Selling your business is never going to be an easy process. It’ll take longer than you expect, and could be more complicated than you anticipate.
However, if done correctly, it can set you up financially for the next step in your life – whether that’s retirement, another business venture or something else. Here are five things you need to know to get the best deal possible from the sale of your business.
1. Buyers want proof not potential
It’s common for a seller to be emotionally attached to their business and feel sentimental about the sale. After all, in many cases they have started from scratch, invested their life savings and watched the business grow as a result of their efforts.
However, many sellers erroneously believe their business to be a potential goldmine, overvaluing it and expecting a high price based on potential alone.
To avoid this pitfall you should take a step back and think like a buyer.
- What would you want in a prospective acquisition?
- And what kind of evidence would you want from the seller that it can fulfil these criteria?
If your sales pitch is largely predicated on potential rather than profit – for example if profits are slim but you’re banking on a new product that hasn’t yet been tested with your customers – your business will seem like a big risk and of questionable value to a buyer.
Most will prefer an established concept with proof of success – namely an established customer base and several years of healthy profits.
2. Profits are interesting, not revenue !!
Leading on from the previous point, the best way to tell if a business is successful is to look at the profits. High revenue may seem as impressive to sellers, but it’s a common misconception that it’s equally as important to buyers.
There is no point in buying a business based on revenue alone; what’s really important is profit. Without profits you can’t invest in your assets to power growth or pay yourself a reasonable wage.
3. Honesty is always the best policy
There’s no such thing as a perfect business. Every business is going to have its positives and negatives and there’s no point in trying to hide the latter.
The buyer will conduct due diligence checks to search for any ‘skeletons in the closet’, so it’s better that you lay all the business’s problems out on the table before they uncover them themselves.
This builds buyer confidence and trust, saves embarrassment and minimises risk for both parties. Honesty is always the best policy in any business sale, including for the seller.
4. You’ll need to keep running your business
It’s likely that this will be the biggest transaction of your life and one of the most important business decisions you ever make. You’ll be forgiven for focusing much of your attention on the sale, but you need to keep up the day-to-day running of your business too.
Neglect this side of things and you’ll jeopardize customer goodwill and profits, undermining your business valuation and strength of your negotiating hand. Take the time to ensure your business is running smoothly right up until handover to a new owner. It’s simple: if your business is still booming, buyers are more likely to pay a premium price.
5. And have a plan for what’s next
As a business owner you have probably lived and breathed your business, so it’s not surprising that many sellers are left thinking “what next?” A common mistake is to devote every minute of your time and all your energy to the sale, forgetting to think about what happens afterwards.
To maximize your personal gain and exit without regret, envisage your life afterwards, make a plan and be clear about what you want to do – whether it be going into retirement, starting a new business or otherwise making the most of your time doing something you love.
Having an eye on your future will not only motivate you to get the best deal possible, but possibly inform your negotiating stance too. So you might accept a deferral of part of the price to secure a higher total price, but not if you need to swiftly finance another venture.
By Melanie Luff, Online Journalist Melanie writes for all titles in the Dynamis Stable including PropertySales.com and FranchiseSales.com.