As a small business owner, there’s something bittersweet about the thought of selling your business.
On the one hand, you’ve worked so hard to grow your operation that it can be difficult to let go.
On the other hand, you can finally enjoy the fruits of your labor by getting a substantial check that allows you to retire or pursue a better lifestyle.
However, regardless of how you feel, it’s important that you understand how the sale process works.
Great Time to Sell
There was a six or seven-year stretch where small business owners found it very difficult to sell at a decent price. The recession had an extremely profound impact on the business climate in most industries and turned a traditional seller’s market into a buyer’s market. The good news is that it appears those days are behind us.
According to recent reports, the median sale time for a business has decreased to 153 days. That’s down 23 percent from a peak of 200 days in the summer of 2012. As someone who has considered selling the past – but had been unwilling to let go when the market was low – now is the ideal time to put your business on the market.
Six Things to Keep in Mind
You may be an excellent business owner and entrepreneur, but most people simply aren’t familiar with the ins and outs of selling a business. It’s a complicated issue and requires the expertise of specialized brokers. With that being said, here are some of the things to keep in mind as you venture into this process.
1. Understand the, “Why”
One of the very first questions a potential buyer is going to ask you is, “Why are you selling your business?” Wouldn’t you ask the same thing? As you prepare to put your business up for sale, you need to carefully and honestly develop an answer to this question. Your response could influence the attractiveness of your business.
Some reasons for selling a business include retirement, partnership disagreements, boredom, sickness or death, stress and anxiety, lack of interest, and more. All of these are fine reasons, but they need to be framed in the right context.
Simply saying something like, “Oh, I don’t really like the business anymore” won’t go over as well as saying, “My passions have changed and I think someone else would be better equipped to move the business forward in the future.”
You want to be honest with potential buyers, because the truth always comes out during the due diligence period, but make sure you’re doing yourself justice by framing it in the proper context.
2. Consider the Timing
Timing is a big deal when it comes to selling a business. If you haven’t had an exit strategy in place from the very start, then it’s possible you’ll end up selling at the wrong time.
“Unfortunately many business owners wait until a catastrophic event has occurred in order to sell their business and when that usually happens the business is typically trending downward and it's not making as much money as it once was,” says Michelle Seiler-Tucker, business broker and author of the book, Sell Your Business for More Than it’s Worth. “The best time to sell a business is when your business is doing well.”
3. Broker vs. DIY
When selling a business, you have the option of selling it yourself or utilizing the services of a broker. Selling it yourself obviously allows you to save money in the form of commission, but be very careful pursuing this route. If you’ve never sold a business before, then you likely won’t understand the complexities that come along with it.
Using a broker is almost always worth the expense. It frees up your time to keep the business running, protects your legal interests, and ensures you’re getting the highest amount you possibly can from the buyer.
Perhaps the biggest benefit of using a broker is that you can remain confidential. The last thing you want to do is let everyone know you’re selling your business. If something falls through, will customers and clients bolt? Will your valuation go down? Will employees look for jobs? These are all very real possibilities.
“A business broker will protect the identity of the company and contact only owner approved buyers through a blind profile – a document describing the company without revealing its identity,” the International Business Brokers Association points out.
4. Get Documentation in Order
Siler-Tucker always emphasizes the importance of “knowing your stuff.” It’s best to picture the sale process like the fundraising process. If you’ve ever conducted a round of financing, you know how challenging it can be to get investors on board. They ask you a long list of questions and expect clear, honest, and straightforward answers. Well, the sale process is similar.
Buyers will want to know everything about the business. A tax return, balance sheet, and P&L statement won’t be enough to satisfy serious buyers. Know your numbers and have answers prepared for every possible inquiry. This is why they call it “selling” your business. You have to “sell” the buyer on why your business is worth their investment.
Related Article: The State of Small Businesses in 2015
5. Empower Those Around You
Generally speaking, businesses that heavily rely on the owner for success command a much lower price than companies that are able to operate independently of the owner. This means, very early on, you need to work with your employees and managers to ensure they are capable of running your business entirely on their own. Buyers will be much more excited about buying a business if they know it’ll continue to thrive after you’re out of the picture.
This means, very early on, you need to work with your employees and managers to ensure they are capable of running your business entirely on their own. Buyers will be much more excited about buying a business if they know it’ll continue to thrive after you’re out of the picture.
Related Article: Will Work for Funding: 7 Ways to Finance Your First Small Business
6. Set the Right Asking Price
While there are similarities, you can’t approach selling a business like you would selling a house. When selling a house, homeowners often experiment with different price points and set a list price that’s considerably higher than the number they expect to receive. Sellers expect haggling and account for it by inflating the asking price. You don’t want to do this when pricing your business.
Overpricing your business is a huge misstep that will damage your ability to attract leads. Set a firm, fair price and stick to it. It’ll take some time to sell, but you’ll eventually get some bites.
On the other end of the spectrum, you should avoid pricing the business too low. Business owners often do this when they’re burned out or ready to move on. This is a big mistake, though. You can lose hundreds of thousands of dollars over this lack of patience.
Maximizing Your Business Sale
You need to look at the sale of your business as your last big task. You’ve worked hard to maximize profits, increase margins, add accounts, and promote a healthy work environment. Don’t give up now.
While the sale of your business is equal parts stressful, overwhelming, and time-consuming, the energy and effort you put into it will pay off in the form of dollar signs. This is what you’ve been waiting for ever since you launched your business and it’s imperative that you hone in on the process and thoroughly prepare in advance of sitting down at the closing table.