3 key items to think about when you are selling your business
So often in thinking about selling a business we think about the ‘Process of Selling a Business’, ‘Am I ready’, or ‘Do I have the right Broker’. It is easy to lose sight of a couple of key items in selling our business that influence how you may look to a buyers; keep these three things top of mind as you think about or begin to sell your business;
Remember when you first started your business- all the energy you had, all the time you would put in, and all of the enthusiasm you brought. When you’re selling your business, you need to bring the same attitude when you first started your business. Your journey may be ending but it is another person’s time to be excited and to dream about where they are going to take the opportunity.
It is easy to allow your mind to drift to the next steps in life post your business but the easiest way to get there is to take care of the task at hand- selling your business. Potential buyers, as well as brokers who represent your business, will want to see the enthusiasm you have and what their day look like going forward running the business you’re selling.
2. Think Transition versus Business Sale
Imagine you’re the buyer of your business- what would you want;
- Smooth transition of the business or
- Just take over the business and then have to figure out all the unforeseen road bumps ahead
Dare say that nearly 100% of buyers will want to be able to access the former entrepreneur of the business on navigating road bumps or problems they have over set time period. Carefully think about the transition plan that the buyer will want for your particular business. What are some of the key headaches that you have faced in your business and how can you educate the purchaser. Alleviating what may seem like small headaches can actually be big barriers in the purchaser’s decision to buy your business. Items may seem small to you because you know all the answers in detail and have been working through them for a number of years.
A couple of ways you can ensure a smooth transition is to do the following;
- Outline the transition timeline you are willing to work with a new owner
- Put together a transition document that outlines all the key items you would want to know if you were to buy your business. Think of a simple procedure manual outlining the key items to run your business
3. What you need to know versus what you want to hear
When seeking advice on selling your business come prepared with all of the questions you have and all of the information that you’re seeking to know more on. Do not skip over any question you have, just like you are educating a purchaser on your business you need to be educated by a broker on the process of selling a business. Be open to hearing advice and be clear to an advisor that you want to hear what you need to know not what they think you want to hear.
Great advisers want to bring the best of their knowledge and expertise to clients and to set realistic timelines and expectations from education, past dealings, and learnings. Let’s give the most obvious situation, what do you think your business is worth versus a business broker and how can the gap be bridged?
Let’s give an example. Step away for a moment from selling your business; have you ever sold a house you owned before. Did you disagree with your listing real estate agent on the advice they gave you on the price they thought you should list your house for sale?
If you did disagree with your real estate agent you most certainly thought your house was worth more than their advice (not surprising). Your disagreement likely seemed large but, on a dollar and percentage basis the gap was not outrageous. IE. You wanted to list your house for $250,000 versus $225,000 recommended by the real estate agent. The great thing about selling a home is there are a number of market comparable that can used to provide a range of value.
Now let’s think about selling a business; the majority of businesses have market comparable but each business has unique attributes. Unlike real estate the majority of ‘operating businesses’ do not derive their value from real estate rather cashflow from selling products or services. For operating businesses information may not be as abundant as the real estate market and in order to reflect the unique attributes a variety of valuation methodologies are used. The point being is valuing a business is not always easy, as well as other elements of the sales process, so allow yourself to be educated and to reflect on insightful advice and what you need to know.
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