Consider These 6 Steps To Sell Your Business.
Our last post focused on how to become the “Right” business that qualified buyers want. It noted the reality that your business may not be where you would like it to be.
There are factors that can overcome this for buyers. Take these steps to sell your business:
- Price Your Business Realistically
- Build Trust With The Buyer
- Be Prepared For Commonly Asked Questions
- Know Who Your Most Likely Buyers Are
- Change The Risk Equation
- Accommodate Reasonable Requests
Price Your Business Realistically
The biggest mistake a business owner makes when selling their business is overpricing it. Serious buyers will evaluate multiple businesses to know where the market is in terms of price.
Sellers and M&A advisors should do likewise by looking at current market listings, as well as researching historical sales within their industry from sources like DealStats.
Since buyers often finance a significant portion of the purchase, one final check should be a “bankability analysis.” Lenders require that the business have cash flow to repay the principal and interest; allow some margin to do this, and provide a reasonable salary to the owner if the business will be their source of income.
Financing often takes half or more of the cash flow of a business. What was a “good living” for the business seller is reduced to a marginal one for a business buyer. Many sellers are never contacted because buyers conclude the numbers don’t work based on the seller’s asking price.
Build Trust With The Buyer
Most buyers and sellers are unacquainted prior to discussing a possible sale. On the positive side, there’s no baggage in the relationship. However, this also means the seller has not built trust with the buyer from a past, positive relationship.
It’s critical that the seller begin building this type of a relationship. It will facilitate getting the deal done, and on better terms. Future posts will discuss strategies for building trust with buyers.
Be Prepared For Commonly Asked Questions
Business transactions have positive or negative momentum. As a seller, you want positive momentum, like a boulder rolling down a hill. Too many owners, and their agents, are unprepared when buyers request standard information, such as three-five years of financials, recurring revenue, or an asset list. The sale grinds to a halt while reports are compiled, and momentum is lost.
If significant time passes, the prospective buyer may find another business for sale, offer a lower price, or move on.
Know Who Your Most Likely Buyers Are
Sellers often dilute their efforts by taking a shotgun approach to selling their business. For example, a buyer living 100 miles away is unlikely to consider a $250K business. On the other hand, If the business is worth $10M, and in an industry of interest, they will (assuming they have the funds).
One of the areas where good M&A advisors provide value is helping sellers understand their audience.
Change The Risk Equation
Any company has risk, even monopoly businesses like utilities. Longtime owners are often desensitized to the risk of their own business, and may not appreciate a potential owner’s outlook.
The typical way for a buyer to deal with perceived risk is to lower their offer, or simply walk away. Sellers can close the perception gap by agreeing to share perceived risk. Offer a limited amount of seller financing or earn-outs to facilitate a sale, potentially at a higher price. This is especially true for businesses significantly impacted by Covid-19.
Accommodate Reasonable Requests
A business transaction generates stress for both parties at some point. This may be from the transaction itself or something unrelated. Mitigate the buyer’s stress by agreeing to reasonable requests during the process.
You don’t want to be a pushover, but understand that most people are more likely to engage with someone they feel they can work with. Keep this in mind during any negotiation.
Acuity Helps Buyers and Sellers Through Ownership Transitions
The three posts in this series offer business owners a good overview of the process of selling a business and helpful steps to sell your business. If you’re a buyer, they will help you identify key factors to consider when buying a business. Future entries will look in-depth at specific aspects of the sales process.
If you would like to talk about a business opportunity, please call Acuity Mergers & Acquisitions at 260-615-1644. We can help with transition planning, business valuation, and most areas of buy-side or sell-side representation.