Every business owner will reach that point in their career when it is time to move on. Whether you are transitioning into retirement or 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 know how to sell their businesses fast and for maximum value. To help you through this process, keep reading for five practical strategies to help sell your business!
Strategies for 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 essential to remember that your business represents all 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 essential to get meticulous in your business valuation process and come to a clear understanding of precisely what your business is worth.
This starts with getting your financial documents in order. The balance sheet and income statement are essential for creating an orderly account of the business and its ability to turn revenue into profit. However, the cash flow statement is the king of financial statements when selling your business.
Buyers want to see how successfully your business uses its assets and operations to create accessible, straightforward cash. Most small businesses will be valued between 2 to 5 times the free cash flow, so any price tag that falls outside this range needs to be re-evaluated.
Realize that physical assets don’t mean much when selling a business as 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, you must 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. Many e-commerce and online stores can be well within your demographic, even if they are half a world away.
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 must be examined and amended regularly.
When preparing your business for sale, it is critical to update the marketing plan so potential buyers can quickly see the company’s potential.
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 the buyer can see how the company is built to survive and thrive over the long haul.
Communicate With Your Team
It is 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.
A well-trained, professional, and loyal team is one of the most attractive assets when selling your business. It is incredibly 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 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 essential to let your people know there may be some change and support them with how they choose to proceed.
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 the following:
- 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 will an overly leveraged buyer 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. 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
Business owners often try to sell their businesses while 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 like a real estate agent, except they specialize in buying and selling businesses. Therefore, it is highly advisable to employ the services of an exit strategy consultant or a professional business
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, many moving parts 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 will maximize the value of your business come closing time!