest that you ask the seller whether they will accept “Vendor Finance”, as they might not have heard of this option and it could be the difference between you getting the business and not. It could also mean that you could buy a much larger business than you might have originally thought possible.

You might also want to take a look at Bowraven’s business purchase funding tool here.

We are looking for a business to buy in the Essex, Cambridge or East Hertfordshire region and can move quite quickly as we have the cash.

If the business you are selling is outside of this region and you consider it to be genuinely relocatable then contact me as well.

I am not too bothered what type of business it is except that I am not interested in hotels and pubs – all other businesses will be considered.

I do have cash available for businesses that are selling for up to £100,000 and can move quickly for the right business. So for example, if you are moving abroad, there is a death of the owner of perhaps you need to sell because of sickness or simply because of retirement.

If the selling price of your business is in excess of £100,000 and you are willing to take “Vendor finance” then please contact me too. I am in a good position to also raise money through loans for the right business and this can be discussed when you contact me.

I would prefer a business that is “recession proof” and is not in dire trouble because of the recent credit crunch and I will need to look at the last three years accounts at the outset.

So if you “Need to sell your business” please contact me via info@in-business.org.uk please with your details.

If you are looking to buy a particular business then why not post your requirements on here!

You never know – if you put the details in quite specifically and put the right key words then business owners in the industry you are looking for might well find your post and contact you!

You have nothing to lose!

If you are looking to buy a business then you might want to take a look at Bowraven.com’s Business purchase funding system – this will help you in your buying process.