.....For The Most Money Possible

Lesson 1- Preparation

Lesson 2- Valuation

Lesson 3-Advertising

Lesson 5-Due Diligence

Lesson 4-Deal Structure

Lesson 6-Closing

The Biz Seller's Playbook
(Introduction and Overview)

Welcome to The Biz Sellers Playbook--a 6 step business selling system designed to teach you everything that you need to know to complete a profitable and smooth business sale for yourself, without listing your business with an expensive (often unnecessary) business broker.

During this Training Series You are going to learn:

1. How to prepare your business for sale so that it attracts the maximum amount of qualified buyers

2. How to write an online ad that attracts the best buyers and repels the time-wasters

3. How to keep your deal confidential so that only the right people know that it’s for sale

4. How to price your business, justify your asking price, and get your buyer to agree it’s fair

5. How to effectively negotiate deal points to get the best deal for yourself

6. How to setup financing so you get paid the most at closing

7. How to manage due diligence to avoid any problems

8. How to get the most out of professionals like CPA’s and Attorneys, if needed

The Biz Sellers Playbook is structured as a 6 step business selling system, with each step presented in the same sequence as you will encounter during the successful sale of your business. The 6 steps are outlined below:

STEP 1: Prepare Your Business for Sale (We'll cover the important items to address before you offer your business for sale)

STEP 2: Price Your Business (How to properly value your business and determine an asking price)

STEP 3: Advertise your Business for Sale, Maintain Confidentiality and Qualify Your Prospects

STEP 4: Negotiate the Best Terms and Deal Structure When Offers Come in

STEP 5: The Due Diligence Process

STEP 6: Close Your Deal and Get Paid

Did you know that the vast majority of businesses are sold without the help of a business broker? The Biz Seller’s Playbook is designed to give you all the information and know-how you’ll need to successfully sell your business yourself, without a broker, and get it sold quickly and for the most money possible.

You may, however, still need the assistance of an accountant (to help you prepare your business’s financial statements) and/or a transaction/contract lawyer (to help you with the purchase agreement), but these choices are yours as these specialists are not required but are highly recommended.

The strategies and information in this training is straight forward and applicable whether your business is a $40,000/yr home based route business or a multi-million dollar manufacturing company. However, the larger the transaction and the more moving parts your business has (example—retirement plans, employment contracts, key management retention plans etc), the more likely is your need for additional expertise.

Regardless of your situation, you will find tremendous value in the information and insight that follows, all of which is designed to help you sell your business faster and for top dollar

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Turnkey Marketing and
Buyer Qualification System

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Selling Your Small Business

In Lesson 1-Preparation, we are going to spend a lot of time talking about Business Buyers and how they think, act, and most importantly, what motivates them.

But first, we are going to go over the specific steps involved in preparing your small business for sale and some of the most common mistakes sellers make and how best to avoid them.


Step 1: Preparation – Prepare your business to be seen by prospective buyers (aka- packaging your business for sale). WARNING: Don’t over-prepare and thus delay looking for a buyer until every last detail is perfect because nothing is ever perfect. What you want to do is package your deal good enough (we’ll go through this with you in a moment) and then get going on finding a suitable buyer.

To begin the process, gather and/or create all items that must be documented for a prospective buyer.

Start by preparing a nice looking and well-presented set of Financial Statements. Serious buyers will want to see documented proof of your business’s past and present financial performance. They will ask for both internal financial statements like P&L and balance sheet and corresponding tax returns.

You will also likely want to create a set a Recast Financial Statements where you add back to your bottom line all the owner perks/benefits you took out of the business (think company car, spouse’s salary, entertainment and travel, other discretionary, extraordinary, nonrecurring and non-cash expenses, not to be incurred by a new owner etc) before you calculated your income taxes.

What may be a good strategy at tax time may not necessarily be a fair representation of the financial performance of your business. Recast Financials provide buyers with a more accurate representation of the business’s real cash flow and earnings. We’ll cover add-backs in more detail later on, including how to justify and defend any add-backs that you include to your buyer in the event they object to any specific item.

Next you’ll want to gather all your business's important contracts and agreements. Think customer and vendor agreements, real estate and equipment leases, and property, plant and equipment records. Basically, include any pertinent documents that relate to the business and assets that are being offered for sale. We’ll cover in more detail reviewing your contracts and leases for maximum value later on as well.

The final step in packaging your business for sale for the most money possible is improving the physical appearance of your business. While a full-scale makeover is unnecessary, first impressions still matter. As such, ensuring that your warehouse, office space, parking lot, inventory, machinery, vehicles are all in good working order and look as good as possible visually prior to a buyer doing an inspection is a wise and highly recommended course of action.

STEP 2: Determine the value of your business: We’ll discuss two methods of valuation including asset based and earnings multiple.

Sadly, there is no definitively accepted valuation method that will give you a guaranteed asking price. Rather, these industry accepted valuation formula’s are intended to provide you with a price range to begin negotiations with.

Every business has unique aspects to it that will influence the selling price. But a realistic pricing formula will help you to justify your asking price and put you in a position of strength at the negotiating table.

STEP 3: Finding Qualified Buyers- Once you’ve packaged your business for sale (on paper and physically), and arrived at a realistic asking price, the next step is to locate qualified prospective buyers.

During the course of this training, we will cover how to write an effective business for sale ad and where to post them for maximum visibility. Most buyers are found through paid advertising campaigns. However, your lawyer, accountant, banker or other advisors can sometimes refer you to a potential acquirer.

When you begin to market your business, it is essential that you do all that you can to maintain confidentiality. It is best that your customers, competitors (unless certain ones are specifically targeted as potential acquirers and sign non-disclosure agreements ahead of time), your employees and vendors don’t know that your business is for sale until it’s actually sold. And the easiest way to do this is to only generically advertise your business for sale and avoid any easily identifiable information in your ads, particularly location information.

Additionally, before providing any detailed information, It's suggested that you require all prospects to sign a non-disclosure/confidentiality agreement. Any prospect that objects is probably not a qualified prospect anyways.

It is worth noting that many respondents to your ads will not be suitable buyers. They may be unqualified financially or just not a good fit for your particular business model of operations. As such, hosting onsite tours with prospective buyers are better reserved for much further along in the buying process. More about this later on.

Lastly, it's well worth your time to prepare a professional sales prospectus on your business and make this the first piece of information that you give your buyer(s) after they sign your non-disclosure/confidentiality agreement. This document is a sales brochure for your business that is designed for maximum appeal to prospective buyers. Also, unless and until your prospective buyer has read and considered your prospectus, any discussion about an onsite or in-person visit is premature. We’ll go into more detail about how to properly prepare a prospectus for your business later on in this training.

STEP 4: Structure the Deal in Your Favor: The primary goal of pre-selling your buyers with your advertising and prospectus, meeting your buyers in person and building their interest is all aimed at encouraging your best prospect(s) to sign and deliver to you a letter of intent. A letter of intent is merely an agreement in principal on the most important aspects of the deal and that your buyer will in fact purchase your business if all the deal points can be worked out and agreed upon.

Deal structuring is the process of working through these deal points. Common deal points often include financing, non-compete agreements, employees, and consulting agreements.

STEP 5: Conducting Due Diligence: The due diligence period is where your buyer may inspect the business thoroughly. Buyer’s will want to confirm the seller’s claims that were made during the sales process. For example, most buyers will want to research the business’s financial statements, inventory and contracts before closing.

Deals that fall apart during the due diligence phase are most commonly the result of dishonest claims made by the seller that are uncovered by the buyer and are of such significance as to warrant exiting the deal. Therefore, always be upfront and honest with your buyer and your deal should move forward to closing without any problems.

STEP 6: Closing the Sale: Assuming you’ve hired a lawyer to draft the purchase and sale agreement and to get all of the ancillary documents signed, there isn’t much work for you to do here. While it’s still possible for a deal to fall apart at this late stage, if you’ve made it through step 1-5 without incident, then you’ve avoided most of the deal killers that could have otherwise sabotaged a successful closing at this late stage of the game.

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Business By Owner
Turnkey Marketing and
Buyer Qualification System

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PLUS Get Pre-Qualified Buyers!
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MISTAKE #1: Overpricing your business- Yes you want to get the most money possible for your business. But it is absolutely essential that you price your business at a level that you can justify with facts using industry accepted valuation methods, like the multiple of earnings method. When you can back up your asking price based upon proven past performance and reasonably projected future performance, you put yourself in the driver’s seat to get the best price for your business.

With that in mind, you want to:

1. Avoid arbitrarily setting your price at what you’ve got invested in your business or what you need to pay off debts as you’ll inevitably be setting yourself up for disappointment.

2. Avoid arbitrarily setting your price at what you heard a similar business sold for (internet businesses are notorious for this)

3. Avoid using arbitrary rules of thumb to determine your asking price

4. Avoid pricing your business based upon its future potential which assumes a new buyer will implement growth ideas that you the seller never did. In almost all cases, buyers will refuse to pay you for this upside potential and instead will consider this added value to be their future prize for buying your business at today’s distressed (unmaximized) valuation and implement these ideas themselves as their own turnaround strategy. Furthermore, the buyer will ask themselves if these growth ideas are so profitable to implement, why hasn’t the seller already done so.

In conclusion, you are well advised to price your business based on historical performance and sound valuation principles that buyers will find hard to object to if you are serious about selling your business. While future potential and untapped market opportunities are important to highlight and should be used to motivate a buyer to make you an offer, don’t expect to be paid today for growth opportunities and risk your buyer might exploit after closing.

MISTAKE #2: Withholding Important “Material” Facts about the business- Many successful businesses fail to sell because sellers were afraid to disclose vital facts and/or the complete truth about the business.

Sure, uncomfortable truths might turn away some buyers, but too many others, they will be unfazed. No business is perfect and they all experience setbacks from time to time. Genuine Buyers understand this. So the suggested course of action is to be upfront right from the start about any issues the business is faced with and let them know what you are doing to correct and/or mitigate these problems.

Common issues that have the potential to turn away good buyers if not addressed upfront include:

· Large customers that account for more than 20% of your revenue

· Unpaid taxes

· Near-Term real estate lease expiration

· Downward trending sales and/or profits

· Expensive Environmental and/or safety standard upgrades necessary

Because it is inevitable that your business's challenges will be discovered by your buyer at some point throughout the sales process, when you make the smart choice of disclosing the issues and the steps being taken to minimize the issues, your buyers will appreciate your honesty and the trust factor will grow stronger.

Buyers will expect to find some problems anyways, so a few negatives are not going to be a deal killer for most reasonable people. In fact, some buyers may actually be more attracted to a turnaround opportunity that requires confronting declining sales and market share and turning the ship around. There is certainly a buyer marketplace for deals with hair on them that offer above average upside potential to those willing to take on the challenge.

However, without question.. nothing will kill your deal faster than a ready, willing and able buyer uncovering material facts that you were clearly trying to keep hidden about the business. All trust will have been eroded at that point so don’t do it.

MISTAKE #3: The Professional Advisor Trap – Accountants and Lawyers can be a great help in getting your deal done properly and safely. However, many of these professionals have a bad habit of feeling their role is to beat the other side. For example, some lawyers go looking for problems they can pester the other side with and attempt to “beat them” rather than working with your buyer’s counsel to find workable and agreeable solutions to the issues that might arise. Remember, you are the boss and your advisors work for you. As such, it is recommended that you instruct your advisors to do their best to work through any issues with the other side in an amicable way and make the deal happen because that is the objective.

MISTAKE #4: Not Keeping It Business As Usual Once Your Business is for Sale – Small business sales can take 6 months to a year. Even the most simple and fast sales take months to close, not weeks to get sold. One of the worst mistakes you can make while your business is for sale, and even more so once it's under contract, is not running it "business as usual". In fact, you should aim to run it the best you ever have and show your buyer how the business is actually growing and performing better and smoother which suggests your buyer will be taking over a stable business with ease of operation and energy and momentum behind it.

If you do the opposite and let your business slowly fall apart while it’s for sale or under contract, you’re asking for trouble. When you let your accounts receivables age and fail to maintain adequate inventory and operational oversight, your business will inevitable be less desirable then when you first listed it.

Furthermore, when you lose interest in your business and stop taking care of it your customers and employees are sure to take notice.

With that said, do the smart thing and continue to operate your business like you’re going to own it forever because even when you do find the perfect buyer, your sale will probably take a little longer to close than you expect anyways. That’s just reality. And the last thing you want to have happen is lose a great buyer or be forced to accept a big discount because the business operations have deteriorated significantly since you first put the business up for sale and now an adjustment to your asking price is warranted.

The Value Drivers That will attract Qualified Buyers to your Business

Buyers are going to judge your business based on documented facts—things that they can see in writing. And the biggest emotion that they will have about your business is FEAR. Fear of paying too much. Fear of being ripped off by a con man seller. Fear of failing with your business. Put Simply… a fear of making a terrible financial mistake.

So to have the best chance of making a successful sale and get the most money possible for your business, your aim will be to show a buyer as many items from the list below:

1. Documented Revenues and Profits – Most important to buyers is seeing how much cash your business generates. Yes.. Buyers are most concerned with how much cash they think your business will be able to generate in the future under their ownership, but when they buy it, they are going to base their price on your business's historical financial performance. This is the amount of cash it has generated in the past.

We’ll go into greater detail on how to prepare financial statements later on, but you’ll want to prepare financial statements for the last 3 years plus an up-to-date profit and loss. Ideally you’ll want to show an upward trend of sales and profits and if your business has been trending the opposite direction lately, you can anticipate that a buyer will discount your valuation accordingly and ask questions about why this is the case.

Your buyer is going to value your business based upon its historical financial performance, but you are encouraged to create and include projected financial statements under new ownership and a new strategy being implemented that will show how your business can be expected to perform in the future under new assumptions. This is a great way to motivate a buyer by showing future “upside” potential and perhaps even mitigate some of the negatives of falling sales and profits if that is the case with your business.

2. Priced Fairly and in-line with Industry accepted norms – Most buyers will need to borrow money to purchase your business. Some of that financing may come from you the seller. In any case, buyers will be most concerned about being able to answer YES to the following questions--- that the asking price and expected annual sales comfortably allow for

a. adequate debt service payments

b. labor costs

c. overhead expenses

d. a reasonable salary for the buyer

e. and a reasonable profit to reinvest and grow the business year after year.

So whatever price and terms you and your buyer ultimately agree upon, in order for your deal to work and make it to closing, your buyer must arrive at the answer “YES” to (a-e) above

And you’ll want to keep in mind that some of these items will differ between buyers. What is a reasonable salary for a single buyer without kids might be completely inadequate for a married buyer with 3 kids. So it’s not just pricing your business right that earns you the sale, but also “Is the price workable?” for this particular buyer based upon their unique needs and financial circumstances.

3. The “UPSIDE” is Motivating- Buyers are going to want to make sure that the future is bright, that historical performance is at a minimum likely to continue under new ownership, and growth can be expected with new strategies, products or markets being targeted for implementation. And since most buyers will fear things changing once they take over, they’ll be looking closely for any red flags that suggest the business may be headed for trouble.

Some of the Red Flags buyers look for include:

a) Customers that account for an unusually large percentage of sales make buyers scared. They’ll worry about what happens to the business if that customer closes shop or starts buying from a competitor.

b) The business is heavily dependent on YOU- If your business depends on you for its success, and most of your customers buy from you because of your personal relationships with them, your buyer is going to view this as a big negative. This is also true if your name is on the business and most of the industry associates your business with you. If this is the case with your business, you’re going to need to credibly show your buyer that your organization can indeed successfully run independently of you.

c) Your business was a trend that’s past its time- If your business was started to cash in on a hot trend that’s come and gone, it still may be sellable, but you’re going to need to price it accordingly to get it sold. That’s because buyers want to see that the business is in a position to do even better financially in the future then its past financial performance. And since your business in this circumstance is fast becoming obsolete, you’ll need to consider what comes next and what the viable future growth opportunities are in your industry that a buyer can tap into to get them motivated to buy your business and seize these opportunities for themselves

4. A Prime Location that can be acquired by a buyer - Buyers will want to know the details of any lease agreement your business is subject to. This is especially important if your business's value is directly related to the location and appeal of the real estate it operates from. Two locations even in the same town will produce vastly different sales numbers for retail operators due to differences in visibility, access and foot traffic at each center. When a buyer sits down and reviews your lease agreement(s), they’ll want to see fair rents (below market is a positive feature, above market is a negative feature) and they’ll look at how much time is left on the lease and whether any options to renew exist.

Another important feature is whether your lease is transferable. Most landlords require their tenants to get permission from them before any lease transfer may take place.

Depending on the specific language in your lease, if your rent is particularly generous in your favor (like a significantly below market rate), don’t be surprised if your landlord will want to try to negotiate a new lease with your buyer instead of simply approving a transfer and assumption of your current lease. A good strategy to consider in this circumstance is to negotiate a new lease now with your landlord with updated terms that can be automatically assumed by a buyer and thus, avoid any hassle with transferability issues in your current lease, if this is the case.

Something to keep in mind about leases is this- a great location with very desirable lease terms combined with below market rent offers a buyer tremendous value and is a unique selling point in and of itself.

5. Your Business Assets Have Genuine Value – Is your inventory current or obsolete and unsellable? Is your inventory on hand what the market demand wants or must a buyer immediately invest large sums of money in new stock after closing. Are your tools, machines, and equipment in good shape and capable of producing work and product the market wants to buy or are they in desperate need of repairs and/or capital investment in new modern equipment to stay competitive.

Buyers want to see that your hard assets have actual value and contribute significantly to the future profitability of the business being purchased

6. Minimal Competition- Any growing industry will have competition, and buyers don’t expect your business to be the only player in town or have only weak competitors to go up against. In fact, monopoly situations will usually be viewed negatively as buyers will question what will happen to the business if a new competitor enters the market which is inevitable in any growing industry (and growing industries are the types of businesses that buyers want to buy).

Rather, you want to show that your business has been successful all the years despite the competition because of some unique selling proposition or positioning in your marketplace that can’t be easily duplicated. Now that is value your buyer wants to buy because it’s a moat around your business that a buyer can only acquire from you and also offers them peace of mind and lowers their risk.

Seller Confidential's
Business By Owner
Turnkey Marketing and
Buyer Qualification System

Sell Your Business For Yourself, Not By Yourself
PLUS Get Pre-Qualified Buyers!
PLUS Guaranteed Confidentiality

Understanding How Your Buyers Think and
How to Influence Them Most Effectively

Previously we discussed key features that your buyers will look at first when evaluating your business.

Next, lets try thinking like a buyer (their fears, concerns and priorities) and the hot buttons that can be pushed to motivate an offer and get your business sold for top dollar.

The 5 Truths about Business Buyers you’ll want to keep in mind as you progress through the selling process:

TRUTH #1: Money is NOT the #1 Reason or driving force your buyer wants to buy your business.

In fact, many surveys have shown money to be number 4 or 5 on their list of priorities. Most important to buyers is their ability to control their own destiny, write their own story, be their own boss and get out of the rat race and hassle of corporate America. Status, recognition and the ability to work directly with customers and employees is also high on the list. In your business presentation materials and in-person meetings, be mindful to show your prospective buyers how your business delivers these benefits

And don’t forget to talk about the fun part(s) of owning your business. For example, if exciting travel and entertainment is a component of your business operations that a new buyer will get to enjoy, highlight it. Perhaps talk about all the neat people they’ll get to meet and maybe even form friendships with.

You want to highlight all the aspects of your business that have brought you excitement and enjoyment. Because you’ll never know what exactly will trigger your buyer to want your business over all the others for sale, the safest route to go is to highlight as many benefits of ownership as possible that you can conceivably come up with.

Even if your business has been a miserable experience for you, I’m certain if you sat down unemotionally for a moment, you could think of several intriguing and positive aspects of owning your business that your future buyer will get to enjoy, all of which will also help you narrow down a buyer persona of who might be the perfect owner for your type of business based on these specific qualities.

TRUTH #2: Business Buyers Fear Risk more than anything else- Whereas sellers spend the majority of their time showcasing all the positives and future potential of the business if everything goes right to prospective buyers, your buyers will alternatively spend most of their time focusing on and imaging in their own heads all the worst case scenarios that could possibly go wrong after they buy your business.

The things that will make matters worse for you in the eyes of your buyers and that buyers will view as increasing their risk are the following:

1. Sloppy, incomplete or missing financial statements

2. Down trending sales and profits without a reasonable and/or acceptable explanation

3. An asking price based on future potential, not past and present financial performance

4. Dated and warn equipment and machinery that needs to be replaced or repaired in the immediate future

Because your buyers will be comparing your business to all the others on the marketplace, you’ll want to do all you can to limit the risk for your prospective buyers. And the more you can do to minimize the risks above, the better your deal will look compared to the other choices out there.

TRUTH #3: Many buyers don’t know what they want to buy, especially when they first begin looking – Believe it or not, most small business buyers are first-time entrepreneurs. They’ve finally decided to take control of their future and buy a business of their own. But they’re not sure what business will be the perfect fit. So they’re open-minded. Most importantly, they want to buy a business that gives them confidence of the business's continued success under their management and ownership. This means they want a smooth transition and ease of continued operations and revenue.

Many buyers are changing careers or are retirees with unique talents and years of experience behind them. So when you meet prospective buyers that are exploring several industries, don’t be skeptical of their seriousness on this fact alone. That said, by the time you actually meet with a prospective buyer, they should have done enough research on your industry to answer the simplest of questions regarding why they are at least interested in your type of business. If they can’t answer this question, then it is possible they’re using your meeting to do the research and may not yet be interested, or worse, wasting your time.

TRUTH #4: Price or Terms is a Reality. Your willingness to offer your buyer "seller financing" of some level will increase your chances of getting the most money possible for your business, sometimes even full asking price or more.

Furthermore, when you’re willing to carry back some of the financing for your seller, it’ll increase their confidence and trust in your deal as your buyer will view this as you sharing some of the risk with them, thus you having a vested interest in their future success.

The variables that will most often influence the attractiveness of your asking price include: down payment, interest rate and length of financing being offered. Collateral requirements (if any) and recourse remedies will also play a role. The more flexible you are with your terms, the better chance you’ll have closing your deal timely and at or near your desired price.

TRUTH #5: Offering Your Buyer a hands-on training period with you by their side will be well received. Even a brief 30 days of on-the-job instruction will go a long way towards building your buyer's confidence in the transaction. This will be even more critical if your buyer is new to the industry.

STEP 1: Preparing Your Business for Sale

Getting top dollar for your business will require some detailed preparation.

In this section, we’ll cover the important items you’ll want to prepare prior to meeting your first prospective buyer.

Of course, you’ll also want to avoid the mistake of waiting to list your business until every last item is perfect. Keep in mind that nothing will ever be perfect, but the item list below you'll want to prepare early on before any first meeting.

I’m going to list all of the items first, then we’ll go into detail on each one.

ITEM NUMBER 1: Financial Statements- First and foremost the most important documents you’ll need to prepare when selling your business are the financials. A complete set of financial statements are your best weapon for building trust with your buyers and persuading them that a top dollar price is warranted. For purposes of this discussion, we’ll assume your accountant has prepared these documents for you and dive into what exactly buyers are going to be looking for when they review them. Additionally, we’ll discuss what to do if your business's financial performance has been less than stellar lately.

ITEM NUMBER 2: Recast Financial Statements- It’s hardly a secret that most small business's are managed with the aim of lowering taxes. This being the case, your business's financial statements are likely not a fair representation of your company’s true earning potential and past performance. This holds true for even the most accurate and truthful financial statements because they too will not show the total value your business produces annually.

With recast financials, you’ll have the ability to addback owner perks, benefits and discretionary salaries and expenses to your bottom line in order to give your buyer a truer representation of the income your business is capable of making. This recast income number is also called “Seller’s Discretionary Earnings” and will be a critical tool when you value your business and determine a fair and justifiable asking price.

ITEM NUMBER 3: Other critical documents- These include leases, contracts with customers and vendors, and itemized inventory and asset lists. We’ll also discuss how best to present these items to add value to your business and asking price from a buyer’s prospective.

ITEM NUMBER 4: The Sales Prospectus- Think of this item as a sales brochure that highlights and summarizes key features and unique benefits of your business for your buyer. A properly prepared sales prospectus will serve to make a strong first impression on all your prospective buyers and get them interested in learning more. It’s also a huge time saver as it will answer your buyers most frequently asked questions for you.

Ok, lets now dive into Item Number 1 (financials) in more detail


Financial Statements are a set of organized, correct and professionally prepared documents that reveal your business's financial performance from year to year (often last three years plus a year-to-date profit and loss). And know this—nothing will have more influence on your buyer than your financial statements, much more so than anything you say, do or promise.

So if your business has lacked a good system for tracking your sales, expenses and profits, be sure to set one up asap because your buyers are going to want to see the numbers.

Additionally, if you’ve run your business using software like quicken (which is how many small businesses and most sole proprietors track their finances), you may want to consider hiring an account or even better a CPA for the following reasons….

1. A CPA may be able to lower your taxes and offset its fees making their services FREE

2. A CPA will be able to help you navigate through any tax issues that arise with respect to your business sale and advise you on the best way to allocate the purchase price and structure your sale to minimize your tax liabilities.

3. Your buyers will respect and trust your financial statements much more if they are assembled by a CPA. And as we mentioned earlier, trustworthy financials will help you sell your business for top dollar.

4. Finally, you should expect that your buyer will have a CPA examining the financial statements that you provide. If you don’t have a CPA of your own who prepared your financial documents, you’ll be at a notable disadvantage when negotiating any deal points that center around your financial statements. And remember, the “Seller Discretionary Earnings” number you or your accountant arrives at from recasting your financials is what is used to value your business and justify your asking price. It’s also the number that is most commonly going to be the subject of some negotiating.

Understanding the 3 Types of Financial Statements

TYPE 1: Compiled Statements- Your accountant will merely organize and assemble the financial information you provide. However, your accountant does not test for accuracy nor vouch for the statements.

TYPE 2: Reviewed Statements- Similar to compiled statements, however, your accountant will compare your numbers (profit margins, return on equity, cost of goods sold, labor costs and any other important metric to your type of business) to industry averages and norms

This is important because comparing well with your peers is a positive (especially if you’re overachieving). However, under-performing will be viewed as a negative.

TYPE 3: Audited statements- These are of course the strongest financials by far. Should you choose to pay your accountant to audit your financials, they will test the accuracy and legitimacy of your numbers and do random sampling of your receivables, expenses, and income sources to validate what you’ve provided. They may also do an audited inventory count (an actual hand count) as well.

Due to the additional expense associated with audited financials, in most cases, compiled statements will be adequate. However, keep in mind it is highly likely that your buyers will have their accountant compare your numbers to industry norms and may also request copies of expenses and bank records to conduct their own audit (at their expense) to verify your numbers. This would be part of the buyers due diligence once under contract to purchased your business.

Buyers want to see 3-5 years of statements

You’ll want to ask your accountant to prepare financial statements for at least the past 3 years (5 years is even better) and a year-to-date Profit and Loss Statement. If your business is new, then you’ll want to prepare financials since its inception.

Because it’s relatively easy to make short-term corrections to an operation in an effort to make the financials look better on paper than the business has actually been doing in the past, buyers will be on the lookout for this and will want to see a multi-year performance history via the financial statements your accountant will prepare for you to provide to your buyers. Some of the more common tactics employed by sellers to boost the numbers just before putting the business up for sale include: reducing or eliminating advertising expenses, labor, training costs and Research and Development costs.

Buyers want to see which way the sales and profits have been trending. If the trend is negative, however, trying to hide this fact is not an advised way to go. It's much better to be truthful and provide a well reasoned explanation instead, which proves the downtrend is due to your own lack of attention and not any fault with the business itself. Thus your loss is your buyers gain!

What Buyers are Paying The Most Attention To
When Looking Over Your Financials

While every buyer will look for and be concerned with different things, below are some of the more common items they’ll pay attention to:

THE RATIOS: First your buyer is likely to determine which direction your numbers have been trending. Next, they’ll want to examine the ratio’s that are most important to your industry. Think of these ratios as performance metrics or key Performance Indicators (KPI’s). In other words, your business will be measured against similar business's in the same industry.

Brick and Mortar Retailers are often measured against “sales per square foot” and restaurants “food cost percentages” and ecommerce stores “cost per sale” and affiliate marketers “earnings per click,” amongst others.

There is usually 5-10 important ratios for each industry you’ll want to measure your business financials against because it’s likely your buyer or their accountant will do it and it’s wise to be well prepared for any questions or concerns they might have.

Online research and/or the trade associations that serve your industry should be able to give you the most important ratios for your business type.

Additionally, while return on equity, return on assets, sales growth rate, earnings growth rate, operating cash flow, overhead percentage, labor percentage and debt to income ratio’s are common in all industries, what’s considered low, average or high numbers differs from one industry to the next.

Knowing your ratios upfront will empower and position you for success when you meet with your buyer(s).

GROSS MARGINS: Buyers will analyze your gross margins for each of your products and product lines and determine their trends. Typically a declining gross margin implies worsening demand or increased competition.

ACCOUNTS RECIEVABLES: Buyers want to see accounts that are paid timely. Accounts that are 30 days past due or more will be heavily discounted, and often to zero.

NET WORTH: Again, the buyer wants to know the trend. Has capital and accumulated earnings been increasing or decreasing year to year.

What To Do If Your Business Shows Poor Financial Performance?

Your business is still sellable despite poor financial performance.

Buyers will no doubt value your business based upon its past “historical” financials. However, they’ll choose to buy your business primarily based upon its future potential. This is key. Your business must present a picture of a bright future with lots of untapped potential regardless if your past financials are strong or weak.

Lots of buyers will think they are wiser than you and can make a success where you may have failed or tap new opportunities that you were unable to. And that’s great—let them think so! It’s not your place to sap their dreams and confidence. In fact, they may be correct. Turnaround artists make fortunes doing just that. So the bottom line is- assuming your business is priced fairly, many buyers will sell themselves on the future potential of your company and its upside and be willing to forgive past failures the business may have experienced.

Some things you can do if your business has been struggling recently:

1. BE TOTALLY HONEST: Even if you think you’re clever enough to get a buyer to sign on the dotted line after having lied to them, you’re just asking for trouble like big legal consequences. Buyers are not stupid and will find out eventually. So don’t hide the truth, rather, be honest and work towards explaining away buyer concerns with rationale, believable, and acceptable arguments that show your buyers that these negatives are but minor setbacks and again highlight (your loss and their gain). That had you operated the business better, they’d be paying a lot more then they’re being asked today.

2. BLAME YOURSELF FOR THE MISTAKES: When selling your business it’s always better to blame yourself rather than your business. In fact, there’s a saying around Wall Street that “there’s no such thing as a bad business, just bad management.” And this makes sense. Afterall, the last conclusion you want your buyer’s to arrive at is that your business struggles are due to being in a dying industry, a defunct business model, a bad economy or that your product(s) are unpopular or obsolete.

It is important that your buyer not think he’s merely inheriting your insurmountable problems. Rather, you want your buyer to view your business's current troubles as having resulted from your bad decisions. Decisions your buyer will no longer be making once they’re in charge. Again—letting your buyer think they are smarter than you is a good thing (and hopefully they are- you want them to be successful).

3. HIGHLIGHTING A BRIGHT FUTURE IS KEY: You can turn the page in your favor by focusing your buyer's attention on a bright future for your business once it’s under new ownership with somebody smarter than you in the driver’s seat.

And this is true because if your business has struggled recently, it doesn’t mean it won’t thrive in the future. Point out the growth or growth areas of your industry that your business can quickly tap into. Show your buyers the unexploited opportunities (especially the low hanging fruit) that you’ve failed to seize but is still there for the taking. Maybe you’ve lost interest or burned out. If so, admit it and show your buyer what’s possible with new energy behind your business.


Most small business owners run their business's in a manner that minimizes taxes. Some of these strategies may have included paying a family member an over generous salary. Perhaps your business has leased you a luxury vehicle to use for business purposes. Whatever tax strategy you’ve employed, these benefits and perks have given you real value that has been deducted from the profit number on your tax return.

When you recast your financials, you add back these benefits to your bottom line and thereby demonstrate your businesses true earning power.


A comprehensive list of expenses that can be recast would be long and difficult to specify with certainty as it will vary among business types. However, below you will find the most common expenses that you’ll want to recast.

SDE stands for Seller’s Discretionary Earnings. It's the Total Owner Benefit a business produces and it is generally used for evaluating businesses with gross annual sales that are under $1,000,000. You can also define SDE as EBITDA plus owner's salary plus owner's benefits. For larger business, EBITDA is more frequently used. It is assumed with SDE that there is one (1) full time, working manager in the business. If, in realty, the owner is not working in the business, then the money spent on labor that could be saved with a full-time working owner should be added back to the Net Profit to get the SDE. In contrast, if multiple partners are working in the business, only partner would be considered. The amount a capable employee (or employees) would be paid to replace the additional partner(s) would be subtracted from the reported earnings. Other items, such as Interest and Depreciation, are also added back.
See formula below:

SDE Formula
Profit on Income Taxes
+ Nonrecurring Expenses (add these back to your profit number)
– Nonrecurring Income (subtract these “one-time” items from your profit number)
+ Non-operating Expenses
– Non-operating Income
+ Depreciation
+ Amortization
+ Interest Expense
+ One Owner’s Total Compensation

1. OWNER'S SALARY: add back to the income statement the business expenses for the owner’s salary and bonuses, including perks such as auto lease, insurance, retirement plan, and any profit sharing expenses. Then deduct a reasonable salary and benefits (if customary for your business type) for a manager to replace you.

2. FAMILY MEMBER SALARIES: add back to the income statement the salaries and perks of any family members that have been on the payroll and will not remain after the sale. If their jobs were critical for the business, deduct a reasonable salary for replacement employee(s).

3. ONE-TIME EXPENSES OR REVENUES: add back one-time expenses that a new owner will not incur going forward (such as unusually large equipment purchases or settled lawsuit expenses). You will also deduct one-time only revenues from the income statement such as insurance claim proceeds or sale of real estate.

4. INTEREST, AMORTIZATION, AND DEPRECIATION: add back interest expense on any business loans you will pay off and amortization and depreciation expenses to the income statement


After you recast your income statement, you’ll want to recast your balance sheet.

STEP 1: Remove all the assets that are going to be excluded from the sale

STEP 2: Remove all debts that will not be assumed by a buyer

STEP 3: Remove all obsolete, damaged, and unsellable inventory and value the remaining stock at replacement cost

STEP 4: Write-off all receivables that you know are uncollectable

In conclusion, you’ll want to go through your income statement with your accountant and recast all items that can be justifiably recast (and be sure to note your reasoning for each). You can be aggressive here as long as it makes logical sense and you can back up your rationale when asked by a buyer to explain any specific recast item.

You want to be able to make a convincing case.  Some negotiation and compromise should be expected as your buyer is likely not to agree with your position on every recast item. Take for example salaries. What you and your buyer think is a reasonable salary to hire a competent manager may be totally different.

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You can add value to your business in the eyes of your prospects by packaging these items with care.

1. YOUR LEASE(S): If your business operates from a location that depends heavily upon it for its success, then providing lease specifics to your buyer will be essential to making a successful sale. Buyers want to know about your rent amount, upcoming rent increases, renewal options, and these 2 critical features:

a) Assignment- may your lease be taken over without your landlord’s approval?

b) Length- How much time remains on the lease and does it have any renewal options?

Most leases require a landlord’s consent to assign it to your buyer. And in many cases, they will require a rent increase for your buyer that may even kill your deal.

So the first thing to do is review your lease for its assignment language (if any) and any limitations that exist. You’ll also want to pay attention to how much time remains and what, if any options exist for renewal. Keep in mind that a smart buyer will only consider your deal (if you have a couple years or less left on the lease) subject to his/her ability to negotiate a new lease acceptable to them. This of course puts the fate of your deal in your buyers and landlords hands. Not a good spot to be in.

The better strategy is for you to try to negotiate a new lease right now with highly attractive terms that your future buyer can assume without landlord approval or an approval that will not be unreasonably withheld. It’s not necessary to tell your landlord you’re planning to sell, just that you’re looking to lock in a solid lease for the long-term as it’ll bring more certainly to your operation. Also, try to get multiple options to renew as well.

And if your landlord requires a small rent increase to renegotiate your lease, it’s going to be well worth it because a short-term lease that’s not assignable may very well kill your deal, whereas a small rent bump in exchange for a long-term lease and flexibility of assignment will not.

2. HOW VALUABLE ARE YOUR CONTRACTS: Begin reviewing the terms of all your contracts with customers, vendors and independent contractors.

Itemize each contract and mark down its key terms and expiration dates. Early on in the process to protect confidentiality, its best to supply your prospective buyers (if they ask) with only basic contract information without naming your customers and vendors by name or providing them with any actual contact info.

You also want to take some time to review your contracts from a buyer’s view point. Think-which contracts would you want to assume and which would scare you off? But keep in mind, each buyer is different and just because you think a long-term supply contract with a customer or vendor is a plus, some buyers may view it as a negative thinking they could negotiate a better deal than you. Also, make sure your best contracts are in fact assumable by your buyer before highlighting them.

Be sure to highlight your best customer and vendor pricing contracts that are certain to be transferrable to your buyers. These types of desirable contracts are ideal, turnkey features your buyers are sure to respond positively to.

If nothing else, just be knowledgeable on your contracts so that you can answer your buyer’s questions when they review them in detail at some point in the process (usually the due diligence stage). More importantly, you want to be able to maximize your contract values in the eyes of your buyer as another great reason to buy your business.

3. REVIEW YOUR ASSETS AND STOCK INVENTORY: It would be a wise move to begin selling your unproductive assets such as your old, obsolete and unused equipment as soon as possible. Buyer’s are unlikely to pay anything for it and more likely to be turned off. It’ll detract from your business's appeal.

The same is true for your damaged, obsolete and slow-turning inventory. If your customers haven’t wanted to buy it, it’s unlikely to expect your buyer to want to buy it either.

If you liquidate this undesirable inventory and equipment now, you may get something for it and better still, a nice tax break as well. But if you chose to do what a lot if inexperienced sellers do and inflate your asking price with a lot of unwanted junk assets, you’ll inevitably slow your sale and may even turn off an otherwise ready, willing and able buyer. Conclusion—get rid of the junk in your business and remove this roadblock from your buyer’s thought process.

Next, look at all of your machines and equipment that’s planned to remain in service after your sale. If any of it needs to be repaired or replaced you are advised to do it now and offer your buyer a turnkey business that does not require any immediate and expensive capital investment. If your buyers think they’ll need to spend big bucks to upgrade your facility and operation, they’ll not only demand a lower price, but your business will look less desirable than other, more modern and turnkey operations for sale that are competing for your buyer’s money.


Take a close look at your business and how it looks. What’s the first impression it’s likely to make on a prospective buyer. Is it clean and organized? Are your employees friendly and welcoming? Are the grounds well maintained? Does your business look like a first class operation?

Your buyer(s) may well be putting their life savings in your business and small details may have a big impact on them. You don’t need to renovate your whole place, but the more you can clean it up and make small but noticeable updates the better, especially when your buyer first lays eyes on your operation. Make them want it when they see it? Let them picture themselves running the show?

And if your landlord needs to make repairs that are its legal responsibility under the lease, request that they be done right away.

Some of the items we’ve discussed thus far may seem obvious, but surprisingly, countless business sellers don’t even do the most minimal of preparation when putting their business up for sale and then wonder why nobody wants to buy it. Of course this means less competition for you once your buyers come to visit and view your class act operation for the first time vs the circus operations everybody else is trying to sell.


The sales prospectus is a brochure for your business. It’s a truthful and detailed overview of your company that is supplied to prospective buyers after they’ve signed a confidentiality agreement. It should showcase all the positive aspects of your operation and is key to making a solid first impression on all your inquiring buyers.

Buyers will also look to your sales prospectus as a reference guide as they progress through the sales process.  So you want to make it rock solid.

There are two common selling prospectuses. The first is a full feature, highly detailed prospectus (most appropriate for business offerings with sales over $200,000). The second type is a summary version or mini sales prospectus. This shorter version is most commonly used for sole proprietorships, small, single location restaurants and retailers, and small service oriented businesses with few employees.

In this section we will go over the numerous items (in the full feature version) that you may wish to include in your prospectus. However, there are no hard rules that demand you include everything. What’s important is that you include all the information that would get a buyer excited to want to learn more about your business and eventually give you a letter of intent to purchase. Additionally, we’ll discuss some ways to explain and minimize any negatives that surround your business.

A full feature Sales Prospectus is a well thought out marketing piece that is not something that is whipped together in a half-hour. You’ll want to take time to carefully craft your sales message to ensure your business is presented as compelling as possible.

Also, you’ll want to keep in mind that your prospectus will serve 2 primary purposes:

1. To get your buyers excited and enthusiastic about the possibility of owning your business, and

2. To justify your asking price by summarizing your pricing formula based upon your historical financials plus the upside potential under new ownership

We’ll cover how to write your prospectus in a well-organized and intriguing way later on in this section.

But first, lets dive into the components of a full feature sales prospectus.


A full feature sales prospectus most commonly includes the 9 sections outlined below:

1. An Executive Summary: Is a couple paragraphs to a maximum of 2 pages in length, and answers the following questions:

a. What are your business’s main product lines or services? (be sure to highlight the product line(s) or services that produce the most revenues)

b. How long has your enterprise been in business?

c. What’s for sale? Include A detailed description of what’s being offered for purchase. Inventory, patents, machinery and equipment, customer lists, real estate, leases etc and any excluded assets. PLUS the going concern value--A summary of your recast financial statements for the past 3-5 years (be sure to label them *Recast financials- Cash Flow = net income + dep + am + interest + officer’s direct and indirect comp + non-recurring expenses.

d. Briefly explain why your business is for sale in a positive way. Buyers are always wary of why any given business is for sale. They’ll be wondering whether you’re trying to unload your failure onto them. So be sure to have a good reason that doesn’t imply your business is probably undesirable or worse worthless. Because if that’s the case, you’re asking for trouble. Also, a commonly expressed reason “seller wishes to pursue other business opportunities” may not be the best explanation by itself. After all, if your business is worth owning, why would you want to explore new opportunities? Therefore, try to explain your reason for selling in a way that lesson’s buyer concerns, but is truthful none-the–less. Give good answers to the hard questions. Finally, in some cases, a one word explanation for selling may also be sufficient “Retirement.”

2. A Company History: Who was the founder? What was the vision? How has that vision evolved over time and why? What growth milestones is the company most proud of? What if any investors or partners have joined the company over time, and how have they contributed to the company’s growth?

3. The Business’s Marketing and Advertising Approach: What marketing activities has the company undertaken? How does it advertise? Is word of mouth advertising big for your company? Are walk-ins a big part of your business because of your well situated high traffic location? Are their new advertising opportunities that you’d recommend new ownership pursue and why do you think they’d drive sales higher?  Why haven't you invested in these new ideas yourself?

4. Highlight Your Company Strengths: If your company dominates a niche in your industry or marketplace, mention it. Is the surrounding area and demographics for your business changing for the better? Are new products coming out that mean big opportunities moving forward? If your business is part a franchise, what future plans does your franchisor have lined up that could be huge for growth? Also, highlight your franchisor’s brand recognition, financial strength and overwhelmingly happy franchisees. Finally, be sure to showcase industry highlights, technology breakthroughs, positive legislation on the horizon and changing demographics that bode well for your consumer or b2b marketplace.

5. Include Summary Financials for 3-5 Years: Ideally you want to show that your business is growing and that your sales, profits and owner perks have been trending upward. Provide a summary of 3-5 years of recast financials from your income statements.

6. Provide a Proforma for Future Financial Performance: Show your buyer the untapped “Upside” under new, better management. Just be sure to keep this reasonable and fact based, fully verifiable by industry and market characteristics. Thus, you’ll want to give your buyer a brief explanation about how you arrived at your proforma projections. After all, this is the business model you’re pitching your buyer execute to and you’re selling them on the big fat profit it will produce if they follow through and achieve the objectives of the plan. So be sure to make a credible case for your proforma so that your buyer will accept it as reasonable and get them excited about all the money they stand to make going forward with this new vision.

7. Price and Deal Terms: It is critical that you are able to convey a clear and concise explanation of how you arrived at your asking price. Furthermore, highlighting your conservative approach is even better. Lay out your minimum terms like down payment so you can eliminate all those with no money.  Highlight any seller financing you’re willing to offer a qualified buyer. For example you might say something like-Only 35% down and seller will carry the balance at 8% interest amortized over 60 months. Again, mention whatever you’re willing to offer to make a deal with a good buyer.

8. THIS IS BIG—THE OPPORTUNITY OVERVIEW: Here you’ll want to list the top 3-5 reasons why your prospective buyers would be fools to not want to explore this business further. Think-why is this business a no-brainer purchase? What are its best features and why is the future even better than the past? Some seller’s (especially those that are retiring and are reluctant sellers) may add a few sentences as to what this business has meant for them and their families over the years (the good stuff of course) and how the seller will be there for a new owner for some reasonable period of time to help them be as successful as you’ve been.

9. Include Some Attachments: provide your buyers with press clippings, brochures, product literature, photos of your facilities, and any other positive information or industry and market data you’ve got. For franchises, be sure to include positive franchisor literature and information as well.


NUMBER 1: Be sure to mention any weaknesses your business has experienced in the past that are now fixed and no longer a factor. This is especially important if last year’s numbers dipped for the worse but have since been corrected upward. Explain what you’ve done to get things back up and growing. And if your numbers have struggled the past couple years, like we mentioned earlier, it is much better to place the blame on yourself versus your industry, the economy or any other reason for that matter.

You could also add a sentence which states “you’re burned out, getting old, haven’t been able to give your business the attention it deserves”, and leave it at that. You can always get into more detail during a face to face meeting and tell them in person about how sales can and should be much higher under new ownership and leadership than they’ve been under your less than stellar management.

NUMBER 2: Address Common Buyer Concerns Head on. Go ahead and mention what talents an ideal new owner should possess (or must hire if a passive owner) to grow and make this business a big success. For example, what level of technical knowledge, people skills (if lots of customer contact is involved), or travel is required? It is better to have buyer’s disqualify themselves early on than late in the process. You don;t want your deal to fall apart because of something simple that could have been addressed right from the beginning. 

You might emphasize these job requirements by stating “this is a great business opportunity for someone who ________.” Fill in the blank with something that is appropriate for your business type.

At the same time, you should put your buyers at ease by addressing their fears regarding the learning curve involved. Let your buyers know how easy it is to get trained and master what’s important to run your business well and profitably. Also, let them know that talent is readily available in the job market should they ever need specialized skill sets in the future. You want to make them feel confident in their ability to take over your operation and find help as needed by mentioning that your training will teach them everything they need to know, exactly what to do and where to go for assistance with anything they might need once the business is theirs.


TIP #1: Brainstorm ideas and responses for each of the 9 categories above and write them down on paper for each section.

TIP #2: Use bullet points and lists to organize your ideas.

TIP #3: Expand on each idea/feature with a couple of compelling sentences. Ask yourself if you were the buyer would this feature intrigue you? Also, each statement you make in your prospectus gives your buyer(s) a reason to contact you for more information and follow up questions which means more sales opportunities for you.

TIP #4: Delete anything that is unclear, misleading or seems unnecessary to include in your prospectus.

TIP #5: Let a trusted friend or spouse read it. Have you left anything out that is important? Should you delete anything more? Can you make any sections read more compelling? Can you shorten any sentences and still make your point?

TIP#6: Proof your copy for spelling errors and grammar. Again you want this document to be as professional as possible.

TIP#7: add graphics and images that showcase your business, its industry and which further support the sales points your making. Your prospectus should be a classy sales brochure.

In conclusion, you want your sales prospectus to imprint in your buyer’s mind all that is special about your business from a buyer’s prospective. Summarize for them the keys to your success, the untapped growth opportunities, and give them as many reasons as possible to reach out to you for more information.

Another side benefit of creating a rock solid prospective, is you’ll have an opportunity to conduct a SWOT analysis (strengths, weaknesses, opportunities, threats) on your business when you write.  This alone will empower you to speak with conviction and honesty when you meet with your buyers, and already have a game plan in place to explain any negatives and how to minimize them because you’ve already considered these potential issues when you wrote your prospectus. Your prospectus is your grand opportunity to explain your unique business to a complete stranger who’s interested in buying it and wants to know in laymen’s terms how you make your money and why its a great business to own moving forward?

What you’re trying to do is anticipate and then overcome your buyers concerns and objections upfront. Then you want to paint a highly positive future outlook of your business and industry under new ownership. Your Sales prospectus is the primary tool for packaging your business for sale in an enticing way and getting it sold.

In the next lesson (#2) we'll cover HOW TO VALUE YOUR BUSINESS​

Business By Owner
Turnkey Marketing and
Buyer Qualification System

Sell Your Business For Yourself, Not By Yourself
PLUS Get Pre-Qualified Buyers!
PLUS Guaranteed Confidentiality