Want to sell your business? The first questions business owners ask us are:
How much is my business worth? and
How long will it take to sell?
The answers are often not what a business owner wants to hear. Here’s a great article about why business owners cannot often sell when they want to.
Let’s look at 8 factors to consider when selling your business.
- Realistic Pricing
The best way to accomplish this is to have your business valued by a third party valuator that is knowledgeable in both the science of valuations as well as the art (market forces) that shape the valuation.Why? Because businesses that use a third party business valuation have an 80% chance of selling at a much higher price.Those who do not use a professional business advisor for the business evaluation often have a very small chance of selling.
Your tendency will be to overprice your business. When you do, the time it takes to sell just stretches out to the point where it becomes like shopworn merchandise by the time it finally sells, if it sells at all.
Nothing raises the doubts of a prospective buyer more than to find out you’ve been trying to exit your business for a long time. A full-fledged business valuation costs upward of up to $2,500, so don’t expect a good written evaluation for less. For a larger company, one can easily cost $10,000.
- Fixtures, Equipment & Facility
Buyers will want a complete list of equipment and will inspect it to ensure that everything is in good working order. Nice looking businesses sell first!Buyers deduct large amounts from their offering price for businesses that is in less that top shape. Keep your premises neat, clean and in good repair. This applies to your online “premises” too, such as your website.
- A Good Reason to Sell
Buyers are always concerned about this. They are afraid you may be selling because of some undisclosed fact that may hurt the business in the future. Buyers must see a logical reason for the sale. Without it, they think the worst.
- Your Selling Team
It all starts with teamwork. You need to form your team. You need your Business (Merger & Acquisition) Advisor, Attorney and a Accountant.Today, selling a business is so specialized that even the best attorney or accountant is no substitute for a specialized and knowledgeable Advisor. Look for one who is very experienced in selling a business as well as expertise in finding qualified buyers.
- Packaging and Documentation
Comprehensive documentation from a buyer’s perspective is essential today. That means you have to develop a detailed package to present your business.Today’s buyer prospects are different from those of even just a few years ago. Many buyers today are “numbers crunchers”. They expect you to be able to justify your price and terms of sale, based upon their understanding of normal investment returns and risk factors.You also have to compete for your buyer prospect’s attention against an ever-increasing number of sophisticated groups trying to sell other types of business and investments.
- Targeted Prospects
After your marketing package is complete, you’ll know what kind of buyer you need. You’ll know how much cash they must have to make it work.Your Business Advisor should then set up a process to target and qualify buyer prospects.Don’t rush too quickly, however, to consider everyone a prospect. There are still people out there, even people with money, who think they can buy your business for no money down. If you don’t have a process to qualify prospects, you may find yourself dealing with these ‘no money down’ tire-kickers. You’ll spend lots of your precious time and resources trying to sell them your business.
As you know, desire to buy is not proof of a ability to buy. Often, people are naive and think businesses sell as fast as houses in a good market. Depending on the size of the business, its price, industry and the state of the economy, it may take 9 months to 2 years to sell a business. Unfortunately, many businesses never sell.
So it is critical to keep your marketing effort confidential except to strictly qualified prospects. Your Merger & Acquisition Advisor knows how to do this.
- Professional Negotiation
When you get an interested and qualified prospect, plan your negotiation strategy carefully. Your Business Advisor will facilitate the process, so follow their advice.Remember that your goal is to sell, and not to beat the buyer at some negotiation game. You and the buyer should now lay the foundation for a team effort to get to a closing.Don’t allow yourself to get bogged down in disputes with your buyer. Don’t allow your ego to distract you from satisfying your underlying need to sell.
Work with your buyer as an ally. Focus on interests, not on positions. Generate a variety of solutions before deciding what to do about any particular problem. Try to resolve the toughest issues with objective criteria, independent standards and market norms.
- Quick Decisions
Even the best buyer prospects can change their minds overnight. After the buyer prospect makes a commitment to buy, get an offer to purchase in writing. Then, get a good sized, non-refundable earnest money deposit.After the offer to purchase agreement is signed, close as soon as possible. Your business isn’t sold until it’s sold. Make sure the check clears before you set the plans in motion for that well-deserved vacation.