Have you ever thought of selling your video business at some point in the future? If so, now is the time to begin planning for that. In fact business gurus recommend you start thinking several years ahead.
Make sure your financial records are in order and complete. At the very least, you’ll want three years of records. This includes tax returns, general ledger and expenses. Any outstanding legal issues must be resolved. If your business is struggling, focus on making it profitable and devise a plan to keep it growing.
The physical appearance of your business is often the first impression a buyer gets. So make it look good. Since video is such a technical field, out-dated equipment will not look good. Your business website must look professional and successful.
Video production companies can be difficult to sell if the numbers are less than inspiring. A buyer will ask himself why he should pay for a business he could start from scratch. Choosing the right time to sell and the selling price is an art that can make all the difference.
Spend time on business broker sites to see what other companies are selling for. Working with a broker is probably a good idea. The brokers commissions generally range from 5% to 12% of the sales price. The smaller the transaction, the larger the commission.
Many brokers will not want to represent a business with less than $100,000 a year in sales. But leave no stone unturned in your search.
Licensing of Business Brokers
Licensing of business brokers varies by state. Some require a license; others do not. The following states require a license to operate as a business broker: Arkansas, California, Colorado, Florida, Georgia, Idaho, Illinois, Michigan, Minnesota, Nebraska, Nevada, Oregon, South Dakota, Utah, Wisconsin, and Wyoming. Some states require business brokers to have a Real Estate license. This list may change so check with your own state.
For the sales commission, you can expect a number of services from a business broker. These include:
- An appraisal of the worth of a business
- Knowledge of the local business market
- Pre-screening potential buyers to insure they are financially able to buy a business
- Listing and advertising the business for sale
- and more.
There are buyer’s brokers and seller’s brokers. In some states a broker may represent both a buyer and a seller in an arrangement called Dual Agency. In other states, a broker works as a Transaction Broker which represents neither buyer nor seller, but works to facilitate the deal between buyer and seller. Be sure you clearly understand who your broker represents.
Many video producers never think of selling their business until the numbers are bad. That’s the worst time to sell. And if you are older, don’t put the burden of selling it on your family after you have passed away. Prepare for the sale early. In fact all businesses should be run as if they are for sale right now, even if they aren’t. So think like a buyer. What would a buyer pay more for when buying a video production business?
The fair market value of a business is usually calculated from the assets and liabilities of the business. Cash flow will be an important issue for any buyer. Would the cash flow pay off a loan the buyers used to purchase the business? Is the business growing? Are you, the owner, treating it as a “cash cow” taking cash out rather than investing in new technology and staff?
Is your business reliant on one large customer account? Not only would this look very risky to a potential buyer, but it seriously jeopardizes your business. Countless small businesses have failed when their one big account pulled out or went bankrupt. Don’t let it happen to you.
Having at least one or preferably two or more employees also minimizes some of the risk for the buyer. When everything depends upon only one person, the business is not as strong as when there are several people.
While many producers can be very successful operating their business out of their homes, this may not be desirable for a buyer. An established location where walk-in traffic is encouraged is often more appealing to a buyer. If there is a lease, a buyer would want to know the length of the lease, options to renew and whether it is below the average market lease. The business location can have a major impact on business traffic and sales. On the other hand, some buyers may prefer a business they can operate out of their home.
Your Asking Price
To research asking prices, spend time on business sites like:
Another way to search is to Google “video production business for sale” without the quotes. As you will see, there are not that many video businesses for sale. So you will have to do some digging to find asking prices for businesses like yours.
Consider also the trend of your sales. It makes a big difference whether they are increasing or declining. Better to sell when your business is increasing. This is a tough time (mid 2012) for small businesses. Many have seen big declines. So to get the maximum sales price, it would be better to wait for conditions to improve.
Offer Partial Financing
By offering to “hold some paper” or finance part of the deal, your business becomes much more attractive to buyers. Banks have not been good to small businesses in this downturn so it’s harder for buyers to get financing and those that get bank financing will find the bank may require the seller to also offer some financing. So be prepared to take a certain percentage of the deal as a note to the buyer. You’ll still be very invested in the business and will need to work for a successful transition to the new owner.
Tax Consequences Of Selling The Business
How will the money you receive be taxed? This could be an important question with large implications for your tax bill. If you don’t have an accountant, it is time to correct that mistake and get a CPA who is skilled in small business matters such as buying and selling businesses. (You also need to have a regular accountant for your business.)
The buyer will also have significant tax consequences. Making a deal work for both sides is art for professionals and is an area you will need to study.
For more information on the tax consequences see
Top 10 Tax Considerations When Selling Your Business by a lawyer and accountant
Ed Note: What prompted me to write this article was an unsolicited email I received from a customer. I have not verified what he says and am waiting for further details.
Just wanted to send a note letting you know that your products and your affiliate’s products were instrumental in my video production company, Moments Video, being wildly successful – thanks!
I was able to sell my business after just 6.5 years of being in business and semi-retire quite comfortably! I then was able to earn an income as the buyer’s shooter and editor for twelve months, plus I was paid to train him for six months on how to run the company successfully.
Either way, thanks again!