Many small business owners might find it hard to believe that you can sell a business that is barely profitable or even losing money. The truth is that you absolutely can. The secret is finding hidden value in your business. Most businesses have some sort of hidden value, so before you consider just closing up shop and selling off the company’s assets, consult with a business broker. Their expertise could help you to sell for much more than you expected.
Privately owned companies tend to try to maximize their tax deductions; looking for any loophole or strategy they can find to reduce their taxable income. This results in financials that show the business is less profitable than it really is. However, through financial recasting, a professional business broker can help to calculate what your business really made. This method adds back depreciation and amortization, since they are not cash deductions. Then the numbers are further adjusted to remove discretionary and non-recurring expenses, interest payments and the owner’s salary. After these adjustments, the remaining result is your discretionary earnings. This is the true earning capacity of the business.
There are some advisors who will tell business owners to minimize their deductions to show as much profit as possible, in order to boost the value of the business. This is not necessary. An experienced business broker knows how to show the true earning power of the business without foregoing beneficial tax write-offs.
Even if recasting your financials does not give your business the value boost you had hoped for, other unique aspects and intangibles might make it more attractive to buyers. Owners sometimes get used to seeing their business from the inside out, and fail to realize that they are sitting on something that some buyers would pay big bucks for. Intellectual property or a unique manufacturing process or business methodology are examples of some unique characteristics that investors look for in a business. Other intangibles could be your customer base, mailing lists, or an established history. Some prospective buyers might see these as things that they can leverage to make the business more profitable.
Lease and Real Estate
The right location could make up for unattractive financials. Whether you lease or own the property where your business operates, having it in the right spot might be the only thing you need to sell it for a profit. The property you lease might have furniture, fixtures, equipment or other characteristics that a buyer considers valuable for their own business venture. Conversely, if you own the real estate the business resides on, buyers might be interested in buying the business for the land only. They may see it as an investment regardless of the type of business that occupies the space, or whether there is even a business at all. Some might see an opportunity in buying the property and leasing it to other business owners. Even if the location isn’t completely ideal, it could be in an emerging area, which would also make it more appealing to investors.
It sounds crazy, but if you cannot find hidden value in any other part of your business, you could find it in your losses. A competitor or another buyer could use those losses to offset tax obligations on future profits. For example, if a company with $100,000 in losses and no debt was purchased for $60,000, the purchaser could potentially save $100,000 on their tax bill. To utilize this strategy, its best to consult with a business broker. Since this plan depends on finding the right buyer, a broker’s expertise is the best way to execute it. They can find a compatible buyer without disclosing your company’s identity, which could harm your business even further.
Every business is different and has its own unique situation. These strategies might not work for your company, but that doesn’t mean all hope is lost. A qualified professional, like a business broker, can evaluate your company and perform a business valuation that determines its true market value. Don’t risk leaving money on the table by trying to figure this out on your own.
If you own a business in Southwest Florida, and have considered selling it, call Corporate Investment Business Brokers (CIBB) in Fort Myers. We have helped small business owners from Tampa to Naples successfully sell their businesses and maximize their profits for over 30 years. Utilize our extensive knowledge of business sales and acquisitions and network of qualified buyers to do the same for you. The process begins with a free valuation estimate and consultation, so contact us today to get started.
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