Selling a business is never an easy or simple process. However, the rewards can be great and ultimately, life-changing. So, if you do decide to sell, here are nine top tips you need to be aware of that will help you to prepare and maximise your chances of success.
Selling a business is a multi-faceted process. How do you determine what its worth? How do you find a buyer? How do you keep your competitors, customers and employees from knowing it’s for sale? What are all the steps involved?
Selling or Not Selling? That is the Question
- Most people don’t set up in business with a plan to sell. Yet it’s always a good idea to consider your exit plan when going into a business. Having your exit mapped out is all part of a good business plan. A well-thought-out exit strategy can help you to maximise the value of your business and successfully market it to potential buyers or investors.
- Plan for growth and plan for exit; they are closely related. The future of the business should play a part in the decisions you make along the way. When signing a long-term contract, perhaps for equipment, office space, etc., think realistically about how long you plan to continue running your business so you don’t spend or use more than is necessary. You can always renew!
- When you start a business you pour your heart and soul into it. You build the business into a small empire and then a bigger one. Remember that in doing this, you are also adding value to the business. Instead of letting the business slow down when you have lost the energy, time or enthusiasm to pursue it further, make the most of the business by selling to a fresh owner who will benefit from the fruits of your labour and be happy to pay for the privilege.
Planning your exit
- You have built up a successful business, but with your exit strategy in place, how do you know exactly when to cash in and move out? There are a myriad of reasons why an owner might want to sell their business. It could be that you would like a change in pace, perhaps it’s ripe for growth and needs someone new to take it forward, or that the rewards no longer seem to outweigh the risks or the work involved. Personal circumstances may mean you’re not able to run the business as you could previously, or you may simply want to reap the benefits of all that work and time you’ve invested. Whatever the reason that drives an owner to seek a buyer, the big questions remain the same: How can you ensure you get the best price? And is there a right time to sell? Ideally, your business should be on the up when you offer it for sale, with growing profits, reinvestment and employment opportunities and new markets, geographies or product lines.
- The business has a value and this is calculated from the income and profit over the previous years. Unfortunately, sentimentality and the personal value you hold for the business must be left at the door. However, client‘s opinions and testimonials can go a long way to showing the true value of a business. Knowing exactly how to value a business yourself is not required, but an understanding of what buyers will look at and how it impacts the value, is critical.
- The sales and income should show a consistent growth year-on-year. Any glitches or seasonal trends should be explained, so that potential buyers have a realistic idea of the income of the business.
- The profits are used to calculate the valuation of the business and your accountant can abridge the accounts to remove any personal or one-off expenses, thereby leaving the actual profit which would be relevant to a new owner. Using a professional to help you create your income growth report will help present a much more professional document than if you attempted this yourself. While balance sheets and perceptions are both important in the valuation of a company, the success of a sale usually comes down to one thing: price. Valuing a business has been described both as an art and a science.
- The property whether Freehold or Leasehold plays a part too. The term of any lease and the rental charges are extremely relevant to the valuation of a business and how lucrative it may be for a purchaser, so be sure to disclose all of this information to potential buyers or your commercial business transfer agent. Any property forming part of the business is a valuable asset and the valuation of this is generally based on comparable evidence of those properties sold nearby. Where a property (either leasehold or freehold) is part of the sale, the property should be shown in the best possible light to prospective purchasers. It should be:
- Well-maintained. If renovations are required this will affect the value.
- Free of clutter!
- There comes a point in a negotiation when all has been said and agreed, and the deal needs to be closed. Negotiations will involve figures and proposals going back and forth, as deal-makers test one another’s mettle. Always remain humble, never be arrogant and focus on keeping the relationship going. Having other partners in the background with whom you can occasionally confer is also useful. Put some distance between yourself and the deal, having an independent business broker allows you to keep this distance.
I hope that this blog has been helpful to you. I’d love to know if you have any top tips if you’ve been through the business sales process yourself in the past.
If you enjoyed this post, have a read of my other blog posts here.