Ep. 59: How to Prepare for a Business Sale

00:00:02

Emmet Apolinario: You're putting a lot of things at risk. I remind the business brokers that when buyers are buying businesses, they're buying air. It's not something that someone could collateralize, go to the bank and say, “I have a piece of property, could you loan in it ?” You're going into risk to doing that. So preparing an exit plan when you're just starting a business is not a bad thing to do.

00:00:22

Andrea Marquez: If you're considering selling your business, whether that's now or in the future, you might be wondering where to start and what the process looks like, what documents will you need and how do you determine and improve the value of your business?

I'm Andrea Marquez, and This is Small Business, a podcast brought to you by Amazon. Today we'll be talking about how to sell your business with Emmet Apolinario, President of the International Resource Group, a company that helps businesses develop and exercise exit strategies.

00:00:52

Emmet Apolinario: I came to this journey of being a business broker out of running a business. I purchased a business in the '90s. It grew and then decided to sell it. And so I made all the mistakes in selling a business. You get busy running a business. I had 57 employees, 25 subcontractors, and we were in the software technology space and you're immersed in doing the day-to-day things of running the business, and then you decide to sell the business without any preparation. I didn't do my due diligence as far as who might be qualified to sell the business.

00:01:26

Andrea Marquez: So Emmet decided that he wanted to help other business owners avoid the mistakes he made when he sold his business, and now he has 20 years of experience being a business broker. Emmet says that the first thing you should do if you're trying to sell your business is figure out why you want to sell it.

00:01:41

Emmet Apolinario: They need to do a self-discovery. Do they really have a good reason of why they should be selling the business? I was barely 40 when I considered selling the business, and really I did not have a good reason to do so. In some cases, I regretted selling the business at that time. But I would say really determine what are the drivers for you to consider selling the business.

00:02:03

Andrea Marquez: Once you figure that out, then you need to determine if it's the right time to sell your business.

00:02:09

Emmet Apolinario: So you time the market, you time yourself if it's the right time to sell the business. I would say a smart business owners should know about themselves is the best times to sell a business is when the business is doing great.

00:02:22

Andrea Marquez: But even if your business is doing great, there are other factors that might make it a little more difficult to sell.

00:02:28

Emmet Apolinario: Businesses that are cash basis, retail businesses, there are brick and mortar that have not taken advantage of the online presence or e-commerce, I would say, will not be as attractive. Also, businesses that are solely dependent on the owner would have some challenges in selling a business. We just recently sold an IT support business that's been in the market since 2019. It's very profitable, but the challenge of that business is the owner is the only employee.

00:03:00

Andrea Marquez: But even with these challenges, you might still be able to sell your business if you have the right team, and that leads us to our next point.

00:03:07

Emmet Apolinario: You want to make sure you are surrounded by the right advisors, the right attorneys, the right accountants, and the right business broker. So going back with my own experience in hiring a business broker and selling my company, I would say doing a due diligence on the person that's going to be working with you is very important. Verify your background. Especially today, I didn't have the tools that I used today to verify someone's identity, education, LinkedIn did not exist back in 2000.  

Today you have a good amount of resources. And the thing that I find very interesting because I do take over listings from other business brokers, it's just not a match. So find out if you are talking to the right person that will represent your business well.

00:03:52

Andrea Marquez: So we've gone through the process of understanding how to evaluate if you should be selling your business. We've talked about partnering with the right people to do it. Now, you have to figure out what your business is worth.

00:04:03

Emmet Apolinario: We provide what we call an opinion of sale value, and that's looking at the market, looking at the regional, your local market of what certain businesses sell for. So one of the things I tell a business owner, the most tangible aspect of selling a business are your financials. That's the basis that we start with. I know people like to talk about their intellectual capital, their products, their services, but it all boils down to financials.  

We do collect three years worth of tax returns, the previous three years, profit and loss, and something that most business owners do not pay attention to but it is important is a balance sheet of the business. That's a scorecard of how well your business have done or how well it has not done for previous years.

00:04:48

Andrea Marquez: And if your business is getting less than a certain amount in annual sales, you might not need an audit.

00:04:54

Emmet Apolinario: So if a buyer is interested with a business, they make an offer. And then now we go through the due diligence phase. And if it's being financed through a bank, we will be going to a due diligence phase. It would be nice, but there's three forms of financial reporting we'd like to have is what we call compiled, reviewed, and audited. Obviously, the best is audited, but it is expensive, cost prohibitive to have that type of reporting.

00:05:21

Andrea Marquez: If you want to get a mini crash course on auditing, we have a whole episode dedicated to it. It's episode 52 of This is Small Business. Let's say you took a look at your financials and you didn't really like what you saw. Here's a few things to keep an eye on to make sure your business is valuable when you do decide to sell it.

00:05:38

Emmet Apolinario: I would say one of the biggest mistakes that business owners do is when they're trying to mitigate taxes, it's affecting the quality of the financials that they produce. So that's one major advice that I tell business owners is be mindful of how you file your tax returns. Not having an operations manual makes it challenging to sell a business. And I tell business owners, I call them the three nones. It's the non-compete, non- solicitation and non-circumvention. If you have those type of agreements with your employees, with your customers, with your vendors, your business is a lot more attractive out there.  

When you're selling a house, you always want to improve on your house to be sellable. In the business you always want to take a look at what could I do to make my business valuable? What could I do to make my business be relevant for the next five years? I like to use the word relevant is because with market conditions and economic changes, a business owner knows their business well and they should know what changes might come to affect the value of their business.

00:06:44

Andrea Marquez: And remember that selling your business might take some time.

00:06:49

Emmet Apolinario: Planning is important. So I have business owners, like I have one yesterday that came in, 25 year business but they're tired and they want to sell within the next six months. So I would say give yourself time to plan. Talk to right advisors, a good advisor will tell them what they need to do to prepare to sell the business. But selling a business is not like selling real estate, it's not going to sell tomorrow. I mean, you might get lucky and find a buyer within three months, these are not large corporations. But preparing and planning is very important.

00:07:23

Andrea Marquez: That was Emmet Apolinario, President of the International Resource Group. Being prepared and planning ahead is good advice for anything you do in your business. We covered a lot in this episode. If you missed anything, don't worry. We've taken notes for you. You can find them at www. smallbusiness. amazon/ podcasts. If you liked what you heard don't forget to subscribe and tell your friends about us by sending them a link to this episode, and we would love to know what you think.  

So please, please, please leave us a review on Apple Podcasts, it's easier to do it through your phone or send us an email at thisismallbusiness@ amazon. com with your thoughts. If you're an aspiring entrepreneur or maybe you already have your small business up and running and you're ready for the next step, a super valuable resource that can help you is the Amazon Small Business Academy. Take the free self-assessment on the Amazon Small Business Academy site at www. smallbusiness. amazon.  

That's it for this episode of This is Small Business, brought to you by Amazon. Until next time, I'm your host, Andrea Marquez, Hasta luego , and thanks for listening. This is Small Business is brought to you by Amazon with technical and story production by JAR Audio.