How to sell your business
Selling a business takes strategy and timing
Would you believe that 45% of business owners spend more than 41 hours a week on their business? Are you one of them? When you started your business, you probably had dreams of financial and personal freedom, tropical vacations and a cushy retirement. In order to make those dreams come true, you need to know how to sell your business as part of your exit strategy.
Understanding how and when to sell your business can be overwhelming without the right resources. Yet as Tony Robbins says, “The purpose of a business is to build a system that can make money when you’re not there, and if done right, a business you can sell for a multiple.” You’ve done just that: grown organically, scaled your company and perhaps even recovered from a financial loss, and you’re ready to reap the rewards. You need an action plan for selling a small business – checklist items to keep you on track.
Once you’ve sold your business, you’ll have the financial freedom – and the time – for the next phase of your life. Sounds great, right? Then why is it that 53% of business owners say they’ve given little to no thought to their transition plan? It’s probably because selling a business can seem overwhelming – but it doesn’t have to be. Here’s how to sell your business and see massive results.
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Selling a business 101
Selling a business is much like a Hollywood marriage: Without a solid prenuptial agreement (exit strategy), a divorce (business sale) can result in disaster (financial loss). Don’t let your business’ final days sneak up on you – include an exit strategy in your business plan. With the right strategy in place, you’ll have a specific goal (a certain profit margin or substantial growth in sales) to reach that will signal when it’s time to sell your business.
According to Tony, “Without an exit strategy, all you have is a job.” This means you need to stop thinking of your business as a day-to-day job and start thinking of it as an investment.
How to sell your business: Laying the groundwork
Learn how to sell your business at the right time to maximize your returns.
1. Determine when to sell
Understanding when to sell your business is critical for getting the best price. Don’t wait until your business is in decline to sell. It’s time to sell your business when it’s at its peak performance. Do it when you’re at the top of your game, and you will reap the benefits.
2. Increase the value of your business
If you’ve determined that it’s a good time to sell, your business is most likely profitable and doing well – perhaps even at its highest point ever. But, selling a business for the highest possible price should be the goal, and the good news is that you can raise its value even more. There are various strategies you can use to accomplish this before you sell. These include diversifying your customer base, increasing efficiencies and boosting sales.
Depending on your industry and the size of your company, no single customer should make up more than 5 to 20% of your customer base. Get out there and target new audiences. Increasing efficiencies can mean cutting costs and improving productivity. And you can boost sales by offering deals to get rid of extra inventory or to bring in new customers. Once your business is operating at its peak performance, you’ll start fielding better offers.
Selling a small business: Checklist items to make the sale
Once you’ve laid the necessary groundwork, selling a business becomes a matter of implementing your plans. To get started selling a small business, checklist items to seal the deal include:
1. Get your paperwork in order
“The books” can be easily overlooked when selling a business, but financial records are a must. You should have financial records from at least the past two years that cast your company in a positive light. This means revenues and profits that are steadily increasing – you don’t need to see big jumps, just a good performance that provides a solid foundation for the future.
You’ll also want to have a realistic business map to show the buyer how your business will keep growing. Finally, the most important thing about your financial records is honesty. Any serious buyer is going to be doing due diligence, investigating every aspect of your business. It isn’t worth it to have a good deal go south because you don’t have your paperwork in order or were not honest about something.
2. Consider using a broker
Learning how to sell your business is a skill you can absolutely master yourself. In fact, we’re willing to bet the person who can best market your business is you. No one knows your business better than you do. If you’re selling to a family member or a current employee, representing yourself can be a good choice. However, there are some situations where using a broker is helpful. If you’re trying to keep the sale quiet, brokers use their own network to find sales leads without letting the word out to your employees or other stakeholders. Brokers can also be a great option to involve in the sales process if your business has complicated financials or an exceptionally high value.
When you use a broker to sell your business, communication is key. Ensure they know your expectations, and that you know theirs regarding fees. Confirm they’re a Certified Business Intermediary (CBI), ask them to provide a portfolio of specific marketing tactics they have used for other companies and always get referrals.
3. Choose your buyer
If you’ve chosen the right time and done the proper preparation for selling a business, you may have several buyers to choose from. When you’re choosing your best buyer, there are several things to look at beyond the offer price. First, make sure the buyer can back up their offer with financing. If they’re using third-party loans, always pre-qualify them. If they have private investors or other sources of funds, carefully review all documentation, including past legal judgments.
You should also consider the type of transaction – certain structures may have transitional requirements, higher taxes or less cash at closing time. You’ll want to hire a lawyer to help with vetting buyers and setting up the transaction itself. Finally, look at culture fit. Check out the buyer’s history of acquisitions of other companies and see where they ended up. If the buyer is another company, ensure your cultures are compatible. And trust your gut – it’s what helped start your business, and when you’ve thought everything out and have two final buyers in mind, it’s what can be tapped into to make the final decision.
4. Create vocal raving fan customers
When you’re selling a business, having a flourishing customer base is extremely attractive to potential buyers. Having a pool of raving fan customers indicates a well-crafted, well-marketed product with no likelihood of failure. And when your fans are vocal, your product sells itself. So give customers a wide range of referral methods to get the word out about your product. When sales indicate you’ve built up a solid clientele, that is a key indicator of when to sell your business.
You deserve a vacation, but don’t spend all your profits too quickly! The final part of selling a business is to have a plan for the profits. Outline your goals for your newfound cash, such as investing it, saving for retirement or paying off debts. Keep your eye on your long-term goals, but feel free to celebrate a little bit.
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