Smith + Schwartzstein
Located In Morristown, NJ and New York, NY
973-532-2962

Be smart about expectations when selling your business

Morristown, NJ, has a wide array of businesses, including everything from mom-and-pop shops to major corporate enterprises. From time to time, those businesses are sold, which involves contracts that adhere to New Jersey business law. There are some important things to know for those who are considering selling their businesses.

Many sellers want to pitch their business to prospective buyers as having potential for future growth and income. However, the seller's view of the business' potential is not one that buyers will inherently share, so it isn't really going to work as a selling point. Everyone believes that their business ideas are great, but buyers don't want an untested concept. They want something with a proven track record.

Additionally, sellers should understand that big revenue numbers do not persuade potential buyers. Only profit margins do. For example, if your business makes a million and one dollars in revenue each year, but has operating expenses in the amount of a million dollars each year, it is only making one dollar in profit each year despite the large amount of revenue.

On the other hand, a business that has $500,000 in revenue each year but only has operating expenses that amount to $100,000 is making $400,000 in profit each year. The second business is more attractive to buyers. Despite having less revenue, it makes more profit, and that's the bottom line.

Buyers want verification of all sources of revenue for the business and all operating expenses of the business. They may like you and even trust you, but they are still going to want all of the numbers verified. That, after all, is the only way that they can move forward with buying your business.

Don't wait for them to have to ask for financial documents. Give it to them in a clear and easy-to-read form very early on in your conversations. That will help to establish a good relationship. The prospective buyer will feel comfortable about making a deal with you.

Source: Entrepreneur, "6 Things You Must Know Before Selling Your Business," Thomas Smale, accessed Jan. 24, 2018

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