So you're a business owner and you're considering the possibility of selling your business. No doubt you have a lot of questions, and that's normal. This is kind of a big deal, so don't jump in without doing your due diligence ahead of time.
In fact, business owners who have successfully sold their businesses for a fair price almost always approach the sale the same way they approached running their business: as a complex and important, but, in the end, an enjoyable investment of time and effort that produces a positive result.
Although you may have dozens of questions running around in your mind, we're going to discuss just five of the most common questions business owners looking to sell their business ask. If any of your questions aren't covered here, feel free to search our extensive resource archive for more information.
What is a buyer looking for in my business?
While business buyers approach their search in many ways and for many reasons, the ultimate reasons they purchase a particular business are often the same:
- The business is listed at a reasonable price.
- The business shows a verifiable history of successful operation.
- The buyer can see themselves successfully taking over the role of owner.
To give buyers a positive impression on these three fronts, it's important for you as a current business owner to ensure that your legal and financial records are in good order, well-maintained and accurate. It will be far more difficult to sell a business that is currently struggling to stay afloat, so if you have an option available, time your sale to coincide with a financial upswing.
It's also important to set up reliable systems and personnel that will allow you to remove yourself from the day-to-day operations of the business. This is important both practically - since selling a business can be a time-consuming job in and of itself - as well as psychologically - since the buyer needs to be able to realistically see the business continuing to operate successfully without you at the helm.
Finally, get professional help in valuing your business appropriately so that your listing price doesn't automatically cause potential buyers to look elsewhere. (More on that below.)
How do I value my business?
Valuation is a complex topic that requires a bit more time and research than these few paragraphs can provide. However, one of the main things to understand is that you, as the business owner, are likely in a very poor position to determine an appropriate and realistic value for your business. This is because you have an emotional investment in the company that cannot be effectively quantified, and that no buyer will be willing to pay for.
The best way to ensure your business is effectively valued to provide maximum return to you at the time of sale while not pricing it out of the market is to rely on the advice and services of professionals who value businesses for a living. Many experienced commercial accountants specialize in business valuation in preparation for a sale, as do many business brokers. If real estate is involved in the sale as well, be sure to include the advice of a commercial real estate expert too.
For more information, see our articles on business valuation.
How do I prepare for the sale?
Once again, this won't be a fully comprehensive list of preparatory steps leading up to the sale, but it should provide a foundation for drawing up your personal and professional to-do list as required for your unique circumstances.
- As noted above, all legal and financial records need to be in order and easily accessible as any serious buyer will want an opportunity to review them in detail.
- The physical premises should be neat, clean, and in good repair. This is both practical and psychological. A buyer visiting the business location should not be distracted by immediately apparent expenses and extra work they'll need to care for after the sale. It also serves as a positive impression on customers and employees who will be more likely to work hard or regularly patronize the business as a result.
- The business valuation discussed above is a vital step in the sale preparation process and should be carried out early, and perhaps repeatedly throughout the process to ensure the final sale price is in line with the company's current value.
- In every other way, you need to be ready and willing to move ahead with the sale on the buyer's timeline if you hope to get the best possible price. That means not procrastinating any of the preparatory steps or listing the business for sale before you've personally come to terms with the reality of selling.
For more in-depth information, review our archive articles on preparing to sell a business.
Do I need to use a business broker?
Technically, no you don't NEED to use a business broker. But, in many cases, it's the best option for a busy business owner who has to simultaneously keep their business running in top form, prepare the business for sale, and try to maintain some sort of personal life at the same time.
A professional business broker is an expert in matching business buyers and sellers to create win-win transactions for everyone involved. This is a valuable skill set, and it also comes with a pre-existing database of important contacts that can both speed up the process and improve the end value of the sale. While a broker does earn a solid fee for their efforts, this investment is nearly always covered in full by the increased sale price and faster sale the broker can negotiate in relation to what you could have managed on your own.
If you haven't already built your team of advisors, review a list of skilled and qualified business brokers, accountants, commercial real estate professionals, and lawyers.
How is the real estate involved with the business affected by the sale?
This is an important consideration because many business owners who have never sold before are under the mistaken impression that every business sale is an all-or-nothing deal. In reality, buyers will come to you with many different options and offers that may or may not involve purchasing all business assets - including real estate - in a lump sum transaction.
In some cases, a buyer would prefer to buy the business but only rent or lease the real estate. Or, they may wish to buy the business and immediately relocate it, leaving the real estate out of the deal completely. In other cases, they may want to purchase the real estate as well, but their goals and future business plans will require significant remodeling or renovation which may have an impact on how much they're willing to pay for the buildings.
In all these cases, the advice of a commercial real estate professional with experience in business sale transactions can be invaluable. By approaching the real estate transaction as a potentially separate entity from the business, you'll be in the best position to maximize the value of both and to make wise decisions at the negotiating table.
That should get you heading in the right direction when it comes to selling your business. If you haven't listed your business for sale yet, we encourage you to explore the site and see what resources are available to help you do so today.