Are you looking to sell your business? While there are many reasons to do so, the process can be complicated without an experienced business broker.
One of the first questions business owners ask is how long it will take to sell their company. On average, selling a business can take 6-10 months. However, some businesses take as long as a year or more, and some sell in less than 3 months.
Selling a business takes careful planning. You need to ensure that your tax records and financial information are clear and up to date.
When selling your business, you could leave a lot of money on the table due to some avoidable mistakes. Instead of getting less for your hard-earned investment, steer off the preventable errors in a business sale, and read on to learn how to sell your business.
Your objective is to get the maximum value from the sale, get the best terms, and find the right buyer. As a seller, you need to come to the table with a clear understanding of your business in terms of your competitive position in the market.
How to Sell Your Business: 5 Tips to Help Maximize your Price
You need to sell your business carefully and smartly to get a good deal. If you’re careful, you can even get a higher value than most people are willing to pay.
Here are 5 tips to get the highest value possible.
1. Determine the Value of the Company
Determine your business’ worth to ensure you are not asking for too high or too low. You can seek the services of a business broker to give you the real value of the business. They will request detailed information on your company as this will help to gauge the right asking price.
This valuation will give you a realistic estimate of your business worth. The review considers all relevant items, including net income, inventories, financial trends, receivables, assets, and any outstanding debt. The goal is to identify all threats and opportunities that influence the value of the company.
Some of the factors that will affect the value of your business include the industry you are in, location and the state of the market. The risk factor is also an important factor. The nature of the market in the future will be a major factor in getting a buyer for the business.
2. Get Your Books in Order
Before you attempt to sell your company, you need to scour through your books and ensure your house is in order. Some business owners live out of their business to decrease their tax liability. You will need to make it clear which expenses are for the benefit of the owner, such as health insurance, personal cars, etc. You, also want to identify non-recurring expenses that a new owner wouldn’t have.
Know your company’s numbers. This does not only refer to your tax returns, balance sheets, and income statements. You need to track your up to date sales and the sales pipeline for a buyer going forward.
In today’s market, a prospective buyer will demand as much transparency as you can offer them. They will perform due diligence and go through everything, including the businesses financials, the real estate or lease, and all the equipment.
Avoid raising red flags that will derail your sale by enlisting the services of an accountant to present a set of clean financial statements and business tax returns dating back about three years. Buyers will also ask you to provide year-to-date results.
As you make this determination here is what you need to know.
i. Buyers Are Looking for Profit Not Revenue
The worst misconception you could have is assuming that your buyer will be impressed with your revenue figures. While they may seem very good, the main numbers that matter in a business sale are the profits and owners income such as salary and their benefits.
An experienced business buyer wants to see a high profit, not just high revenue.
ii. Verifiable Financial Claims
If you claim income from a given source, your buyer will need to see valid proof. If you generate revenue through affiliate offers or third-party ad network with an online business, expect your potential buyer to want to see deposit records and access to your online accounts.
iii. Buyers Don’t Pay Much for Just Potential
Having a potential gold mine is one thing. Expecting it to command a high price is another thing altogether. No one will want to pay much based on perception.
If a business is nothing but a concept, without proof of a revenue stream, most buyers will not see any value.
3. Boost Your Sales
Although buyers don’t want a business that is only potential, they are looking for a company with ongoing profit and an upside. Therefore, the best time to put your business up for sale is when revenue and net income are on the rise. When there is a decline in sales, this may not be the best time to sell your business.
If you are thinking of selling in the next couple of years, you can consider ways to increase your profit and revenue such as diversifying your customer base or look for an alternative way to jumpstart your sales with an increase in marketing and promotions. Push out bloated inventories and while you are at it, update your systems.
Ask yourself what you need to do to increase your sales.
Here are a few ways to boost your sales.
i. Diversify Your Income
Every business has a specialty. However, if the one specialty fails, your business could be in trouble. Having only one source of income is a risk that will lower the value of your business.
Regardless of the market analysis, you have conducted before selling your business; you cannot ascertain what will happen. Diversifying your income streams will leave you in a much better position to sell your business at a high price.
That way, if one income dwindles, this does not mean your business has ended. In fact, alternative sources of income can buy you some time to strategize and create new opportunities.
ii. Diversify Resources
Does your business depend on a specific resource to succeed? If the resource in question is you, then you’re definitely not ready to sell.
You will not continue to work at the business indefinitely after you sell it. The same is the case for your staff. If one employee is the driving force of the company, that is a problem if you’re looking to sell.
If they leave the business, they will leave the new owner in a crisis. No buyer wants such a situation. If they decide to buy, they will give you a much lower price.
If you can ensure many pillars support the business, then you have a high chance of selling at a higher price.
iii. Optimize Your Systems
Running your business efficiently should always be a priority. This care and concern should remain the same when you are trying to sell.
Is there a faster way for you to make money? Implement it. Use updated software and optimize procedures.
Tie up all loose ends.
However, do not make any big investment. Just ensure the business is running efficiently. This will make potential buyers want to kick up their price a notch.
The chances of a successful sale will definitely be higher.
4. Find a Business Broker
While you might be great at making the business a success, selling your business is probably not your forte. Worry not. Consider getting outside help in the form of a business broker.
Choose a business broker who has experience selling your kind of business and businesses that are about the size of your company. The broker should charge you a commission only on the sale price. This will increase their motivation to get an excellent price for your business.
The business broker will conduct a business valuation. They will then prepare a prospectus, and a top business broker will have an extensive network to locate a buyer. They will also aggressively advertise the business confidentially.
The best business brokers will also strive to get multiple buyers to make an offer to get you the best price. Experienced M&A brokers will also steer potential buyers to productive financing resources. A business broker will help keep you from making mistakes in a business sale.
Here are a few.
i. Not Planning and Waiting Too Long to Sell
Waiting too long to sell and failing to plan can cause you to miss the window of opportunity to get the best price. Long-term planning is essential in your quest for a successful business sale. Keeping updated records, a detailed business history, and a serious sales portfolio is critical.
ii. Not Finding the Right Person to Represent Your Business
Finding the right broker and consultant to help you sell your business is vital to your success. Do not just go for the first person who offers to sell your business. This can cost you money and time.
Take your time; review multiple brokers who offer you a realistic outcome and have applicable experience.
iii. Not Promoting Your Business
Once you choose a broker and a good one at that, you want to sit back and relax, right? Wrong! You will be instrumental in the business sales process.
You know your business well and understand its strengths and weaknesses. Potential buyers want to hear about the ins and outs of the company, and before they make an offer, they want to hear it from the person that has been running the business. Your passion for the business will help sell it.
The right Business Brokers will weed out the tire kickers so that you can focus your time talking with the prospective buyers that are most likely to give you the highest price.
iv. Asking for Too Much or Too Little
Even after getting your books in order, and preparing your business for the sale, you still need to set a realistic price. A very high price tag can lead you to miss a sales opportunity. Expecting to get the best price for a business with the profit to justify the price can prove to be a losing proposition.
As you price your business, your advisor will consider your industry, the economy, what similar companies have sold for, and the market place.
v. Selling to the Wrong Person
The ultimate mistake during a business sale is selling to the wrong person. The new owner may not have enough business experience, have a poor instinct as a leader, or just lead the business downhill.
Even if you have your reasons for selling your business, you naturally care about your business. Therefore, evaluate your options, and with the advice of an experienced M&A Broker, you can make the best choice for your business’ long-term success.
Getting the right time to sell your business is important. If profits start to decline, your potential buyers may be suspicious and back off of pursuing a deal. You also have to have the right motivation to sell and be ready.
You can discuss your options with a business broker to consider when the timing might be right taking into account how much you need to retire and what kind of price you are looking for.
5. Prepare for the Sale
When you have decided you are ready to go and have begun the process. A Business Broker has marketed it and gotten a few leads.
Here is what they will do.
i. Pre-qualify Your Buyers
This is an important stage to conduct due diligence on your potential buyers.
Do not get overexcited by an offer. Prequalify your buyers. One of the reasons for your deal falling through could be selling into a transaction with a buyer who cannot secure the financing needed.
Also, you probably want a new owner who will fit into the culture of the company. Do they seem trustworthy, and do you think your employees will trust them?
ii. Prepare the Contracts
When selling a business, there are many legal considerations. They include the purchase agreement, which is the legal contract for the sale. It will specify the purchase of the business assets, goodwill, and any intellectual property.
You need to go through each of these contracts with an experienced lawyer. Most business-purchase agreements include a transition period whereas the previous owner; you provide advice in an advisory capacity to the new business to help with the transition.
Your lawyer and the business broker will help you ensure that you make the transition term appropriate for both parties.
Plan Early Enough and Make Your Business Attractive as You Learn More on How to Sell Your Business
If a buyer were looking to build the business from the ground up, they would not be going for the buying option. If you are thinking about how to sell your business, the key is to entice potential buyers with a profitable business that is a well-oiled machine.
Clean up your books, and boost your sales for the highest value.
Contact us to discuss privately the potential sale of your business, and to hire one of our qualified and experienced business brokers.