Buying & Selling a Business In Tucson Blog

Selling Your Tucson Small Business in 2012

If you're like most small business owners in Tucson and Southern Arizona, you've been waiting and watching for signs of economic recovery for several years now.  The news seems to be a mixed basket of goods, as various indicators of recovery continue to rise and fall, and often paint contradictory pictures.  Housing market analysts suggest that the recovery in home values and sales may be as far off as 2014 or beyond, and we all know the disproportionate role they play in the fortunes of the housing-driven Arizona economy. For you, the small business owner, the numbers that really matter are growth in your business' top line revenues, improved profitability, increased productivity and improve cost position.  In short, the numbers that would cause the market to place an increased value on your business were you to consider selling it in 2012.

The reality is, that in recent years most small business owners have concluded that this has not been the right time to sell because they have believed the valuation of their business has been adversely impacted by the overall state of the economy.  Will anything change in 2012? To begin with, the right time to sell is the right time for you.  Regardless of what the market may be doing, there will always be a buyer for a strong business that is appropriately priced. 

There have been some signs of increased interest in the market for selling a business in Tucson and Southern Arizona as 2011 draws to a close. This increase in business owners exploring the possibility of selling has not, however, translated into a large increase in the number of Tucson businesses actually for sale, for the reasons mentioned above.  Tucson small business owners appear to still be waiting.  Will 2012 be the year they decide to sell?  It's hard to say.   

We regularly consult local and national databases to review statistics about business sale trends, and maintain an open dialog with other professionals in our field both locally and nationally.  All sources confirm that the number of new Tucson business for sale listings and closed transactions are down between 30 and 40 percent from their peak period of 2007. Our conversations with Tucson banks, lenders, and title agencies suggest that lending options may be improving slightly, and that the constriction in lending in recent years has resulted in both buyers and sellers becoming more knowledgeable and proactive about finding financing solutions to help them close the deals they want to do.

Now that 2012 is just around the corner, and evidencing some signs that enthusiasm is building around buying and selling Tucson businesses, lets turn to what those looking to sell a Tucson business should be doing to prepare themselves. The short answer is: start planning now because your potential buyers are out there researching options right now.  Here a few things to consider:

1) Understand The Value of your Business:  

• Get Your Financial House In OrderStep one is getting your financial records in order. You'll need to have at least three years  of tax returns, company financials like P&Ls, balance sheets and statements of cash flows, as well as records of business expenses and other valuable data such customer lists and lease agreements, etc.  Each of these documents plays a critical role in establishing the market value of your business, and when presented in an accurate and orderly fashion, provide a qualified with the confidence that they are looking at a well-managed business.

• Resolve Major Outstanding Issues: Before you list your business for sale, you should also endeavor to resolve any outstanding issues that could serve to undermine buyer confidence.  Examples include: short-term leases without an option to renew, overdependence on a short list of key customers you could not afford to lose without impairing the business' prospects, and any pending legal issues that could threaten a sale

• Appearance matters.  Prior to listing your business for sale, make sure to conduct a thorought review of the physical condition your building, plant and equipment, as neat and tidy and well-maintained assets also create a favorable impression with buyers. Keep in mind that any core business assets that visibly need updating will quite likley be seized upon by a buyer as material reasons to lower the offer.  Put yourself in the buyer's shoes; the less work they will have to put in, the more you can likely expect from your final selling price.  In other words, make the effort to do a deep cleaning and upgrade inside and out, and we advise you to invest in any building or equipment improvements youmay have considered but postponed.

• Understand the market for your business.  A licensed business broker can help you to develop a more complete understanding of the market and how your business is positioned against comparable businesses. This is critical to your ability to set an effective asking price. Every business seller justifiably seeks to avoid undervaluing their business and ending up with less money than it is really worth.  However, the flipside of overvaluing the business vs the value of comparable businesses will almost certainly lead to a longer sales process, and one that may end in disappointment.

• Complete a Business Valuation. There are some signs that the economy is improving. Buyers may be more inclined to reenter the market buoyed by these modest improvements, and even in challenging times qualified buyers won't resist paying the price required to acquire a solid business.  But during these times they will be even less inclined to pay attention to an overvalued listing. So how can you determine the right price to list your business for?  The most straightforward way is to compare it to other similar businesses.  A business broker can assist you be researching similar businesses for sale. Some online business-for-sale websites allow you to search for businesses by industry, size and location. By learning the prices that comparable business are listed at or have sold for recently, you will have a sound foundation for determining a price for your own business. You could also purchase a Business Valuation report from Allen & Young, in which we will work with the financial and other information mentioned above for your business and perform this research on comparables for you (selling price and multiples of cash flow and revenue that the businesses sold for) of recently sold businesses in your industry.  We have access to many sources of data, and a great familiarity with the local market.  A Business Valuation will give you great insight into the estimated value of your small business.  However you choose to proceed, it is necessary that you be honest with yourself.  Look at your business as a buyer would.  If your revenue and/ or profits have been in decline, you must take that into consideration. When it comes to pricing your business, your goal should be to attract as many buyers as possible, create maximum demand, and an atmosphere where they are competing for your business.  If you overprice your business, there is no chance of this happening.

• Get the Word Out:  Hiring an experienced business broker is the best way to get the word out, confidentially, that your business is for sale.  When selecting a business broker, you will want to check their references and make sure that you choose a broker who is accomplished and respected, and ideally has experience selling businesses in your industry. A broker should prepare a marketing package for your business, and advertise it through numerous on and offline marketing channels.  Even if you elect not to work with a broker, you should still plan to be aggressive with your marketing plans. Use websites to post your listing, work through trade associations and their publications, and spread the word through family and friends.  However, if you need to maintain confidentiality about listing your business for sale, then a business broker is your best option. They can list it and deal with buyers, while you continue to run the business.

• Plan to Offer Seller Financing:  Even in good times, banks will almost always require a seller to finance part of any transasction they may choose to fund.  In other words, at the time your business sells you are not just going to be handed a check and be able to ride off into the sunset.  Rather, you will receive some portion of the sales price at the time of closing, and receive the rest over time, plus interest. From the buyer's perspective, this is valuable because it commits you to ensuring a smooth transition.  From the lenders perspective, it commits you to the success of the deal as well and ensures an experienced hand will remain at the wheel to increase the odds of the new owner's success.  The upshot is that you will remain connected to your business after sale helping to ensure a smooth transition. Offering seller financing broadens your access to a larger pool of buyers, who are in turn more likely to qualify for lending, and more likely to make you an offer.  By helping ensure a buyer's success, you ensure their ability to keep paying you over time.

In conclusion, if you're thinking about a possible sale of your Tucson business in 2012, don't wait until the last minute. Instead, get started putting your house in order now, allowing you to  take your time and do it right.  By working with a licensed business broker and planning ahead and accurately researching your market, you will prepare your business to stand out from the competition. Understanding and effectively managing the sales process is more than half the battle, and that's a business broker's specialty. If you're thoroughly prepared, and understand the process, you're more likely to achieve a faster and more financially rewarding exit from your business.

If 2012 is the year you decide to explore the possible sale of your Tucson business, we look forward to speaking to you then.  In the meantime, Merry Christmas and Happy Holidays from all of us at Allen & Young Business Brokerage.

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