Selling any business successfully takes preparation and knowledge in order to get the best result in the shortest time. Every business is different and therefore, deserves a different level of attention. There are several key issues that need to be considered not only to ensure a good sale but also a smooth transition for the new owner.
Time of year
It would be easy to think that the best time to sell a business would be during tax time. Any business has busy and slow periods, and it’s always better to sell when cash flow is positive. However, there’s no one-size-fits-all model. Selling a small business when your revenue and cash flow are healthy will attract the right buyer quicker.
Size of the business
There’s a misconception that the smaller the business the easier the sale. The truth is there are buyers for all types of businesses – it just requires a different marketing approach. The difference is how it’s marketed. Businesses in the lower bracket will attract potential buyers through advertising while the bigger businesses are generally sold by knowing who is looking and approaching them directly. The smaller businesses appeal to first-time buyers generally. They are bringing in enough income to employ staff and grow the business. The businesses in the higher range are often bought by existing businesses that have access to capital and have done it before, so they see no risk involved.
Maintaining a strong database of clients will obviously help sell your business. It’s cheaper to keep an existing client happy than it is to get a new client. However, there’s always a fear that when news gets out that the business is for sale, clients will leave. Don’t panic! There is a solution to manage this issue – the secret is to keep it ‘business as usual’.
When selling, the willingness of the existing owner to stay on for 6-12 months is important. Even if it’s just on a casual basis for a few hours a week, it will help make the sale and the transition smooth and seamless.
It’s best to handle the sale and the transition in stages. This gives the existing owner time to introduce the new owner to clients and gradually get them used to the idea of change. This is easier than you may think because often, the existing owner is selling in order to retire. He or she would be only too happy to ease out gradually.
Technology and data
Another misconception is that you must have the latest technology in place to sell your business. This isn’t a deal-breaker. Newer businesses are more likely to be paperless, but there are plenty of businesses that have been operating for many years and still use traditional data storage solutions. Every business has its own system and on the whole buyers expect to integrate their own systems when they buy another business.
Sales figures can be an issue when selling. But again, it is manageable. An older firm may not have increased its turnover in years and could now be considered too cheap. The buyer will certainly want to increase the firm’s sales but must understand that it can’t be done overnight. It takes a little time to successfully introduce a new business so it’s more about managing the expectations of the buyer and doing the transition in stages.
When marketing your business for sale it’s important to look ahead. Potential buyers will naturally look at past financial performance, however it’s crucial to highlight the organisation’s bright financial future. Perhaps you have recently sourced new clients or introduced new technology or taken on more staff. Anything that could potentially increase your turnover in the coming months and years should be highlighted.
Mitigating the risk
No problem is insurmountable when it comes to selling a business. It’s important to remove the emotion and remember that most things are negotiable. You can nearly always mitigate the risk.
It’s all to do with how you structure the deal. For example, perhaps 25% of your business comes from just one client. It would be easy for a potential buyer to worry about what would happen if that one client left.
The way to overcome this is by getting the existing owner to stay on for a few months on a casual basis until you are happy that the client is comfortable with the change. Alternatively, the buyer may come on board initially as a partner, thus easing the firm into the sale.
Is there someone in your company who is keen to take over the business? At first glance, this would seem an attractive proposition, but it’s important to consider the proposal on all its merits.
Again, it’s time to remove the emotion and consider this from a purely business point of view. Does the individual concerned have the means to buy the business at your asking price? Do they have the knowledge, experience and leadership skills to become a business owner? Do you have the time to coach them?
Sometimes it’s better to market your business and sell to someone you have no previous connection with.
Preparing for sale
As with selling any business, preparation is the key. The better you prepare the better the outcome. Start planning the sale 6-12 months in advance so that you can evaluate your performance and make any necessary changes or improvements to make it more attractive to a buyer.
The important issues to consider are your client or customer base and retention, your turnover, staffing and employment contracts, any leases or licences. Consider what makes your operation superior to others. Put yourself in the shoes of a potential buyer and consider what would make the business attractive to you.
It goes without saying that your attorney and your financial adviser need to be involved from an early stage to help you successfully navigate through the sale. It’s also important to consider how you will sell your business. Remember, a business broker who specialises in businesses in your industry may already have potential buyers waiting.