So, you are an entrepreneur ready to move on from your business and sell, or maybe you are just in the beginning to think about selling. Either way, it will be beneficial for you, your company, and your potential buyers if you understand the ins and outs of selling a business.
Selling a business is unlike almost any other sale. Certainly, traditional sales techniques like timing and marketing are important, but selling a business is much trickier to navigate than traditional sales because you are selling much more than a product. Depending on your industry, you may be selling a brand, a client base, a network, or resources. You need to make sure that you understand this process and get the best deal possible.
Determine Your Reasons for Selling Your Business
As an entrepreneur, this is a question you need to ask yourself both for your own benefit and for the benefit of potential buyers. Potential buyers will be curious about why you are selling your business, and your answer could make or break the sale. You should also have an answer to this question for a business broker.
But perhaps more importantly, you need to have an honest answer to this question for yourself. You need to make sure that you are certain you are ready to sell your business and are doing this for good reasons. The definition of good reasons varies from person to person, but the most important thing is that the answer to this question satisfies you.
Some common reasons that entrepreneurs sell their businesses include personal reasons, like boredom, partnership disputes, retirement, death, or too much work. But entrepreneurs may also sell their business for financial reasons, such as when the company is struggling to increase or sustain profits. Entrepreneurs who are selling their companies due to financial downturn may have a more difficult time finding potential buyers.
Get Your Business Ready for Sale
If you are planning on selling your company due to the financial downturn, there are some key things you should look at to make your company more attractive to potential buyers. If your company cannot increase profit at this time, make sure to highlight other appealing factors that may indicate potential for a buyer.
The factors to highlight include a strong customer base, consistent income figures, and multi-year contracts. Even if your company is not currently profitable, it may be worth waiting some time to develop some of these other attributes to make your business more attractive. This is all a matter of timing.
Perfecting the Timing of Your Sale
If you are looking to sell your business, thinking ahead as early as possible is the greatest advantage you can possibly have. Planning one to two years in advance to sell allows you to really build up the attractive features mentioned above, like a strong customer base or improved financial records.
Additionally, you’ll want to look ahead at market indicators rather than just looking at present market indicators when you are deciding to put your business on the market. Many business sales take 6 to 12 months to complete, so you always want to be thinking ahead and be prepared to continue operations throughout the period in which your business is on the market.
Hiring a Broker
One way to make selling a business as simple as possible, while also making sure you are getting a fair deal, is to hire a broker. You may want to hire a broker earlier in the process to help make sure that all working capital is operating at proper levels, but you certainly want to hire a broker once you are ready to put your business on the market.
Brokers do a lot of things to prepare your business to be sold, so it’s important to choose a broker carefully. Your broker could make or break the sale of your business.
There are a few key things to look for in a broker. First is expertise. Look for a company that employee’s brokers who have had lengthy careers in the field.
The next key factor is their network. It’s best to work with a firm that has locations in different cities so you get a wider network of potential buyers.
Lastly, you need to feel like you can trust your broker. This is someone that you are trusting your financial future to and may be working alongside for many months, so this should be someone you feel like you can place your faith in.
Preparing to Make a Pitch
This is really the area where brokers really step in. A broker will help you get all financial records, quality of earnings reports, balance sheets, income statements, and cashflow statements organized, analyzed, and properly presented to make marketing and pitching your business as easy as possible.
Your broker will also provide a business valuation. There are different ways in which a business’ worth can be evaluated, and your broker should be well-versed in how to evaluate all three.
The first is asset valuation, in which the liabilities of a company are subtracted from the assets and the remaining sum is the value. The next one, income valuation, is the most confusing. It requires estimating the future earnings of the business and comparing it to the current value.
Lastly, a comparable transaction valuation looks at the current market for other businesses sold in the same industry and uses that information to assess the value of your business. This is another reminder of how important timing is to this whole process. These three valuations will also be useful in making sure you are getting a good deal for your business.
Selling a business is rarely easy, but hiring a highly competent broker can be a huge weight off the back of an entrepreneur. You will have to pay the broker’s fees, but you are much more likely to earn more if you use a broker to sell your business compared to trying to sell the business yourself.
Interesting Related Article: “3 Things You Need to Do Before Selling your Business“