After a couple of years of pandemic stress, business owners are pondering their next steps. You might be an owner who has decided that perhaps you have benefited from the crisis, had some great years, and now are ready to move on. Maybe you have realized that you don’t want to deal with the stress of lockdowns and crisis management, but feel that you have built something that is valuable. Possibly you are a boomer who has put in your 30 or 40 years of work, and would like to spend more time with your grandchildren. Perhaps it's simply time to unchain yourself from a business you feel is holding you back from your next adventure in life. Whatever the reason, there are some things you should know about selling your business.
1. Businesses are harder to sell than your house! While the average time to sell a house right now might be a matter of days, according to most business brokers the average time it takes to sell your business is around 9 months. When selling a business, it’s the hurry up and wait scenario. Sellers once they have made up their mind to sell, want to put their business on the market and move on. Unfortunately, there is a lot of work to get a business ready to sell and then it’s a waiting game.
2. Buyers want to know that your business is profitable: When you are selling a house, the buyers want to know if the furnace works, and that the roof doesn’t leak. When you are selling a business what buyers want to know is if your business actually makes money. Unfortunately, according to the National Federation of Business, in the United States, only 40% of businesses are actually quite profitable. Of the other 60% roughly half are only marginally profitable where the owners are only making wages, and the other 50% lose money each year. Who wants to buy a business where you have to dump cash into it? Probably not you! If you are selling your business you need to take into account all the benefits you are receiving and recalculate your statements to show those benefits. Without profits, buyers have trouble justifying putting good money out for a bad business case.
3. You need to provide a path to a bright future: As sellers of businesses, we often forget that just as we are tired and want to move on, the buyers are looking at your business with fresh eyes that want to be full of promise. You need to think about all the ways that your business could have a brighter future and document those ideas, so that buyers can see the path to prosperity. A business without a future is no business worth buying! Simply ask the past owners of Blockbuster Video when their sales were declining after the invention of online video streaming services like Netflix!
4. You might not get a million dollars! Often when I ask small business owners how much their business is worth, they mention a number around a million dollars. Unfortunately, most small businesses are not very valuable. To get over a million dollars for your business you need to show that your business has sales of several million dollars a year and is paying shareholders like yourself hundreds of thousands of dollars each and every year for the past few years. Often business owners think that their business is much more valuable than it is because they have put their blood, sweat and tears into the business and believe that prospective buyers should see value! The reality is that buyers need to be able to pay for their investment. Blood, sweat and tears don’t keep bankers happy!
5. Change can be difficult for everyone including you. There is a saying that “a dream without a plan is just a dream”. Retirement for business owners is often just a dream as well. I have worked with numerous business owners who have thought they wanted to exit their business and then realized that they were reliant on the cash flow that the business provided. They have discovered that all their friends were either staff, customers or suppliers. They have found that due to their long hours in the business, they had few hobbies to fill their time after they sold. Having a plan filled with some activities, trips, or tasks is necessary for business owners to happily exit.
Additionally, many business owners are rightfully worried about what their employees will do with new owners. You can bet that there will be some changes in HR after you are gone. Some of these changes will be positive for your team and others might be more difficult. A new owner is going to have ideas of what they need to do to improve your business and some of them might revolve around managing employees differently. This can be a difficult pill for long standing employees to swallow and some will feel the need to move on.
Selling a business is no easy walk in the park, there is considerable hard work to prepare your business for a new generation of ownership. Imagine if you wanted to sell your house and you haven’t cleaned it for years. Getting a house in tip top shape to get top dollar often takes months. Getting your business ready and in tip top shape can take years. Start now. Work on ensuring that your business is profitable, your systems are documented, the business doesn’t rely on you for its success, and that there is a clear path to a brighter future. If you can manage these things, you will be in good standing should the right buyer come along.
Dave Fuller, MBA, is an Award-Winning Business Coach and has sold a number of businesses for himself and clients. Think buyers should know something else? Sell Dave on a different idea! Email email@example.com