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    2 Replies Latest reply on Jun 22, 2012 11:04 AM by TheBizSeller

    Selling a home based business

    Vainoka_80 Newbie

      Dear Small business friends, I have a home-operated commercial cleaning business and plan to sell late 2010. What is the first step towards selling a home-operated small business? If anyone with experience on this matter could advise me, it will greatly appreciated it!
        • Re: Selling a home based business



          There are a couple of things I recommend you focus on.


          First, do you plan to market and sell the business yourself or are you planning to sell through a business broker? A business broker can help you in the following ways:


          • determine a fair market price


          • consult with you on the changes you need to make to get the best sale price


          • market your business effectively to potential buyers


          • negotiate with buyers on your behalf if necessary


          • complete the necessary paperwork to ensure a smooth transfer of ownership


          I believe you will find that most business brokers will ask for a commission ranging from 10% - 12% of the sale price. You can always try to negotiate a lower rate. For example, you may come to an agreement that if you find the buyer, the broker earns a lower percentage commission.


          If you feel confident handling the steps above, you can try to sell the business on your own. However, you will bear all the costs associated with marketing your business, whereas if you hire a broker, they pay for the marketing costs out of their commission.


          If you decide to go with a broker, I recommend that you start interviewing brokers. Check out their web sites. Are they doing a good job marketing their current businesses? Do they have any other businesses similar to yours for sale? It can help finding a broker with experience selling your type of business.


          The second thing I would recommend is get your books in order. You want a strong paper trail of expenses, revenues and profit. Showing evidence of your discretionary income (pay, personal insurance, car expenses, etc...) will improve your chances of getting your asking price over a similar business that has a poor history of keeping records. You want your business to show as much profitability and discretionary income as possible.


          Third, I would watch your expenses. Assess expenses including marketing campaigns and the condition of your equipment. You want to minimize any expenses that aren't absolutely necessary.


          Fourth, run your business as if you weren't planning on selling it. I know a number of selling business owners that reduced the effort they put into their business. They simply tried to coast until they sold. The reality is you never know when a sale may go through. If you stop putting your all into your business, you run the high risk of shrinking your business. Obviously not a good thing for trying to get top dollar.


          I hope this helps.


          Doug Dolan


          The Solopreneur's Guide


          • Re: Selling a home based business
            TheBizSeller Newbie



            One issue that often comes up with smaller service businesses like yours is that buyers will perceive the business as being too dependent on the owner for success. Buyers worry that when the current owner leaves, so will the customers.


            If your customers have been doing business with based on their personal relationship with you, this could be a problem. I would recommend that you promise to stay on for 30 days after the sale to help train the buyer and to introduce him or her to each of your clients. Let your clients know you are doing this insure the quality of work stays high.


            Smaller service businesses are usually sold for one times the owner's benefit (or owner's discretionary cash flow). Here is the formula for calculating it:


            Annual Pretax Profit + Owner's Salary + Owner's Perks/Benefits + Interest + Depreciation.


            If the buyer can't run the business out of their home for whatever reason then they will have to factor in the cost of renting and office or storage space. So be prepared for that when they calculate what the business is worth to them.


            I agree with the information the previous poster gave about brokers. The thing is, with smaller home based businesses the selling price is so low that brokers aren't motivated to work the deal. The commission would be too low for them. Most businesses like yours are sold by the owner.