Selling a business can be a challenging process. However, like many challenges in life, business owners who take the time to properly prepare will fare much better than those that jump right in.
This is the real life lesson learned by one couple that successfully sold their North Carolina cafe after 18 years of devoted ownership. Their story is an example of how a little prep work can ease the selling process and perhaps more importantly, lead to a higher sales price. For every small business owner, whether planning to sell now or much farther down the road, these lessons apply.
Build Value From Day One
Vicky Ismail and her husband Abdul opened The Cary Cafe shortly after moving to North Carolina in 1995. Named after the Ismails’ hometown of Cary, North Carolina, The Cary Cafe specializes in breakfast and lunch options, which Vicky and Abdul decided better fit their lifestyle and new customer base. They were right. For 18 years, the Cary Cafe thrived on their food and a friendly family environment.
Although the couple wasn’t always thinking about the café’s final asking price, they were always looking for ways to make it more successful. Vicky was particularly proud of the goodwill and loyalty they established in the community, something that does often add value during a sale.
“The real draw was the freshness and the family atmosphere,” Vicky said. “We knew our customers well. We even placed Christmas cards and pictures from their family vacations on the wall.”
But like most small business owners have experienced, there eventually came a time when the Ismails felt it was time to move on to the next chapter of their life. In early 2013, Vicky and Abdul decided to start the process of selling the cafe so they could focus on their second business, a catering, event and wedding venue in nearby Fuquay-Varina, North Carolina.
Lesson #1: Your business’ value is a reflection of all your hard work, therefore it’s something owners should be working on from the day they start their business. Strong financials are always a key metric to mind, but reputation, customer satisfaction, partners, suppliers and even the physical appearance of your business all play into what will be your final sale price.
Take Time To Ensure The Business Is Market-Ready
Although the Ismails first spoke with local business brokers, the couple ultimately decided to try selling the cafe on their own given their previous experiences with the process, a practice commonly referred to as for-sale by owner (FSBO).
But rather than immediately listing the business online, the couple conducted research and preparation to make sure any potential buyer’s first impression was a great one. The couple organized their financial documents including profit and loss statements, taxes, bills and order receipts.
“I started to think about what I would want to see as a buyer and we invested about 80 hours over the next few months to prepare the business for sale,” Vicky said. “We made sure everything from the physical upkeep to the financial statements were in good order before we finally decided to list the business for-sale.”
Besides organizing their financials, Vicky worked on sprucing up the restaurant’s curb appeal with fresh flowers and thorough cleaning of their outdoor space so the restaurant would leave buyers with a positive first-impression. She also paid about $2,000 to get a professional business valuation of their cafe. Vicky then researched the market online and compared her appraisal price with other listings before deciding on a final asking price of $165,000, which she supported with a gross income of $380,000, and cash flow of $90,000.
“I felt like having the professional valuation gave our asking price more credibility,” Vicky said. “Between that and our financial documents, I felt like we could back up why we priced the business as we did.”
Lesson #2: Small business owners should create, collect and review their profit and loss statements (covering the past two to three years), current balance sheet, cash flow statement, business tax returns (for the past two to three years) and any additional documentation to substantiate their financial standing. Don’t forget the physical business as well. Small renovations, paint refreshes or even organization efforts can all go a long way. You need to have ample support for your asking price since buyers will look for every opening to negotiate the price down.
Audit, Qualify Interested Buyers To Find The Right Fit
With the business now ready to sell, the Ismails listed it for-sale online. To their excitement, potential buyers loved what they saw. Approximately six prospective buyers contacted the couple within the first two weeks, and then the Ismails began the process of qualifying each prospect. The two spoke with each interested buyer, provided them with a packet of information on the business – which included a non-disclosure agreement – and discussed which buyer might be the right fit.
“Be very authentic and genuine. That sets the tone with potential buyers that you’re not hiding anything and you want them to enjoy the fruits of what you’ve enjoyed over the years,” Vicky said. “No one knows your business better than you.”
Finding the right buyer usually means looking beyond the financial offer, especially for owners who have been so close to their business for so long. Vicky wanted to make sure the person was a good personality fit and that the cafe would continue to prosper under new ownership. For example, the couple decided to part with one interested buyer they felt didn’t have enough knowledge of the restaurant industry.
Of course, while a seller is looking for the perfect buyer, the buyer is also making sure he has found the perfect business. Once the Ismails decided on a buyer they were serious about, the next step was the due diligence process, in which the buyer receives access to business financials, records, manuals and other pertinent documents.
“I wasn’t too nervous about due diligence because I felt we prepared well and could support all our claims,” Vicky said. “But it was kind of uncomfortable giving them access to all our stuff and having them look around our restaurant, especially since we were still open and serving customers.”
Lesson #3: There are many reasons why business owners want to sell their business and, for some, getting top dollar might be their only priority. But for others, letting go might also mean ensuring the business and its employees are in good, capable hands. Define your priorities going into the sale and if finding the right buyer matters to you, take the extra time to interview qualified buyers and get to know a bit about their personality, previous experience and management style.
Expect The Unexpected
As with most aspects of business, sales don’t always go exactly according to plan. For the Cary Café, part of finalizing the sale included updating the certificate of occupancy with the new owners. This required a walk-through of the restaurant with the local health department.
“The health department ended up giving us a list of about 25 very small changes we had to make like updating our shelving units and sink handles to comply with new standards. For the most part the changes were easy, but some of them required us to order new parts which slowed down the sale process,” Vicky said. “It was very frustrating, but finally the Health Department agreed to give our new buyer a 30 day grace period so that we could finalize the deal while we waited for the new parts to arrive.”
Towards the end of the process, the couple also had to wait about two weeks to hear if the final sale went through or not.
“At that point we had invested so much time, energy and emotion into the sale that we were anxious for everything to just go through,” Vicky said. “For those last two weeks we, were walking on pins and needles.”
Lesson #4: While small business owners should try their best to anticipate likely contingencies, hiccups are almost always inevitable in the sales process. For that reason, you can’t always count on a firm timeline. Instead, owners should be ready to adjust their plan based on unexpected delays.
Hard Work Pays off
From listing to sale, the Ismails’ entire sale process took between three to four months. The deal closed around $160,000, which is just above the $150,000 median sale price of restaurants sold in 2014, according to BizBuySell’s Insight Report. The deal included the cafe, recipes, equipment and the customer database. As part of the final agreement, Vicky and Abdul also agreed to provide three weeks of training during the transition process, which is generally the case with business transitions. The couple stays in touch with the new owner and continues to support the business as much as they can.
While the Ismails’ sale process was relatively smooth, both Vicky and Abdul said their thorough research and planning paid off, literally.
“I estimate we made another $40,000 to $50,000 on preparation alone,” Vicky said.
Vicky and Abdul have taken the money earned from their sale and are now focusing their efforts on their second business, Highgrove, which has experienced tremendous growth in the year since. In the end though, Vicky and Abdul are happy with the life experiences small business ownership has provided.
“The draw of owning a small business is not only money. Doing what you love, with whom you love, and for people who appreciate what you do is reward in itself,” Vicky said. “The fact that you can make a nice living and earn a financial boost at the end of that journey is just icing on the cake. No regrets.”
Lesson #5: BizBuySell has found it generally takes between five to eight months to sell a small business but the preparation Vicky and Abdul put in certainly helped expedite the process. Including specific details about what exactly will be included in a deal is also a great way to show buyers the valuable assets they are receiving along with the business.
Overall, The Cary Café is a perfect example of how a little planning can ease the stress of a small business transaction. If you don’t feel comfortable taking on all these tasks by yourself, a business broker is a great partner to help you along the way. Not only do they allow the owner to focus on running the business, but a broker’s expertise and network of buyers may also help secure a higher sale price. Either way, as Vicky and Abdul’s experience confirmed, the best path to a successful small business exit is usually one taken one step at a time.
This thought piece is courtesy of Bob House and Forbes.com / Aug 28, 2015