We’re often asked, “What do I do when I sell my business? I have a successful business, but I’m tired, I want to retire. What do I do when I sell my business?” The first and most important thing is to evaluate how much your business is worth. It’s a very important question. Many times you do not take into account the worth of a business. For example, there are sophisticated accounting methods, earnings before taxes. I think a simple way is for you to determine your marketplace by talking to other people in the business, in order to familiarize yourself with how to establish a value. Many businesses have a value of formula. For example, right now if you’re involved in the supermarket, the formula is between fifteen and twenty times of weekly sales. Most industries have that shorthand formula.
Second, you have to know who you’re selling to, and you have to know something about the person you’re selling to. You want to see how much money he has, whether he’s properly capitalized, whether he has the support structure to be able to handle your business.
Then the next most important question is how to help the buyer finance his business. Most times, the buyer will come to you and say, “I want to buy your business for $100,000. I know what I’m doing, I’m a good operator, but I only have $15,000.” How do you deal with that situation? It’s a very common situation. You have to determine though, when you’re selling your business, how to secure that money in the back. The way you secure it is by ensuring that the seller knows what he’s doing, has the financial capacity to carry on this business. Many times if the buyer’s asking you to leave a lot of money behind, you have to then do some due diligence. You have to look at his tax returns, you have to search for judgments and liens against the buyer.
And then most importantly you have to be able to secure the repayment of the money from the buyer. This depends on your business. For example, if you have a candy store and you have a long lease, nice equipment, and inventory in the store, you’d usually ask the buyer to sign a security agreement. A security agreement on the uniform commercial code gives you a lien on all the furniture, fixtures and equipment in the business, plus if you have a long-term lease and the landlord will permit it, you can take an interest in his leasehold rents.