Selling your business can be exciting and scary at the same time. Often business owners are not sure what to expect. Typically, it takes much longer to sell a business than it does a house, up to a year in some cases, however under the right conditions when you have taken the time to prepare your business, the sale can be much faster.
How Much Can I sell my Business for? This is what you really want to ask. The truth is that most businesses don’t sell. They are shut down by the owners or sold for their assets. When businesses do sell, they typical price according to John Warrilow author of the book Built to Sell, is 3.76x pre-tax profits. Now depending on the industry that your business is in, there is a rule of thumb for what your business will sell for. In order to actually sell your business, you need to have what buyers are looking for.
What Buyers are Looking For:
Buyers of your business are going to be looking for a number of things that will enable you
to sell at a reasonable price. These include:
a. Profitability – Buyers want a business that is profitable and has a history of making money for the owners. Its difficult to buy a business if you are not going to be able to pay for it from the proceeds. Typically, buyers want to see 3-5 years of financial
reports.
b. Reoccurring Revenue: Buyers want to see that your customers are returning on a regular basis and that you have a systematic way of tracking their business.
c. Growth Potential: People buy businesses because they believe they can make more money by improving your systems or by growing your business. Without this growth
potential its difficult to convince buyers that they should buy what you are selling.
d. Focused Business: When a business starts to decline its difficult to turn around. Keep
your pedal to the metal while you are considering your exit from the business.
e. Systems: Buyers want to know that there is an order to the business and the company
does not rely on the owner for being in the business and controlling every aspect of it.
An Overview of the 15-Step Business Sale Process
Below you will find the 15 steps that it takes for business owners to move through the
selling process from Biz Owner Communications a business brokerage company in the USA.
It’s a great little list of what you might expect as they sell their business. If you are
considering using a business broker, typical fees will run from 8-15% of the selling price.
1) Work with your advisors to develop an exit plan:
Consider your personal goals, your financial goals, your current financial situation, your desired legacy, the approximate current value of the business and your estimated desired time frame for your exit
Develop a contingency plan to be implemented in the event of your premature death or disability
Consider tax implications and implement required changes to minimize taxes
Determine your exit options (i.e. a sale to a third party, transition ownership to family
members, etc.)
2) Identify obstacles to a successful sale and implement plans to overcome the obstacles
3) Make improvements to increase the value of the business
4) Make the decision to sell your business
5) Interview, select and sign an agreement with a business broker or merger & acquisition
(M&A) intermediary
6) Determine the fair market value of the business, your asking price, your desired terms and
deal structure
7) Prepare the business for sale (hopefully much was accomplished previously when making improvements to increase its value)
8) Market the business confidentially through the business broker/intermediary
9) Meet with prospective buyers prequalified by the business broker/intermediary
10) Evaluate any offers or letters of intent received
11) Negotiate a preliminary agreement with acceptable terms, structure and contingencies
12) Cooperate with and survive the due diligence process conducted by the buyer. This can be and long and onerous process, however the buyer needs proof that the business will survive without you.
13) Work with your advisors to modify and approve the definitive legal documents used to
transfer ownership of the business
14) Close the sale (yeah!!)
15) Provide post-closing training of the buyer and invest your net sale proceeds
It is really more than a 15-step process
Much as step #1 above has 4 sub-bullets, the other steps could also have multiple specific action items. In fact, the four sub-bullets within exit planning could have additional sub-bullets themselves. The list above could easily be 50 deep, or even 100 deep. It is just a matter of how much detail is provided. As an overview, however, 15 steps adequately describe the process.
Final Thoughts:
Recently I was approached by the owner of a business who wanted to get out of his business because it was too stressful. He had just opened the business a few years before and was just starting to enjoy the fruits of his labors. In talking to him he realized that, it was his wife who wanted out. She wanted to step back but he was enjoying his success. When you are considering selling your business there are a number of other things that you should be thinking about. These include
Am I being pushed from the business or am I being pulled? In other words, am I leaving the business because of the stress, lack of money, hours, or people in the business? Am I being pushed out by these factors? If so, you might want to slow down the process and figure out if you can fix the problems and enjoy the fruits of your business.
Pulled means that there are other things you want to do with your life that seem more compelling to you than what you are enjoying from the business. This might be spending more time with friends and family, travelling, investing etc. Owners who sell their businesses without a clear plan of their future often have significant regrets.
Understanding the factors that are driving you to sell can help you in the future. You don’t want to look back in a year or two and regret that you sold the business you spent so much blood, sweat and tears building.
There Are Different Ways of Exiting: Often business owners think that their only option to get out of the business is to sell it straight out. Often this can be difficult. Consider other options including:
- Selling to family or employees
- Holding some equity in the business and taking on partners
- Selling but financing the business
- Selling the assets but not the company
- Hiring managers to run the business so you can enjoy some income
Bring in the Professionals: Selling a business can be complex, you will need to work with your lawyer and your accountant to ensure that the process is smooth and you take the approach that is going to make the best sense for you in the future. Often a business coach or business broker like someone from our team can come along side of you and help the process along.
Don’t leave your Exit Strategy until the last minute: its difficult to sell a business if you
are sick or if you have already checked out. You don’t want to leave this process until its too late. Being prepared and understanding what is needed to exit your business will allow you to sell quickly and ensure that you have a plan that works for you and your family.
Reach out if you need help!
Preparing to exit your business can be difficult and challenging to you and those around you. Typically, we work with businesses that have between 5-50 employees. We help them in a number of ways.
1. Plan Strategically for Success
2. Understand Profit Potential and fill profit holes.
3. Develop your Organization and Management Team for the future
4. Systemization to Reduce Stress Levels and create a business that is not dependant on you.
5. Create Value so you can exit when you are ready.
If you have any more questions or need some help in preparing your business to be ready for your exit, I encourage you to reach out to us. We are more than happy to talk to you to see if there is any value in us working together and give you some tips on what you can do to maximize your return.
Dave Fuller, MBA is an Award Winning Certified Professional Business Coach and the Author of the book Profit Yourself Healthy. Dave is also a member of the International Business Brokers Association. Question or comment email dave@pivotleader.com