The Basics of Selling Your Business: 3 Things to Do
Even for the savviest of business owners out there, successfully selling a business (for a decent price - and to the right seller) can be a very challenging thing to pull off. Yes, this even applies to experienced business owners. While it’s definitely true that there’s a certain mystique around the business buying/selling process, once the curtain has been pulled back you’ll see that the underlying concepts are actually quite simple to grasp.
Obviously, the entire process can be boiled down to any other type of transaction: the buyer sells his business to a seller, for a price that both parties have agreed to (as well as pre-arranged terms). Of course, the actual details of that sale are what most business owners get confused about.
How is the initial valuation determined? How do you know if the price is good enough? How does the actual transition process occur? How can I sell my business? These are all incredibly common questions shared by both amateurs and seasoned business owners alike. Whatever your level of business acumen, and no matter where you are in the selling process, keep the following four things in mind when deciding whether or not you should sell your business.
Make Sure You Know the Details of the Process
Before we get started on this section, let’s first make a note that nearly all business sales are unique in some way or another. No two sales the same. With that being said, it’s a very good idea to have a general sense of the overall mergers/acquisitions process before you put your business up for sale. Not knowing the lay of the land in this sense can directly translate to a lot of headaches down the line.
Lots of business owners think that as soon as they put their business up for sale they will automatically start getting offers. Unfortunately, the market simply doesn’t work like that. In fact, it typically takes upwards of 9-12 months just to even get a proper valuation done and to amass the necessary files/documents. Of course, these timelines really depend on the nature of your business, as well as its size, industry, etc.
You Need to Know What the Valuation Means
This aspect of the selling process is one of the more esoteric (at least in the eyes of the uninitiated). While knowing the specific formulas for how brokerages determine valuations isn’t necessarily required, you should at least understand some of the other factors that will go into deciding just how much your business is worth. What are these factors?
The age of your business
How long you’ve been in business
Where you’re located
What your supply line infrastructure is like
How many employees you have
How many products you sell
What industry you operate in
What your specific niche is
What your projected growth is
What your growth rate is for the past few years
What your operating costs are
The above list isn’t even exhaustive, it’s simply a starting point. These are the types of factors that you really need to dig deep and think about - because that’s exactly what your buyers will be looking at. Buyers are interested in maximizing their ROI, and if your business cannot properly display how that’s possible, they will quickly move on to another one (i.e. you’ll lose the sale).
Use an Experienced Brokerage
Lots of business owners have no idea what to expect going into the selling process. Many of them think that they can even do it on their own (not knowing just how much work is involved in the process, nor how long it can take). Or, lots of business owners simply go with whoever they end up finding first, just because they’re in a rush to get the ball rolling.
There’s nothing worse than being stuck with a bad brokerage simply because you lacked the patience to find an experienced, well-reviewed firm to handle the sale of your business. Don’t make this incredibly common mistake of not choosing a good firm to represent your interests/business.
All too often business owners get stuck in the trap of using a bad brokerage (or one that’s simply inexperienced), which can spell disaster for getting a good buyer for their business. If you don’t use a firm that actually knows how to sell a business (and get a good buyer for the right price), don’t be shocked when your business sells for much less than you know what it’s worth.