Steps to Take When Selling a Business
Selling a business is rarely a simple and straight forward process. One of the biggest mistakes I’ve found is that the seller doesn’t put themselves in the shoes of the other parties be it the buyer, lender, landlord, employees, franchisor or whoever. This article outlines 5 steps to take when selling a business.
1. Get a professional third-party valuation
This may sound obvious but naturally, the seller wants as much money for the business as possible and the buyer wants to pay as little as possible. The place to meet is probably the “Warren Buffet place” with apologies to Warren Buffet. He’s on record as saying or something close to it – I would sooner pay too much for a good company than get a great deal on a company that won’t be around much longer.
2. Hire a qualified professional who you trust
Selling a business is not a quick or normally straightforward process. Each business has its own unique characteristics and is part of the dynamic global, regional and local economy as well as the specific industry it is in. Because of the complexities, ensure you have a qualified professional on your team that you trust and have complete confidence in. Apart from trust, other important components to look for include the professional qualifications from the International Business Brokers Association (IBBA) such as the CBI or Certified Business Intermediary or the state business brokers association (if one exists.) Some states require a real estate license – ensure your professional has any necessary license.
3. Make sure the business is saleable
So many owners plan on selling their business. As soon as it is on the market, they that stop doing the hard work that got the business to where it is now. Some even go on vacation. It normally takes about 6 ½ months to sell a business; if it sells. Make sure you continue advertising to your customer base, keep the employees motivated, continuing to check your customers are happy, pay your bills on time and most importantly of all, continuing to keep your landlord happy. The number one reason that a business won’t transfer from the seller to the buyer is that there is a dispute between the landlord and the seller and/or buyer. If you need a vacation, take it before putting the business on the market. Once it’s sold and you have trained the buyer, then it’s time for that trip of a lifetime.
4. List the business for sale at or near the business valuation
If you’ve owned the business for many years or recently spent a lot of money fixing a problem, it’s not uncommon for sellers to want to ask as higher price as possible so they can earn back some of that money. Buyers have a large number of businesses to choose from. Because most businesses look similar or they are not emotionally attached to the business, they have little problem in walking away. A good business for sale is fairly priced and has good potential. A buyer is looking for potential. Too many sellers want to be paid for potential but that’s the reason why the buyer is buying the business and is only willing to pay a fair price. The buyer is the one that will do all the work to take advantage of the potential; not have to pay the seller for it when they buy it.
5. Don’t forget the Golden Rule
The Golden Rule is – put yourself in the shoes of the other party.
If you’re talking to your buyer, try to understand what’s important to them. If you are discussing your lease with your landlord, work out what’s important to them. And so it goes.
Lenders, business brokers, franchisors (if applicable) attorneys, accountants and others all have a role to play. Even family members. Selling a business is not an easy event at the best of times.
It’s even more difficult in a tough economy, if finance is tight, if key players have health issues and many other variables. Hence the value in hiring a professional you trust so to help guide you and keep all the moving parts lined up and managed.
Are you thinking about selling your business? Would you like to know the value of your business? If you would like more information please visit my website Business valuation.
For more immediate help you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.