Answered: How to Sell a Home-based Business

This question was initially posted at Community about "How to sell a home-based business?", or "How to sell a one-person operation?"

The Answer:

There is very little difference between selling this kind of business, as opposed to any other, larger enterprise. The issue at hand is, to whom do you sell such a business? The method of selling is not necessarily a concern, but certainly the Buyer and the transition are key elements that need to be carefully considered.

The answer is also highly the end and upon the kind of company to be sold. If, for example the business is a consulting service, or any type of business where the Owner/operator is a highly visible individual, whose face, name and personality are closely associated with the daily promotion of the business’ products or services, separating that individual from the operation can be difficult, if not catastrophic. The more that Owner/operator is closely identified with the business, the longer the transitional period, allowing the Buyer to "ease into" the Ownership position, where he/she is then adopted by the Clientele, over time.

Frankly, this is a concern any time there is a singular personality that is regularly engaged with the company’s Clientele. If there is a sole or primary salesperson, or a singular person that provides service to the multitude of company Clients, that person or persons need to be carefully cared for by both the Seller and the Owner, throughout the transaction and subsequent transitional phases. People in those positions need to be maintained after the business changes hands, and it is up to the Seller to attempt to make arrangements for their continued tenure as part of his/her exit strategy; it is also up to the Buyer to make certain that he/she has a plan in mind, that will assure that people of that kind feel secure and confident that they have a great future, with the new Ownership.

More succinctly phrased, continuity of contact with the company’s Clients needs to be assured, if not guaranteed. In most cases, particularly with respect to small businesses, goodwill comprises the vast majority of what is being sold or purchased. That continuity is critical to ensuring that the goodwill is maintained.

A business owner in his home-office
A business owner in his home-office

If the business is not dependent upon a face or personality, such as an e-commerce business which may survive solely by virtue of a brand, a technology or some other process which is not based on faith in a particular individual, the sale of the business will still require a planned transitional process; however, that process may be more involved in training, rather than introductions and facilitating interpersonal relationships between the Buyer and the Clientele.

To take the e-commerce business again as an example, the Seller may be concerned about the experience of the Buyer, in terms of his/her technical knowledge. The less technically-oriented the Buyer, the more the Seller will have to extend his/her transitional or training time, in order to assure that the Buyer is capable of coping with the activity surrounding the business. Sale of any business is going to require such transitional activities; but the one-person operation is going to demand a far more, carefully planned transition, because the Buyer will have no other staff to rely on, once the Seller departs the scene.

Every Seller hopes that some gargantuan, public company is going to buy his/her business, paying a premium price, and providing payment in full at settlement, ideally in small, unmarked bills. This is not always the case. And with a home-based, or one-person business, this is not going to happen in any way, shape or form, in the vast majority of instances. In fact, Buyers will most frequently insist on the Seller of such a business holding a note, and not uncommonly, demand some sort of a payment plan that is based on performance. This is certainly the case in a number of e-commerce businesses. Real Estate Brokerages are almost always sold on this basis.

These are the most glaring considerations with the sale of these kinds of enterprises. Certainly there are other issues, but they most commonly are similar to any other business that is sold. The books need to be orderly and complete, so that the Buyer and his/her accountant can accurately trace Income and Expenses, permitting them to determine Net Profit, as well as Monthly Cash Flow requirements and anticipated Payment Cycles. If the business operates on the basis of repeat sales to a definable set of Clients, Revenue and Expenses should be ideally able to be analyzed by Client, as well. In the case of an e-commerce business, and today in terms of virtually any business anymore, the ability to demonstrate a database of Clients, is critical. The Client list has become an invaluable asset, to any business, virtually anywhere.

Unfortunately, many home-based businesses, and many one-person businesses do not possess such documentation. The Owner/operator keeps most of the information in his/her head. He/she knows the key Clients, knows who is slow to pay, knows the names of the key Client contacts by heart, and frequently even knows whether the business is making money or not, simply by the amount of cash that remains in the check book at the end of each month. Trying to put all of this information together at the moment the Seller begins to think about selling the business, is all but impossible, in a short term period of time. This is why we frequently counsel business Owners that the time to think about an exit strategy, is when you first think about opening the business, from the beginning.


About the author

The BAF Group is a professionally oriented business brokerage. Don Barrick (Principal) has been involved in business acquisitions, start-ups and divestitures, as well as site selections and trouble-shooting for more than twenty-five years.

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