How to sell your business? But you are not planning to sell yet? Here is why you should read this!
There will come a time, one way or another, when you and your business are no longer together. It may be hard for you to face that fact, but it’s the cold hard truth. So the question is not whether, but when – and how. Deciding to sell your business offers an opportunity for you to control the separation and to get a return for all the blood, sweat and tears you’ve poured into your business.
True, selling a business is something that very few people ever experience. And, not surprisingly, it can seem a daunting process, let alone the emotional upheaval that can all too often come with it. However, by taking the mystery out of the process I hope to make the transition a little easier to bear.
The decision to sell your business is perhaps the most important decision you’ll every make in business. Yet most business owners prepare very little, or sometimes not even at all, before entering the sale process. Which means that they do not put themselves in the position to get the best result.
I have broken the process down into 11 steps and grouped these into 3 phases:
1 “thinking about selling”
2 “Preparing your business for sale”
3 “The final steps in preparing for sale”
This post will be the first of a series of 3 blog posts. Each one highlights what you need to consider at each of the progressive steps of the process. They aim to help you plan how to sell your business.
STEP 1: SET THE RIGHT PRICE
How much your business is worth is not related to how much you owe the bank; nor is it related to what business-owning friends tell you it is worth; of course these may well be important factors in how you proceed. At the end of the day, as with anything else, the market decides, and it stands to reason that the closer you set your price to that market value, the more likely you are to sell for the best possible price.
We’ve all heard of start-ups selling for squillions – such as this story about the MIT graduate who sold his first start-up for US$90m and went on to build a billion dollar business. But not surprisingly that’s not the reality for a typical independent business.
So, the first step is to get an independent market appraisal. It’s not a formal valuation, but a benchmark that serves two purposes:
- It gives you a price range from which you can develop a sales strategy, and
- It grounds your expectations in reality. There is no point whatsoever in going through the sales process if you have a false expectation of what your business can fetch! Then it would mean you could reject a perfectly reasonable offer out of hand.
A business on the market for a stupidly high price will not attract serious buyers; and neither will one that’s too cheap. If your neighbour offers you a brand-new Porsche 911 Turbo for $20,000, your immediate reaction (or at least mine) would be along the lines of ‘Are you for real? What’s the catch? What’s wrong with it?’
And while setting a price range for your business is a critical first step, it need not cost you anything. In fact, it’s not a bad idea to approach more than one advisor – though, not surprisingly, the highest valuation may not be the most accurate. But at least you’ll get to meet several advisors and get their opinions on your business. On the other hand, when pricing is critical – for example, such as when one partner is buying out another – then obviously a formal independent valuation is necessary.
STEP 2: LOOK AT YOUR BUSINESS LIKE A BUYER
You have lived with this business for years, so you are unlikely to have a very clear view of it – or even of what a buyer may find attractive in it.
But at the very least you can develop a good sense of its pros and cons. A buyer will want these things, for starters:
- A fair price
- The truth
- Future security
- Transparent accounts
- Good management and sound operations
- No hidden nasties, such as major repairs or re-fit outs
- Good presentation
- A low degree of dependence on ‘key staff’ (see below)
- A low degree of dependence on ‘key customers/clients’
- An absence of the five ‘negative attributes
STEP 3: UNDERSTAND THE NEGATIVE ATTRIBUTES
Few businesses are ever completely without negative attributes, and you should know what yours are. As a recent example, an import business valued at $3m that had stock of $7.5m failed to attract any sensible offers – not surprisingly! Here are five negative attributes, and how to address them:
- High levels of stock
Solution: reduce aggressively
- High levels of debtors
You have terms – collect within them! Consistent effort in this area always pays off. If you can’t be bothered to chase your debts, you’ll find your debtors will get the message pretty quickly that they can put you at the end of the queue
- High dependence on key staff – including you!
A managed business is worth more than an ‘owner-operated’ one. Change the structure if you can, and if you can’t, at least find a way to lock in the key member.
- Extended trading hours
Are they beneficial – or evidence of a problem?
- Over-dependence on a small number of clients and/or products
Spread your risk. (This will take time. Best start now.)
Read the next post of the series PART 2 “Preparing Your Business For Sale”
PART 3 “The Final Steps In Preparing Your Business For Sale”
Thinking You Should Know How To Sell Your Business?
How to sell your business well is an important question. It does take some good planning on your part. It is worth getting an independent perspective from a reliable business advisor and broker. Call Ziggy Frankenfeld or CONTACT ZIGGY HERE