Today’s economy demands those selling businesses be savvy and carefully do their homework before putting their business up for sale. The good news; just because it’s more difficult to sell a business in a slowing economy, it’s certainly not impossible.

Understand Tax Consequences

Probably the biggest favor you do for yourself involves understanding the tax consequences of selling your business. Taxes wipe out a huge gain when a business sells, so the owner best seek advice of an accountant years prior to actually selling a business. Your accountant may offer tips for lessening the tax bite.

The legal entity you choose for your business impacts the tax consequences and whether you sell the entire entity or merely the assets of the business.

Set a Realistic, but Negotiable Price

Pricing a business offers a conundrum because the owner wants every penny he can get for the sweat he’s put into the business; and the buyer wants the business as inexpensive as possible. If the seller prices the business to high, potential buyers may pass the business by without a good look; if the seller prices the business too low, he loses money.

Various methods exist for pricing businesses and using a combination at least for comparison usually works the best. First, look at the fair market value of the business assets, pricing them as belonging to a going concern versus a fire sale. Add a fair price for Goodwill built into the business which benefits the buyer. Compare these combined figures with comparable businesses for sale in your region and possibly make up or down adjustments. Some derive business based on a profit ratio over a period of years, such as five times net income. Again, the best approach looks at each of these pricing factors and takes a overall view for developing the sales price. Leave some room for negotiation.

Curb Appeal

A good outward appearance sets the tone for the sale. New paint, trimmed and spruced landscape, fixing the broken items ignored over the years adds value. Remember, what the buyer sees at the curb sets a strong impression.

If your business provided special benefits (health insurance, gym memberships, travel and entertainment, bonuses paid, etc.), your accountant may want to add these items back in to income when showing years of profit and loss statements. This is neither illegal nor deceptive since the new owner wants a realistic concept of the earning power of the business.

More tips for selling a business in our next post