What You Need to Know Before Selling Your Business
Selling is nearly always a difficult process and at times, it can also be highly emotionally draining. It usually takes longer than expected and one can never anticipate and preempt all the variables that ultimately impact a sale. At best, a sale can set one up financially for life, and at worse, it can result in losing a key asset before it has fully matured. Fortunately, there are steps to ensuring selling your business leads to the highest possible return and happens as quickly as possible.
How to sell a business.
1. Get Your Metrics in Order
In today’s world of big data, nothing speaks louder than metrics. If you want to sell your business for what its full worth, however, you’ll need to sell it based on proof rather than potential. The best way to provide proof is by coming into negotiations armed with data that not only shows what your business is worth but also that its moving in the right direction. In other words, even if profits are not yet at their peak, find a way provide evidence that your business has momentum on its side (e.g., highlight your growing network of customers or rising reputation as a reliable brand).
2. Focus on Profits not Revenue
Revenue can be impressive but don’t focus on revenue alone—what matters to buyers is profit not revenue. Moreover, if you think you can hide low profits with high revenue, think again. Any serious and experienced buyer will likely see through the smoke and mirrors of claims made about high revenues in the absence of on cold, hard facts on profits.
3. Be Honest with Potential Buyers
No business is perfect but a sale is no time to hide one’s imperfections. If you’ve made compliance errors or had troubles with the IRS in the past, assume that these mistakes (and all the other skeletons in you closet) will eventually be discovered. After all, any serious buyer will conduct due diligence and likely find these hidden secrets on their own. Rather than aim to keep your past imperfections hidden, then, focus on coming up with a clear way to explain how these errors were addressed and providing ample proof that these past violations no longer pose a risk to the business in the present. If your business experienced an Occupational Safety and Health Administration violation, be prepared to provide evidence to potential buyers about how you dealt with the violation and made systemic changes to ensure the violation would never be repeated.
4. Don’t Neglect Your Business During a Sale
During a sale, it is easy to let day-to-day business operations slide. In reality, this is the worse thing you can do. Ensuring that day-to-day operations are running smoothly is integral to any sale. After all, buyers are looking for high levels of productivity, steady profits and satisfied customers. Since a sale will take any where from a few months to over a year, neglecting your business during a sale may result in subsequent quarterly losses, and this will ultimately lead to a lower valuation and a lower return when a sale is finally executed.
5. Know What’s Next
Selling can be an emotional rollercoaster, especially if you’re letting go of a business that you’ve built up from scratch and to which you’ve dedicated many years of your working life. If you don’t know what’s next, there is a higher chance that you’ll bring your indecisiveness into negotiations. If you’ve decided to sell, it is essential to know what you’re doing after the sale closely. Whether the plan is to retire, start a new business or reinvent yourself as a consultant, having a viable exit plan is critical. It will enable to enter negotiations with a clear head, decisive stance and higher chance of gaining what you want and need from the sale.
Nate Nead of Investmentbank.com
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