5 Tips When Selling Your Business
by Sahm Samarghandi
So, you have worked hard, built equity and value in your business and you are ready for the next chapter of your life. It's now time to prepare your business for sale but where to start? Here are 5 tips to keep in mind when you are ready to sell your business.
1. Gather Finances
First things first. The person who is going to buy your business will want to see how much you spend and make. You'll need to justify your asking price by showing your finances through profit and loss statements as well as tax returns. It's recommended that you gather 3 years of financials and use a technique called "recasting" in order to make clear what expenses are necessary to keep the business running. In short, you separate the personal benefits your business provides (such as a company car, salary, etc.) to show what the new owners have to work with when they take over the business and run in according to their vision.
2. Don't Lose Focus
A common mistake amongst business owners is losing focus when you have made the decision to sell your business. Some business owners let their production fall and their business slows down at the most crucial time, making it harder to find a buyer for their business. Your business needs to be in tip top shape in order to get the best price for it and to minimize the days your business is listed on the market. It's important to keep your business running at 100 percent during the process of selling so that you don't lose any of the valuable equity you built.
3. Blind Marketing
Another pitfall to avoid is marketing your business to blatantly. When word spreads that your business is up for sale, it can cause a never-ending series of headaches from both employees and competition. Employees will not be as invested in working hard in the business and some may even quit their jobs when they find out that you are planning on selling and leaving your business. The other source of headaches, your competition, may use the news of your departure to their advantage and tell your common customers about it. The best way to market your business for sale is using blind marketing to hide the identity and exact location of your business. Use general locations, stock photos and avoid using your business name in the initial marketing until a potential, qualified buyer signs a non-disclosure agreement (NDA).
3. Qualify Your Buyers
On the topic of qualified buyers, it saves you lots of time and privacy by ensuring the potential buyers of your business are qualified before revealing the details of the offer. Some of the things to look for in a buyer is the ability to pay, experience in the type of business and the level of interest they have in your offer. Quality buyers are communicative, professional and able to run your business well. If you do not feel comfortable doing the initial buyer interviews, it is recommended to use a business broker who will not only take care of bringing you only qualified buyers but will take care of all other aspects of the sale for you. Most brokers won't charge upfront and will instead take a percentage of the sale which makes it an ideal situation you as well as gives incentive to the broker to perform.
4. Provide Seller Financing
Selling your business involves much more than most people realize and the average time a business that sells spends on the market is around 6 months. The key factor to keep in mind is that only 30% of businesses listed on the market get bought. You can double your odds by providing full or partial financing for the potential buyer. 60% of businesses on the market that provide seller financing get bought. Of course, the ideal situation is to get your asking price paid in full with cash but odds are much better when you provide buyers with an easier path to purchase.
5. Consider Using a Broker
The process of selling a business requires several months of time and effort before it pays off. There are many steps involved and it is important to avoid pitfalls in order to attract qualified buyers and get your business sold. It's recommended you read as much as possible about the process but the reality of the situation is your business still needs your attention throughout the entire process and many business owners simply don't have the time, energy or expertise in order to successfully close the deal. The best way to go about selling your business is to use a business broker who will help you prepare your finances, market your business, qualify buyers and help you navigate the entire process with ease. The business broker will take care of the sale of your business so you can keep your business running at the most optimum condition.