Over 50% of business owners selling a firm on their own will fail—additionally, 90% of buyers looking to acquire a business never see it through.
Many founders and owners don’t grasp the intricacies of how to sell a business. Vital employees might leave, you might inadvertently leak mission-critical information to the wrong parties, etc. The list is endless. On top of that, many owners and founders will perform poorly at valuation.
You need the right information to know what to look for and how to approach a successful sale.
Here’s a quick guide detailing six fundamental components of selling a business to increase your odds of a successful transaction.
1. Sort Out the Financials
Selling your business is an exercise in building trust enough to facilitate a transition. As such, no confidence can be built with a potential acquirer if they don’t have adequate visibility into your financials.
Hire an accountant to help you whip your books into shape. Typically, you’ll need to present financial statements and tax returns for the past three years, at the least.
Additionally, you’ll also have to account for all business income. Any vague paper trail relating to your firm’s revenue is a red flag for any acquirer and has a strong likelihood of jeopardizing your sale.
Your accountant will also help you develop year-to-date (YTD) financials, which play a vital part in an acquirer’s decision making. Through YTD comparisons, someone looking to buy your business can determine if it’s making a profit or attractive progress.
2. Sharpen Your Negotiation Skills
Although you may have an idea of what your business is worth, buyers will still want to negotiate over the number. The ability to negotiate tactfully yet without giving up too much ground is a skill that serves you well while selling your business.
There will be some hard conversations you’ll have to navigate during this entire process. Whether it’s with brokers or direct buyers, you need to hold your ground diplomatically.
To make your negotiation prowess effective, you need to set aside your emotional attachment to your business. That way, you can objectively hold court and counter offer where necessary.
3. Talk to a Valuation Expert
One thing you shouldn’t do when putting your business up for sale is to pull your price out of the ether. Acquirers hate that. There are several company valuation methods available to determine how much your business is worth.
Since valuation will be a key sticking point in your negotiations, you need to justify your price tag logically. Hiring a third-party valuation expert helps you arrive at a more realistic figure that can still meet your target.
For example, if you were to value your business, you’d primarily focus on your firm’s capital assets. Yet, valuation isn’t so much about what your business is worth but how much cash is tied up in your firm. A professional valuer can help you approach the issue objectively to increase your odds of success.
4. Train Your Staff to Work Independently
When many sales happen, the founder or owner rarely operates as they used to before the acquisition. If you remain in the organization post-purchase, you likely won’t be as hands-on.
Buyers are aware of this, and one of the critical areas they look at is how well the existing team can carry on operations absent of the founder or owner.
Can the management still continue casting a viable vision and strategy for other employees to execute? Will the founder or owner’s absence leave a noticeable gap that diminishes operations and output?
To help make your case to potential buyers, you should prepare your employees to operate independently of you. As long as a buyer can assess the human capital and be fully convinced, they won’t be left with a critical man risk issue after purchase, you’ll have more pull at the bargaining table.
Ensure you document all your processes and best practices, so everyone on the team can refer to them even in your absence. Invest in training your workers on how to execute the codified procedures and assess them in action.
Buyers will be attracted to such a business as it means less training and culture alignment tasks ahead for them.
5. Don’t Pawn off Marketing Your Business to Others
Unlike pushing your products or service where you can use a marketing department and third-party advertisers to create awareness, selling a business is about the leadership. Potential buyers already know about what your firm offers – that’s why they’re showing an interest.
What a buyer expects is to have the top most leadership take them through the business. And that is a form of marketing in and of itself. If you hand this off to others, buyers will become wary as you’ll seem not to be taking the sale seriously enough to be actively involved.
If you have a workload or run a large operation, you can delegate the early stages of sale negotiations to your team. Once you have a buyer showing serious interest, you should take over the process in concert with your team.
6. Have an Exit Strategy
You have to craft a plan on how you’ll part with your business after a sale. Any buyer worth their salt will see to it that such a plan is in place before they close the transaction.
Succession will affect business continuity. You, therefore, need to work out who takes over the day-to-day running of the firm. That’s especially critical if a buyer is looking to retain the staff post-purchase.
An acquisition implies a degree of cultural adjustment for both the business and the new buyer. Part of your exit strategy should include how to handle that cultural cooperation as it may be tied to your proceeds from the sale.
You also have to ask yourself how involved you need to be with the business after selling it. Figuring that out impacts how you’ll structure your sale.
Learning How to Sell a Business Matters
Selling a business is an intricate dance that calls for you to learn the right steps to succeed. Once you decide to sell, research in-depth to understand how to sell a business and the steps you need to take to prepare your firm to make it a prime candidate. Only then will you lift your odds of a successful sale.
Knowing how to sell a firm is the end of a journey that spans many other aspects of starting and running a firm. Our website delivers insights and valuable tips entrepreneurs can use to build successful businesses. Check out more of our content today to learn how to better your business.