Here are some tips for getting the full value of your business in a sale.
Business owners work hard for many years building a successful business. The rewards can be worth the effort, but only when they sell their business do they finally realize the full value of their investment of time, effort, and money. To sell a business for all it’s worth, business brokers commonly recommend these steps.
1. Have a valid reason to sell.
Prospective buyers will want to know why you’re selling. Their fear is that something is wrong with the business. Having a valid human reason for selling is your best first step. You will get a better buyer response if there isn’t any reason to doubt the viability of the business.
If you’re just tired and burned out, say so. The most common reasons for selling are burnout, retirement, poor health, death, divorce, partnership disputes, relocation, and pursuit of other interests.
2. Don’t wait until pressured to decide to sell.
Deciding to sell your business will be one of the most difficult decisions you’ll ever have to make. Many people wait too long to decide to sell and find themselves pressured by poor health, financial problems, or emotional stress. Avoid, if at all possible, selling under duress.
It will be like giving up one of your children, but make the decision before circumstances force you to make it. Businesses generally take from 120 to 180 days to sell. Often it takes longer, so allow yourself plenty of time.
3. Maintain confidentiality.
One of the biggest mistakes made by sellers is telling people the business is for sale before it’s a done deal. When one sells a home or a parcel of real estate, they want everybody to know it’s for sale. There is no stigma attached to selling a home. Everybody does it.
But it’s different with a business. The rumor mill starts grinding when word gets out that a business is for sale.
Customers are afraid they won’t be served. Employees are anxious about their jobs. Suppliers fear they won’t get paid. Competitors tell everybody that you’re going out of business. Sales slip; profits shrink.
Buyers perceive your business is in trouble, and that drives down its value. Talk to prospective buyers only, and require them to sign a confidentiality agreement before they know the name and location of your business.
4. Gather information needed to market your business.
Your business must be marketed and sold just the same as any other product or service. Put together a marketing package that shows your business in its best light.
Assemble complete financial statements, income and sales tax returns, a list of fixtures and equipment, copies of deeds and leases, copies of any franchise agreements, copies of equipment leases and maintenance agreements, the approximate value of inventory at your cost, and the names of your outside advisors.
In addition, you’ll need a list of all loans showing the lender, the balance due, the interest rate, and the payment schedule.
5. Use competent professionals.
Unless you’re an experienced negotiator, it’s recommended you engage professionals who know about the sale of businesses. Find a business broker with experience in marketing and selling your type of business.
6. Be part of the marketing team.
The broker may ask you to meet with the sales staff and tell them about your business. If the broker doesn’t ask, volunteer to make a presentation to the brokers and to answer all their questions. You know your business better than anybody knows it.
Follow your broker’s advice about dealing with prospective buyers. Some of the suggestions may seem odd to you, but there is a reason — you want to maintain confidentiality, and you want to get some offers to buy. An experienced broker will help you do both.
7. Don’t let things slip.
Don’t let things slip because you’re selling. Keep normal business hours. Keep inventory constant. Advertise and promote the business to keep sales strong. Paint up and fix up. Make the business look as prosperous as it ever has.
8. Put yourself in the buyer’s shoes.
Suppose you’re visiting your business for the very first time. How impressed are you? How does the place look? Are your people friendly and helpful? Do the customers you speak to have good things to say about the business, its employees, its products, and its service?
9. Consider all offers carefully and make counteroffers.
Don’t panic if the first offer you receive seems too low. Be patient. Keep the ball rolling once an offer is made. Study it carefully. Make a counteroffer. Even if you decide to market and sell your business yourself, it can sometimes be profitable to hire an experienced broker or attorney to negotiate the terms. Don’t allow your emotions to stifle your objectivity.
10. Create a win-win situation for everybody involved.
There are no strict rules about selling a business. It will be worth to you what you can get somebody to pay you for it. As in all areas of life, there must be something of value for everybody in the transaction.
When you set out to sell your business, ask yourself: Will it be beneficial to all concerned?
This example from my own experience as a business broker illustrates a healthy compromise. When the final offer was too low, I suggested to the seller that he not sell his building, but lease it to the buyer instead. That resulted in a quick sale.
The seller benefited in three ways by making it easier for the buyer to close the deal: (1) he got 20% more for his business; (2) he receives a monthly rental check; and (3) the value of his building increases every year.
The buyer benefited because he was able to buy the business although he couldn’t afford to buy the building.
If your deal benefits all concerned, you’ll probably sell your business for all it’s worth.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Harvey L. Gardner is an author, business consultant, and freelance writer. Copyright 2005 Harvey L. Gardner.