Introduction
You started it. You built it. And, if you're like most small business owners, you never explicitly planned to sell it. But the facts are clear:
Everyone will exit their business.
You cannot always foretell when!
You'll get a much better outcome if you are prepared.
The decision to sell your business is both exciting and daunting, and naturally you want to ensure you get the best result possible. Understanding the selling process can make the difference between a fair deal and a disappointing outcome. In this post, we'll explore how to achieve the best results when you sell your business and offer expert insights and practical strategies for both your financial and non-financial goals.
Start with WHY
With a shoutout to Simon Sinek who coined the phrase, we "Start with Why." Each business owner has unique goals, but there are several that we see time and time again:
Maximize value. This is a complex concept that includes more than just selling price.
Preserve my legacy. I care about my employees, and I care about my clients. What will happen to them?
Preserve my sanity! For most business owners, the sale of their business is the largest single transaction of their life. Eliminating friction from that transaction will mean the difference between a stress-free exit and a delayed, value-destroying ordeal.
Achieving the best value for your business hinges on a thorough understanding of its worth and the market dynamics at play. Achieving the best results requires an understanding of who you are personally and how you'd like to participate in your own life going forward. A good broker will help you with both of these aspects. Here are the key questions we ask our new clients:
Why are you interested in selling now?
What do you plan to do after the transaction is complete?
Have you thought about how to handle the funds that you receive? Have you discussed the sale with a tax advisor?
Normal Timeline. Are there any reasons why a fast sale would be better?
Have you thought about seller financing?
What do you know about Pricing and the Market?
What else should I be asking you about an optimal outcome?
An Optimal Process
It is our mutual responsibility to get all significant roadblocks out of the way, and so the first part of our process is broker due diligence. Are you a ready, willing, and able seller? While a good broker is happy to engage with you as you work through that question, being honest about where you are in the process is critical. Do you have a reasonable expectation of the value of your company, and how did you come by that expectation? Are you solely interested in a better understanding of what your company is worth on the market (i.e., are you a tire-kicker)? Do you have loans (EIDL in particular) that will leave you upside-down after a transaction? And is your company ready for sale? Is your legal registration up-to-date? Are your company (corporate) records up-to-date? Are your books well organized, so that line-item profitability is clear? Are your contracts all one-offs, or worse nonexistent? Are your employees under agreements?
For many sellers, timing is an issue. It is far better to reach out to us a year or two before you want to sell so that we can find and eliminate the roadblocks in advance!
After broker due diligence, our next step is planning. Perhaps you've already identified a few potential buyers, or perhaps one of your employees is interested in buying the company. This calls for a far different plan than creating a blind Confidential Information memorandum (CIM) and posting your listing on a site like BizBuySell. For many businesses, finding a buyer is the most difficult part. In the IT space where we have an extensive network of buyers, we focus instead on alignment, finding buyers whose goals match well with the seller's goals.
Expert Insights
Here are a few expert tips to consider:
Timing the sale appropriately: Market conditions can significantly impact sale prices. See our blog on this topic.
Understand working capital: In many types of businesses, buyers expect a certain amount of working capital to be included in the assets that are purchased. For service businesses, this generally means enough cash to keep the company afloat through the transition period. Few small business owners understand that working capital doesn't belong to the buyer or the seller; instead it belongs to the company, as it is a necessary resource for the company to generate revenue.
Should you set a price: In "hot" markets, we often suggest that sellers not set an asking price. Instead, we let buyers submit indications of interest that include proposed deal price and structure, and then the owner can pick two or three buyers to negotiate with.
Ask for what you want: Non-financial goals should be explicitly stated so that the buyer understands what is important to you. You are unlikely to get what you don't ask for!
Don't hide the warts: Maintaining transparency throughout the process is crucial. Disclose all relevant information honestly to build trust and avoid post-sale disputes. According to a report by the International Business Brokers Association, businesses that maintained transparency experienced smoother transactions and higher satisfaction rates among buyers.
Conclusion
Achieving an optimal result when selling your business requires careful planning, strategic execution, and expert guidance. By understanding your needs and goals, your business's worth, and eliminating transactional friction, you can navigate the selling process with confidence.
Call to action: If you're considering selling your business within the next five years, let's have a conversation. Sign up for a free consultation.
All the best!
Jeff