In this interconnected world where the answer to every question is just a tap away, it’s relatively easy to sell a business. After all, there are billions of people who can theoretically find your business listing and decide they want it, right?
But that doesn’t mean you’re going to get top dollar for your business. That’s a much more complicated and challenging proposition.
It is possible, though, to sell your business for top dollar, and to do it without needing to stress over years of difficult negotiations. Here are nine tips that can help you do just that:
Long before the sale:
1. Plan ahead
Don’t adopt the view of most small business owners who run their businesses day after day as if they’re going to live forever and their business is never going to change.
You don’t need to be a billionaire investor to be smart about creating an exit strategy. Boiled down to its basics, an exit strategy is just a well-thought-out plan for how you’re going to get the maximum value out of your business when you’re through running it. For some, that involves growing as big as they can and retiring with a nice golden parachute. For others, it involves passing the company on to their kids.
But if deriving value from your company is going to require selling it when you’re ready to retire, then you need to plan ahead for that today, not wait until you’re a year or two from retiring.
2. Keep good records
No matter how small your business is now, get yourself in the habit of keeping detailed, professional business records that anyone can read and understand.
When it comes down to it, any prospective buyer considering purchasing your business is not going to be swayed by your stories of how you built the business up with your bare hands or how you once served pancakes to President Carter. They’re only going to be interested in your company’s financial health. And that’s all in the books.
3. Determine the true value of your business
Valuation is a complex subject, more than can be explained in this article. But the act of obtaining a realistic valuation of your business is a key first step in preparing that business for sale.
What many business owners don’t realize, though, is that finding out what your business is worth is not just a necessary part of the sale process. It’s a powerful part of the planning process as well. If you know what your business is worth now and you can compare that with a snapshot of the current market situation and other factors (both within and outside of your control), you’ll have a solid foundation on which to plan your exit strategy, including timing.
This helps guide your investment in the business, helps you make wise business decisions with your eventual sale in mind, and provides a benchmark against which you can track your business’s growth in preparation for the sale.
Just before the sale:
4. Focus on improving your curb side appeal
From an ongoing business perspective, keeping things neat and clean makes sense because it boosts employee productivity and morale, and provides a more comfortable and enjoyable experience for customers. But when putting your business on the market, it becomes even more important.
While the business itself will be sold on its financial health, many prospective buyers could easily be turned away if the place of business looks shabby, dirty, or in disrepair.
You’ve probably experienced the same phenomenon if you’ve ever gone house hunting. Just imagine pulling up to what sounded like your dream home and seeing trash all over the yard, rotting floorboards on the porch, and a large hole in the roof. No matter how good the house sounded, you’re not likely to even consider buying it. And if you happen to be brave enough to take on that “fixer-upper”, you’re certainly not going to pay top dollar for it.
The same curbside appeal can affect the sale of your business. Keeping things clean and in good repair is a relatively inexpensive and simple way to make sure any buyer has the chance to see the real value of your business.
5. Make sure the company can run without you
This is difficult for many small business owners because they’ve put so much of themselves into their business. But for a prospective buyer to see themselves in the role of owner, they need to see that the company isn’t going to fall apart and stop making money when you vacate that role.
Generally, the best way to handle this is to set up strong systems that eliminate the need for any particular individual (including yourself) to handle any aspect of running the business. Documentation outlining procedures and clear training materials for more complex processes can go a long way in letting a buyer know they’ll be able to hit the ground running as a new owner.
A strong management team and/or self-managed team of employees will also help make that transition an easy one in the buyer’s mind. So if you find yourself working 60 hours a week to keep the business alive, then make some changes soon, or you'll be hurting when an offer comes around.
6. Make sure you can afford to sell
Interestingly, small business owners - as a rule - are some of the worst investors in the world. They have tremendous amounts of business acumen, but they manage to invest every cent they make back into their businesses, resulting in no diversification and a nest egg that relies 100% on the sale of the business to fund retirement.
If you handled the planning aspect of preparing to sell properly, you should know how much money you need to make from the sale to fund whatever it is you plan to do next. Now, as the sale draws closer, you need to re-evaluate your financial situation and make sure that plan is coming together.
As a general rule of thumb, if your business accounts for more than 50% of your net worth, you’ll find it challenging to live off the proceeds of its sale for very long. In that case, you may want to hold off on selling for a few years and concentrate on diversifying your investments and building a healthier retirement fund.
While this won’t necessarily increase the amount you get for your business, it will increase the value of those proceeds in your individual circumstances.
7. Make sure you actually want to sell
This seems like an odd tip to put in this list, since you’ve theoretically spent years preparing for this moment. But the reality is that many small business owners have invested so much into their companies, they really don’t want to sell, even if they know they should.
Closely related to these folks are the owners who have never considered what their future looks like post-sale. When they look that direction, they just see a wide, dark void where their life used to be.
These attitudes are going to show through in every interaction you have with a prospective buyer, and they’re bound to affect the saleability of the business as well as the final price you receive.
8. Sell when market conditions are favorable
This should go without saying, but you can’t get top dollar for your business if you sell in a buyer’s market.
Despite all the best planning in the world, you can’t perfectly predict what the market will be like at the time you want to sell. That’s why it’s so important to plan ahead, understand your company’s realistic value, and understand what you need to get out of a sale. That way, you’re in a position to time your sale during a brief window of opportunity in a volatile market.
9. Sell while your business is growing
This one is counterintuitive because when the company is growing and doing well is the time most owners are least likely to get rid of it.
But, look at it from the buyer’s point of view: are they more likely to be interested in paying top dollar for a company that’s going through a rough patch? Or for a company that’s making money hand-over-fist with no end in sight?
The answer is obvious.
There you have nine solid tips for getting the top dollar when you sell your business. It’s not necessarily easy, but the somewhat confused process can be simplified. Start today, and you can expect a healthy return in the future.
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