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’.

If you are selling your business you need to initially provide the following information:

Price – This might be stating the obvious, but I have seen many a business for sale where the owner has indicated “price on application”. This is a mistake in my opinion, as you could be wasting both your time and the potential purchaser’s time. Price of the business is possibly a starting point for most investors after the type of business that it is. Most people have a “budget” if you like of what they are looking to invest and if this is omitted you might be closing the door on potential buyers – I for example, tend to give these businesses a miss.

Type of business – I would imagine that the majority of investors will be looking for a specific type of business to invest in, so the business type is a must disclosure.

Profit and turnover – The profitability of your business is a good indicator of how the business is doing and helps the buyer to establish how long it will take him to get a return on his investment. Also, one of the most popular ways to value a business is on a profit multiple so when you disclose the price and the profit a buyer can do a calculation on the valuation multiple.

For example, your profits might be say £100,000 per annum and your purchase price £300,000 – therefore, the multiple is three.

Disclosing the turnover of your business will provide the buyer with an idea of the size of your business too. For example a business producing a profit of £100,000 with a turnover of £200,000 is completely different to one producing the same level of profit, but with a turnover of say £2,000,000.

Business description – Your business description gives you the opportunity to sell your business to a potential buyer. Tell the buyers why you are selling and tell them a bit more about what the business does. How many employees it has and what your involvement is within the company.

Remember, the less reliant on the owner the business is, the more valuable it is to a potential buyer. For example, an electritian that works for himself and serves a number of clients personally – his business is not worth as much in profit multiples as one that has a number of electritians as employees with managers and premises etc.