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Every business owner will reach that point in their career when it is time to move on. Whether you are transitioning into retirement or simply seeing a hot market that presents a once-in-a-lifetime selling opportunity, your business will inevitably change hands at some point.
Unfortunately, few business owners have any idea on how to sell their business fast and for maximum value. To help you through this process, keep reading for 5 effective strategies to help sell your business!
Strategies to Selling a Business: Assess the Value of the Business
Determining a fair price for your business is notoriously difficult. For many entrepreneurs, their business represents their life’s work, and it can be easy to get overly sentimental and sum up all of the hopes, dreams, blood, sweat, and tears with a “priceless” valuation.
At the same time, it is important to remember that your business does represent all of those things. Statistics indicate that small business owners have as much as 80% of their net worth tied up in their business, so accepting a lowball offer for your company can severely impact retirement plans.
Therefore, it is important to get meticulous in your business valuation process and come to a clear understanding of exactly what your business is worth.
This starts with getting your financial documents in order. The balance sheet and income statement are important for creating an orderly account of all that the business has and its ability to turn revenue into profit. However, the king of financial statements when selling your business is the cash flow statement.
Buyers want to see how successful your business is in using its assets and operations to create free and clear cash. Most small businesses will be valued between 2 to 5 times the free cash flow, so any price tag that falls outside of this range needs to be re-evaluated.
Realize that physical assets don’t mean quite as much when selling a business as they do in simple real estate transactions. Sure, they are worth something, but savvy buyers will only value them based on their ability to help produce an ongoing profit.
Finally, it is important to do your market research and see what similar businesses have recently sold for. Depending on your industry, this will require digging into sales well outside the confines of your physical location, as many e-commerce and online stores can be well within your demographic even if they are half a world away.
Update Your Marketing Plan
Developing a marketing plan is sort of Business 101. It is akin to the “road map” or “user’s manual” for your business and helps establish best practices and influence key business decisions.
However, while many business owners are rather astute in creating a marketing plan at the formation of their business, they fail to realize that it is an ever-evolving document that needs to be examined and amended with regularity.
When preparing your business for sale, it is critical to update the marketing plan so potential buyers can quickly see the potential of the business.
Be meticulous with the market research and show them how the market is growing/changing and how your business is positioned to capitalize. Provide metrics on how much your business spends on marketing and how this directly impacts revenue. Perform a SWOT analysis so that the buyer can see how the business is built to not only survive but thrive over the long haul.
Communicate With Your Team
It is kind of cliche at this point, but your business is only as good as its people. And like most cliches, it has reached cliche status because of the underlying truth it conveys.
Having a well-trained, professional, and loyal team is one of the most attractive assets at your disposal when selling your business. It is extremely comforting to buyers to know that they will be inheriting a team that can help ensure a seamless transition and will quickly adapt to any change in practices or policy that may take place.
However, as a seller, you need to be sensitive to the fact that this change can be scary for your people. Uncertainty about their ongoing job security and/or standing with new ownership will be at the forefront of employees’ minds when they find out the business is for sale.
As such, it is incumbent upon you as the departing business owner to have an open-door policy and proactively address these concerns to the best of your ability.
If there are likely to be any layoffs or role changes, communicate this with the affected employees. Even if it is just chatter from prospective buyers, it is important to let your people know that there may be some change and support them with how they choose to proceed.
Segment the Pool of Buyers
Just as you segment your market of potential customers, so too is it important to segment your pool of prospective buyers. Not everyone should be considered a strong candidate to buy your company. Some points to keep in mind include:
- Does this person seem like a legitimate candidate to buy the business, or are they just kicking the tires to try and get inside financial information on your business?
- What is the candidate’s financing situation? Do they have legitimate equity to put toward the purchase, or is an overly leveraged buyer going to cause the sale to fall through?
- Does the buyer share your same values and vision, or will they quickly erase any goodwill your enterprise has created in the community?
These are just a few of the considerations to keep in mind when screening buyers. At the end of the day, it is important to remember that the right buyer can save you a lot of hassle and heartache throughout the selling process and the years that follow.
Use a Business Broker to Negotiate and Close
Many times, business owners are trying to sell their businesses while also running the company on a day-to-day basis. That can be a lot.
Therefore, it is highly advisable to employ the services of a professional business broker. A business broker is sort of like a real estate agent, except they specialize in the buying and selling of businesses.
They have unique insight into the market and can handle all of the negotiations and buying terms related to the transactions, allowing you to focus on what you do best–running the business. They are also experienced in handling all of the legal paperwork required for closing, guaranteeing that nothing falls through the cracks that could stall the sale.
Selling a Business: Get Meticulous to Sell Your Business for Maximum Value
Selling a business for maximum value is critical for those business owners who have invested a lifetime’s work in building up their company. However, there are many moving parts that can make this challenging.
By using the financials to arrive at a valuation, updating your marketing plan, communicating with your team, segmenting the pool of buyers, and using a business broker for negotiations, you can increase the chances that you maximize the value of your business come closing time!
