If you are even thinking about selling your business, it’s important to know the questions that buyers generally want answers to. For example, the first question almost always asked by buyers is: If this is such a good business why is it for sale? How you answer this question can make or break a sale. A vague answer can discourage buyers from further consideration of your business, as they may assume the worst.
If you say you are “burned out” or just ready to try something new – that’s fine. If you’ve owned and operated the business for 10 to 15 years, buyers will most likely accept your reason for sale and continue their investigation. However, if you’ve only owned and operated the business for two years or less, a prospective buyer may find it concerning that you are already burned out or ready for something new.
If you’re sick, be open about what the problem is; otherwise buyers will think you are just sick of the business. The worst thing a seller can do is to fudge an answer or not provide a completely honest answer. Buyers will, most likely, see right through the given reason for sale and walk away. So, even if you really are tired of or just plain hate running your own business, be up front and explain why. Honesty is always the best policy.
It is also a good policy to engage the services of a professional business broker. Brokers have been through many transactions and can help a prospective seller deal with the reason for sale as well as the other questions a buyer may have. Here is a brief list of other questions buyers often ask and business brokers deal with all of the time:
• Why should I buy an existing business rather than start one myself?
• How are businesses priced?
• What should I look for?
• What does it take to be successful?
• What happens if I find a business I want to buy?
• Do I need outside advisors?
In addition, buyers often want answers to some more specific questions such as:
• How long has the business been in business?
• How long has the present owner owned the business
• How much money is the business making?
• Are the books and records readily available?
• Will the new owner help me learn the business?
These and many other questions are ones that business brokers deal with every day, equipping them to help you prepare honest and useful answers.
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When the owner of a business makes the decision to sell, he or she is taking a giant step that involves the emotions as well as the marketplace, each with its own set of complexities. Those sellers who are tempted to undertake the transaction on their own should understand both the process and the emotional environment that this process is set against. The steps outlined below are just some of the items for a successful sale. While these might seem daunting to the do-it-yourselfer, by engaging the help of a business intermediary, the seller can feel confident about what is often one of the major decisions of a lifetime.
1. Set the stage.
What kind of impression will the business make on prospective buyers? The seller may be happy with a weathered sign (the rustic look) or weeds poking up through the pavement (the natural look), but the buyer might only think, “What a mess!” Equally problematic can be improvements planned by the seller that appeal to his or her sense of aesthetics but that will, in fact, do nothing to benefit the sale. Instead of guessing what might make a difference and what might not, sellers would be wise to seek the advice of a business broker–a professional with experience in dealing regularly with buyers and with an eye experienced in properly setting the business scene.
2. Get the record(s) straight.
Although outward appearance does count, what’s inside the books is even more important. Ultimately, a business will sell according to the numbers. The business broker can offer the seller invaluable assistance in the presentation of the financials.
3. Weigh price against value.
All sellers naturally want to get the best possible price for their business. However, they also need to be realistic. To determine the best price, a business broker will use industry-tested pricing techniques that include ratios based on sales of similar businesses, as well as historical data on the type of business for sale.
4. Market professionally.
Engaging the services of a business broker is the key to the successful marketing of a business. The business broker will prepare a marketing strategy and offer advice about essential marketing tools–everything from a business description to media advertising. Through their professional networks and access to data on prospective buyers, business brokers can get the word out about the business far more effectively than any owner could manage on an individual basis.
Buyers, as part of their due diligence, usually employ accountants to check the numbers and attorneys to both look at legal issues and draft or review documents. Buyers may also bring in other professionals to look at the business’ operations. The prudent buyer is also looking behind the scenes to make sure there are not any “skeletons in the closet.” It makes sense for a seller to be just as prudent. Knowing what the prudent buyer may be checking can be a big help. A business intermediary professional is a good person to help a seller look at these issues. They are very familiar with what buyers are looking for when considering a company to purchase.
Here are some examples of things that a prudent buyer will be checking:
- Is the business taking all of the trade discounts available or is it late in paying its bills? This could indicate poor cash management policies.
- Checking the gross margins for the past several years might indicate a lack of control, price erosion or several other deficiencies.
- Has the business used all of its bank credit lines? Does the bank or any creditor have the company on any kind of credit watch?
- Does the company have monthly financial statements? Are the annual financials prepared on a timely basis?
- Is the owner constantly interrupted by telephone calls or demands that require immediate attention? This may indicate a business in crisis.
- Has the business experienced a lot of management turnover over the past few years?
- If there are any employees working in the business, do they take pride in what they do and in the business itself?
- What is the inventory turnover? Does the company have too many suppliers?
- Is the business in a stagnant or dying market, and can it shift gears rapidly to make changes or enter new markets?
- Is the business introducing new products or services?
- Is the business experiencing loss of market share, especially compared to the competition? Price increases may increase dollar sales, but the real measure is unit sales.
When business owners consider selling, it will pay big dividends for them to consider the areas listed above and make whatever changes are appropriate to deal with them. It makes good business sense to not only review them, but also to resolve as many of the issues outlined above as possible.
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There is no doubt that the times are definitely changing. The COVID-19 pandemic has caused a shift across many industries, and the simple fact is that many industries will never return to the old normal. Success in the 21st century will require a good deal of adaptation and the ability to evaluate where you stand today and where you need to be tomorrow.
One of the cornerstones of being successful in life and in business is to embrace flexible thinking. A flexible approach to problems can lead to finding new and highly effective ways of tackling problems. Being able to find success in the 21st century is about much more than simply riding the next technological wave or trend. Instead, it is about being amongst the first to use flexible thinking to spot trends and developments ahead of the competition and exploit those developments first. Technology and the world are changing faster than ever. Being able to utilize fluid, flexible thinking to identify problems and then seek out cutting-edge solutions to those problems will be a key aspect for success in this century.
A Solid Plan
Flexible thinking is essential for success, but so is having a plan. Just as business leaders needed a plan to achieve final success two-thousand years ago, the same holds true today. In many ways, evolving technology has not reshaped basic logic.
You’ll want your business plan to strike the right balance between being rigid and flexible. At the same time, you’ll need a solid business plan that includes specific written goals and concrete time frames.
The days of ignoring technology or “working around” it are simply gone. The modern business landscape has integrated not just digital marketing, but digital financial transactions as well. This trend is only going to become more pronounced in the coming years.
The business landscape means understanding and embracing the fact that commerce now has a massive digital component at every level. The pandemic has served to accelerate this fact and has very likely permanently changed how business will be conducted in the future. Whether it is meeting clients or customers online for a Zoom or Skype meeting, embracing digital marketing, or a range of other changes, it is essential for business owners to recognize change and incorporate it into their business and their long-term plans.
You can try to fight the future, but in the end you will fail. Charting the right course for the future means having the right mindset and a great support team in your corner. Business Brokers and M&A Advisors are experts at helping business owners prepare their businesses for sale. Demonstrating that your business has adapted to the dynamic and ever-changing environment will help you make your business much more attractive to prospective buyers.
There can be no doubt that selling your business stands as one of the most complex and important decisions you’ll likely ever make. It is quite often the case that a business represents decades, or even a lifetime, of dedicated work. In this article, we’ll examine some of the key steps that you should take when it comes time to sell.
One of the most important steps that any seller can take is to begin the sales process far in advance of the date that he or she plans to put the business on the market. Working with an experienced business broker or M&A advisor (and doing so preferably years in advance) is one of the single best ways to ensure that you’ll be ready to sell your business when the time comes. It will also help you to avoid the numerous pitfalls that potentially await.
A good brokerage professional can also help identify weaknesses in your business and help you address those issues; however, this is only the beginning. Your broker can help you with everything from strategy and negotiations, maintaining confidentiality and establishing the market value of your business, to connecting you with other seasoned professionals, such as accountants and lawyers.
A third key point that all sellers should consider is their own psychology. It is vital that all sellers remain flexible in their approach to selling their business and also remain respectful of prospective buyers. It is important that you put yourself in the shoes of your buyer and try to think of what they will need to feel confident in their decision.
The right seller psychology is also absolutely essential. Sellers should not attempt to rush or force a sale or overprice their business. In short, you need to keep “your head in the game” and as much as possible, keep your emotions out of the process.
Sellers also need to realize that the statistics strongly indicate that seller financing is likely. Only 75% of sellers ultimately receive their asking price, and businesses that are listed as “all cash” generally don’t sell. Reasonable sales terms will greatly increase the chances of successfully selling a business. It is common that sellers fail to realize just how much interest they can generate by financing the sale of their business. A reasonable down payment is also another way to improve the odds of selling a business. Being willing to offer financing makes a clear statement to a prospective buyer that you believe in the business and its ability to generate revenue. From a buyer’s perspective an “all cash” demand can be a red flag.
At the end of the day, an open mind and steady temperament will increase your chances of selling. You may want to sell your business and completely move on to new things. But the reality of selling a business is such that “walking away” may not be feasible. Transitioning your business into the hands of a new owner is usually more of an ongoing process than a “sign on the dotted line and receive a check” type of situation. Understanding this fact, and working closely with a business broker or M&A advisor in advance of selling your business, will help to streamline the sales process and greatly improve your chances of a successful outcome.
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