At some point during an entrepreneur’s professional career they will consider selling their business. However, the main concern they would have would be how much profit they could make from selling it. There are several ways to sell a business whilst making a good profit and many of these methods are tried and tested. Selling a business effectively is not simply about how you market or advertise it, but how you present your business to prospective sellers.
The highest selling businesses sold all over the world have one thing in common– the owner doesn’t believe in luck; rather he would deliberately develop a successful business that gives a good return on investment. By incorporating beneficial and smart strategies into your business operations, you can attract many buyers and by running your business better every day, keeping it at a high standard, you will be able to sell it.
If you are considering selling a business and require some useful and practical advice to minimize the chances of losing money, here are some methods, techniques and tips to help you sell a business faster, easier and with less hassle. In this article, we will also be addressing business value creators and destroyers, daily practices to maximize profits and a few myths to make your business stronger even if you’re not selling it right now.
1. Get Your Record Books in Order
A recent report from Citibank Small Business Pulse confirms that more than 25 percent owners of small-business believe to sell their firm as an ultimate exit strategy. The attempt of selling a business for maximum value involves scouring through records. Before making a deal, serious buyers want to see proof of profit and real or potential business growth. To gain buyers’ attention, a business owner must consider continuous auditing finances, which can be expensive for them, but makes their business more attractive and authentic.
Don’t delay in getting your financials audited, even if you’re planning to wait another year to sell. It is important to know your business records, you need to track your sales and marketing campaigns such as if your ads are paying off, as well as the number of customers and costs on each lead.
2. Protect Your Interests
In the case of giving buyers any business information of a confidential nature, always make sure that you protect your interest, integrity, and value of your business by having all parties sign a ‘Non-Disclosure’ (Confidential) Agreement. Such documents can be found on the internet that will protect you from any buyers, leaking your confidential information to the wrong people.
Small things like trademarking your company name, getting copyright protection, all of these have value. This practice will help you to find out the missing elements early and ultimately giving you time to fix the situation before you’re in talks with a buyer.
3. Have Low Business Dependency
A business that depends strongly on the existence of one person to do well can be very difficult to sell to another buyer. Businesses like consultancy service companies or creative service providers might get hurt after your absence; this happens when clients develop a personal relationship and depend on your personal expertise. In simple words, the less your company relies on the owner, the higher selling price you get for your business. If the operations of your business are managed by staff or internal systems or technology and there is less involvement of the owner, you will get a higher price.
4. Business Valuation
It is one of the most common mistakes that many business sellers make; believing their business is worth more than it actually does. One of the first steps recommended to small business owners is to have a professional financial valuation carried out by reputable firms such as a business transfer agent or an accountant. This professional valuation will let your buyer know where exactly your business stands. Identify strategies that will help you increase the value of the business; make smart moves like going after bigger contracts to escalate the ‘sellable’ cash flow. In other situations, you can increase the worth of business by making strategic investments in the business.
Don’t get too greedy while selling, neither sell too low or else you will lose money, hard work and investment. Before selling your business in the market, always get it valued correctly to avoid disappointment.
5. Do a SWOT analysis
A SWOT analysis can help you in identifying the strengths and weaknesses of your business and the opportunities and threats in the market. This analysis will provide you a clear picture of your business health and the wider market perspective you are operating in. SWOT analysis will also prepare you for negotiations with prospective buyers. After completing SWOT analysis, you can respond confidently to difficult questions by potential business buyers; that is whenever they try to poke holes in your business strategy.
6. Find Your Business Strengths
It is crucial to know your business strengths and your niche before you put your business on the market. Business strengths consideration will not only give you a clear image of your business position in the market, but also help you to better market your business by knowing the selling points to focus when speaking to buyers. You might be having a monopoly in the local area, might be selling a very niche product or simply your business is profitable or has a large customer base. One or other, know your business strengths and sell these as much as you can.
7. Don’t Hide Secrets
Buyers do not like surprises. Don’t hold back any information that may put you in an uncomfortable legal process. While the desire to keep business secrets possibly will exist, you must avoid this temptation. Therefore, you need to disclose any negative or adverse information early on. If you are hiding skeletons in your business closet, it is better to reveal them sooner rather than later. Don’t worry, there is no perfect business – all businesses have negative aspects.
8. Use a Broker
Good business brokers not only help you in professionally valuing your business, but also during several marketing and negotiation procedures. Many business brokers have a huge databank of buyers and could find the best potential buyer for your business.
The key is finding a reliable broker with a proven track record. Before hiring a broker consider these questions:
- Businesses he sold in the past and their industries
- Does he have a database of buyers?
- Industry buyers he knows and what they are looking for
- His closing ratio
- On average, how much more can he sell your business for?
- Can he give any testimonials?
If the broker can’t give you any testimonials you need to find another one then. As far as the fee of the broker is concerned, don’t pay any upfront fees for small businesses selling for under a few million dollars. You might have to divide over a cut of the selling price--usually between 10 and 12 percent.
While there are various options for business owners who want to cash out,l profitability depends on the owner’s strategy and approach to selling it. Taking the wrong business approach could have serious consequences for both the owner and the business.
Have you ever sold a business before? Share your tips and experiences in the comments section below.