Entrepreneur.com has a great article on selling a business. They offer several suggestions and a few issues to be aware of as you enter into this potentially exciting, always stressful and often frustrating time for you and your business. As I tell me students, I had a full head of hair before we began the process that finally resulted in the sale of our business (see picture on this blog site to see the humor in this joke!). We went way down the road toward a sale twice before it finally occurred on the third attempt.
Here are the main suggestions that David Worrell offers in this article:
1- “It’s never too early to start thinking about selling. ‘The day you start building a business is the day you should start designing your exit,’ says Minor, who has counseled thousands of business owners through the process.”
I tell folks that if you are planning to sell your business in five to ten years, you should consider this short-term planning when it comes to an exit. Decisions you make today can have a huge impact on the options for selling your business and the price you get for its sale years from now.
2- “A business will fetch the best price only when buyers believe they can take advantage of significant future growth potential.”
Most businesses are valued based on some multiple of current cash flow. The size of the multiple is, in part, on growth potential for the business. The more future growth that is anticipated from the business, the higher the multiple and therefore your price.
3- “(H)aving a Plan B is a vital step in the sale process….Having a strong and visible alternative makes any acquirer sit up and take notice.”
As my father, the wise entrepreneur, always reminded me, “Never sit down to negotiate unless you are willing to walk away from the table”.
4- “A strong team, clear policies and procedures, and a broad customer base are the underpinnings of value. The business should not just run without you, but be positioned to grow without you.”
Most entrepreneurs want to leave their business sometime soon after a sale. And most of those who do not think they will want to leave, end up leaving fairly soon after the sale any way.
5- “While you’ve been focused on selling the company, who’s been making sure the company stays focused on selling your product?… Many deals have been quashed when financial results from the last month or the last quarter are off target. Even if the buyer doesn’t walk away, the price is likely to take a last-minute tumble.”
Also, the majority of deals never make it to closing and as many as half that do get to closing, actually never close. Since you may end up keeping your business much longer than you anticipated, make sure it is running well.
6- “The amount of disclosure that buyers require can be mind-boggling. Putting it all together in a reasonable fashion is just one reason to consider hiring outside help. An intermediary, such as a business broker or an investment banker, can relieve you of some of the work while also keeping the buyer engaged.”
Selling your business is not a time to cut corners in costs. It is a complex process that can come back to haunt you long after any sale due to the warranties that you will have to provide. Hire good help!
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