Selling a Business in Belize- What's Involved?
Is it time for you to make a change? Time to move from the restaurant
business to the business of watching sunsets from your veranda? Time to
sell your hotel and become a part-time consultant? Whatever your reason
for selling your business, it is essential to have a solid understanding of
what you really have to sell. This column will cover a basic outline of
the items you should understand in the preliminary evaluation of the
business you may wish to sell. After you have a list of the things you are
selling, you can evaluate their value on the market, estimate the
likelihood of finding a buyer, and choose a listing price that makes sense.
Step one is to clarify just what is for sale - Inventory? Licenses?
Leases? Leasehold improvements? Accounts Receivable? Real Estate?
Contracts and obligations? Perhaps even bills owed, taxes not paid ......
a business sale can be simple but is more often pretty complicated.
Sometimes the sale of a business is not a real estate transaction at all -
but if part of what you are selling is the land or building where the
business is located, real estate is a vital part of the transaction. This
column will review the sale of a business with real estate.
One of the most common types of business sales here in San Pedro is that
of a hotel or resort. Get a professional evaluation of your property from
a "replacement cost" point of view. That means an honest price for the
land and the building if you were to buy and build today. Then subtract a
percentage of the value of the building to allow for the age and condition,
and you will have an estimated replacement cost. This is an important
number, but is not the only thing at hand. You may find a hotel that would
cost $1Million to rebuild - but it may be poorly thought out or simply not
what the tourists are looking for today - if that million dollar hotel
can't make money you will find that the value of the business you have for
sale may be substantially below the replacement cost. On the other hand, a
well-run business may enhance the value of a piece of real estate more than
you imagine - so keep on thinking - there is much more to be considered.
After evaluating the real estate, evaluate the "business" itself. That
means the day to day dollars in and dollars out. Just how much money can
somebody make if they spend that million dollars? If the answer is
$100,000, think seriously about whether a buyer with one million dollars
would invest it in your hotel in order to make a 10% return. Are there
other areas of the economy where a million dollars would bring them a
higher rate of return? Another item to evaluate is whether the buyer can
reasonably count on the cash flow remaining at least as good as it is at
the time of the sale. As an example, let's take a bar or restaurant - many
times the secret of the success is not so much in the product served, but
is instead in the personalities and relationships of host and owners of the
business. In this case, if you are a popular barkeeper and want to sell
your bar, will those patrons keep coming back if you're not there? If you
are a successful hotelier, it may be easier to assure the new owner that
the guests are on line and prepared to be loyal - particularly if the
guests are coming because of the price of the rooms or the location of the
facility. Each situation is different, but this item is essential to think
through thoroughly before deciding how much your business is "worth."
Next - get your books together. How much money does the business
really make? I have heard it said that some shopkeepers keep three sets of
books - one for the tax man showing they made no money; one for the buyer
showing they made lots of money; and one for themselves telling the truth.
We won't get into the morality of bookkeeping here - just be forewarned
that if creative or smart bookkeeping has kept you from paying taxes over
the years, you probably won't be able to prove much to a buyer about how
profitable the business can be. Some buyers are going to be nosey-pokers -
they may walk in off the street and without so much as a hello ask for a
review of your books. Feel free to tell them "absolutely not!". It is
customary at some time for a buyer to look at your books, but make sure
there is a good reason for you to share such personal information with
them. If they have presented you with a written offer to purchase, and
have put up earnest money (refundable if they don't like the books when
they read them) AND if the offer they make is something you find acceptable
- then yes, at this time it is appropriate for them to ask to see your
financials. It is often the custom for the seller to have the potential
buyer sign a "Confidentiality" agreement as well, promising not to divulge
what they read and learn in their investigations. If you think that your
books are too disorderly, too incomplete or show too little profit to
attract a buyer, then perhaps the best course to take is to make a business
plan with projected costs and revenues. Often this is as helpful as any
set of books from the past.
It is probably clear by having read that article that businesses are each very different, and that they are not easy entities for which to fix a value. When appraising a house, I look at replacement values and recent sales of comparable properties. When we evaluate a business there is rarely such an easy formula. In the end, like it or not, the "true value" of your business is the amount that somebody will pay to buy it. In the case of getting your business ready for sale, spend a little time thinking like a buyer - this alone will be very helpful.
Here are several items buyers will be thinking seriously about: First, is there any guarantee of continued cash flow? Are contracts, customers, accounts payable, suppliers etc. in place and can somebody simply step into a "well-oiled machine" and keep the business moving along? If so, this is a business that can reasonably expect a strong sales price. If the business is in a leased premises and the location will have to change soon will this be a good thing, a bad thing or have no effect at all on the business? Second, will the Seller of the business sign a "Non-Compete" agreement? If so, AND if the seller will stay on for a while to train the new owner and answer questions, then again this is a business that is going to be quite attractive to a buyer. If not, what guarantees and or assurances can be given to the new owner that the customers will not follow the former owner to a new location? If a seller cannot give such assurances, then the main value of the business is in the contracts in place and real estate that the business owns.
Looking to the future is another important factor in evaluating a business. Perhaps you are selling a business that isn't doing too well today, but due to an upcoming change, the business should soon begin to grow a lot. For an example, if you have a restaurant that is hard to get to right now, but soon there will be a new hotel right next door with 50 rooms - the future is going to be really bright for the business and even if you have poor business now. the new owner is stepping into a great opportunity! The opposite is also possible, meaning that changes could make a business obsolete for example if you are selling a car-repair shop and suddenly the island outlaws cars.
No, evaluating a business is not easy. But all this being said, we have a little
guideline that has proven itself in San Pedro recently if there is a non-compete clause, and if there is every reason to expect the business to continue to do as
well in future as it has in the past the business seems to sell for an amount
close to one year's pre-tax net; plus the value of fixed assets. This is by no means
a fixed formula. As you can see, many items affect the value, including the simple
rule of supply and demand.
Is there a demand for businesses for sale in San Pedro? Yes! Who are -the buyers? People from San Pedro, people from Belize City and the mainland, people from abroad. People who want to be their own bosses. People who for the most part are already in business and who know what a business opportunity mans to them financially. Once you find a person who wants your business, you will likely find that they will tell you why they think it is worth the amount they offer you. You can tell them why you think it is worth your price. In the end two business people
almost always find a common ground that's just "good business!" As with any
other transaction, hire professionals to assist you in completing the paperwork,
inventory, accounting, transfers, etc.
Good Business to all Thanks for reading. Diane Campbell
Footnote on "Color Up!" Two more colorful places jumped out at me this
week that really deserve mention - Island Auto looks great - and how could
we forget the lively colors and cartoon characters at Celi's Deli?! Have
you noticed any new and special colors? If so, drop me a note and help
keep the "Color Up"spirit alive!
Home | Finding Property | Deeds, Titles, & Paperwork
IF YOU WOULD LIKE MORE INFORMATION on buying property in Belize,
or to contact Diane or her husband Bob Campbell, click here.
Financing Considerations | Building in Paradise | Upkeep | Latest News