The successful sale of a business requires preparation and knowledge to achieve the best result in the shortest time. Every business is different and therefore deserves a different level of attention. There are some important points that need to be considered not only for a good sale, but also for a smooth transition for the new owner.
Timing of the year
It would be easy to think that the best time to sell a business is tax time. In any business, there are busy times and not so busy times, and it’s always better to sell when cash flow is positive. However, there is no blanket model. If you sell a small business when your revenues and cash flow are healthy, you’ll find the right buyer more quickly.
Size of the business
It’s a misconception that the smaller the business, the easier it’s to sell. The truth is that there are buyers for all types of businesses – it just requires a different marketing approach. The difference is in how it’s marketed. Lower-end businesses will attract potential buyers through advertising, while larger businesses are generally sold by knowing who is looking and approaching them directly. The smaller companies generally appeal to first-time buyers. They generate enough income to employ people and grow the business. The higher end companies are often bought by existing companies that have access to capital and have already gained experience, so they don’t see any risk.
Customer Retention
Maintaining a solid customer database will obviously help sell your business. It’s cheaper to keep an existing customer happy than to acquire a new one. However, there is always the fear that customers will leave if it becomes known that the business is for sale. Don’t panic. There is a solution to deal with this problem – the secret is to do “business as usual’. When selling, the willingness of the previous owner to stay for 6-12 months is important. Even if it’s only a few hours a week, this will help make the sale and transition smooth and seamless. It’s best to make the sale and transition gradual. This gives the previous owner time to introduce the new owner to customers and gradually get them used to the idea of change. This is easier than you might think, because often the previous owner is selling to retire. He or she’d be only too happy to retire gradually.
Technology and data
Another misconception is that you must have the latest technology to sell your business. It’s not a barrier to selling. Newer companies are more likely to go paperless, but there are also many companies that have been in business for many years and still use traditional data storage solutions. Each company has its own system, and generally buyers expect to integrate their own systems when they buy another company.
Sales
Sales numbers can be an issue when selling. But again, it’s manageable. An older company may not have increased its sales in years and might now be considered too cheap. The buyer will certainly want to increase the company’s sales, but needs to understand that it can’t happen overnight. It takes a little time to successfully launch a new business, so it’s more about managing the buyer’s expectations and making the transition gradually.
Look ahead
When putting your business up for sale, it’s important to look ahead. Potential buyers will naturally look at past financial performance, but it’s important to highlight the company’s bright financial future.
Perhaps you’ve recently acquired new customers, introduced new technology, or hired more employees. Anything that could potentially increase your revenue in the months and years ahead should be highlighted.
Mitigate the risk
No problem is insurmountable when it comes to selling a business. It’s important to put emotions aside and remember that most things are negotiable. You can almost always mitigate the risk.
It just depends on how you structure the deal. For example, maybe 25% of your business comes from just one customer. A potential buyer would easily worry about what would happen if that one customer left the business. This can be avoided by keeping the current owner on a casual basis for a few months until you’re sure the customer is comfortable with the change. Alternatively, the buyer can initially come on board as a partner to help the company sell.
Internal succession
Is there someone in your company who would like to take over the company? At first glance, this may seem like an enticing offer, but it is important to consider the proposal in its entirety. Again, it’s time to put emotions aside and look at the proposal from a purely business perspective. Does the person in question have the resources to buy the company at the price you are asking? Does she have the knowledge, experience and leadership skills to run a business? Do you have the time to coach them? Sometimes it is better to market and sell your business to someone with whom you do not yet have a relationship.
Preparing for the sale
As with any business sale, preparation is key. The better you prepare, the better the outcome. Start planning for the sale 6-12 months in advance so you can evaluate your performance and make any necessary changes or improvements to make the business more attractive to a buyer. Important items to consider are your customer base and retention, sales, staff and labor contracts, and any leases or licenses. Consider what makes your business superior to others. Put yourself in the shoes of a potential buyer and consider what would make the business attractive to you. It goes without saying that your attorney and financial advisor need to be involved from the beginning to ensure a successful sale. It’s also important to consider how you plan to sell your business. Remember that a business broker who specializes in businesses in your industry may already be waiting for potential buyers.