5 Questions to Ask Yourself When Selling a Business
In the next 10 years 72% of Small Medium Enterprises plan to exit, 48% plan to sell to 3rd parties, therefore, competition will be fierce and competition will be putting downward pressure on valuations. The only way to battle this is to prepare, plan and ensure you’re building not only a “valuable” business but a “sellable” business.
The fact is, many business owners have not thought about their exit strategy and lack the answers to critical questions. We hope this can help.
When it comes time to sell, you can choose one of several different options, whether you’re looking to retire or transition:
You could try to sell it on your own while continuing to run your business
This can be an attractive option because there are no broker fees. However, it will take time away from running your business. Have you ever tried selling a house on your own? There is a lot that can come up and you may just want to leave it to professionals who do this kind of thing day in and day out.
You could contact a business broker who can assist you in many of these areas
Business brokers typically represent many different types of businesses and should have knowledge of local laws and expertise on the type of information a potential buyer will want to review. They will place ads, market your business and meet with potential buyers to show your business. However, the new owner will rely solely on you to provide the training and support.
You could partner with a franchise to sell the business
In many cases, a franchise that specializes in your industry is likely to entertain a larger audience of buyers than a broker. Because a franchise would have the training and support systems already in place, a buyer would not need to have industry experience. Additionally, franchises are often able to provide financing options for the buyer, as well as help negotiate the sale. They also coordinate the transition of the business by providing training and support to the new owner.
In order to figure out which option is best for you, here are some questions to ask yourself.
1. When is the right time to sell? Even if you may be thinking about selling a year or two down the road, you need to audit your business with the following lenses: Social trends, Economic trends and Technology trends. We call this audit S.E.T. It could take 3 to 18 months or longer in some cases to find the right buyer. Why not get aligned and get the ball rolling, see what your options are and possibly retire early?
2. What will it cost me? The cost involved in selling a business may vary, depending on whether you choose to sell it yourself or work through a professional. While most brokers will require a commission, they will also market the business for sale, find a qualified buyer and assist you with the closing transaction. Our listings start at $150 for 3 months of promotion, whereas a brokers commission can be anywhere from 8% to 12% of your selling price.
3. What information will a buyer want to see? Preparing solid and clear financial information will help show value and justify an asking price to a buyer. Are sales increasing or decreasing? Is your equipment owned or leased? What are the monthly expenses of the business, payroll etc.? Buyers will expect to see certain information to evaluate the business and to determine a fair price. Some of the information a buyer may expect to see includes:
- A detailed overview of the business
- Profit and loss statement for the last 2 or 3 years
- Tax returns for the last 2 or 3 years
- List of equipment
- List of employees and pay structure
- List of monthly business expenses
4. What do I do once my business is up for sale? Here’s a question too few people ask. Just because your business is for sale and you’re retiring, this doesn’t mean it’s time to sit back. It is important to at least maintain the business. Maintain quality and service that you provide, run it like you normally would. Make sure it’s clean, presentable and attractive. Adding equipment or changing employees is not recommended. Adding expenses can be a red flag to a potential buyer and to the business valuation.
5. How will the buyer be trained? As in any service business, relationship building is key. How will you help the new owner maintain and flourish these relationships? Many buyers as a condition of sale require the owner to stay on to train and assist with the transition of ownership, this is known as the “transition period”. This period can be as little as 1 month to as long as 1 year depending on the size of the business.
Selling a business is not an easy thing to do alone. Finding the right buyer can take a lot of time and resources. As a business owner your time is certainly limited. By seeking guidance from an experienced professional, you can put yourself in the right position to sell your business in a timely manner, gracefully, for a good price and ensure the continued legacy of the business you worked so hard to build. However, if you believe you can sell your business on your own, ensure you have a solid acquisition team. An acquisition team should consist of an accountant, lawyer and corporate banker.
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Opinions expressed here by Contributors are their own.
