Selling Businesses – 7 Lessons We Have Learnt
Selling Businesses is a business in itself. You have worked on your start-up for some time now—it could be a few years or even a decade—but you feel the need to get out. Maybe you want to cash out for early retirement, or you want to move on.
Before you get out, it is good to know a few things. After many successful years of being an intermediary in business sales in South Florida, I have learned many things. I have decided to share with you some of the things that I consider important.
Sellers have a strong attachment to their business
It is difficult for an employee to leave an organization after many months of service. What about an owner? The fondness is stronger than most entrepreneurs realize. Some even go through the entire sale process only to pull out of the deal at the last minute. Some want to go back soon after closing the deal.
I often encourage my clients to do a thorough personal audit of how they intend to transition. If your business takes 60 hours or your week, selling it will leave a gaping hole in your daily routine. You must find a way of occupying yourself within the week.
Some buyers even want to insert a clause cleverly in the sale agreement to facilitate a come back to the business. It is never a good idea. When selling businesses, goodwill is everything. An ethical buyer will pull the plug once he or she notices underhand antics. You can always sell part of the company instead.
The buyer will inevitably want to change the business
It is hard to accept that someone will make changes to the company you built for all your life. The thought of someone running the show at your company can be a bit uncomfortable. Most entrepreneurs cannot put up with that. Inevitably, that is the case.
People have many reasons why they would want to sell their businesses. Similarly, buyers have many reasons for buying businesses. Some want to flip it. Others crave just an element of the company.
For example, someone may be interested in the distribution channels of your business alone. They may choose to keep what is valuable to them. Soon, your company may have a new face. Entrepreneurs often overlook that possibility. Be aware of such things before going to the market.
The buyer wants a clear succession plan
When you are the business owner, you always see the business differently from the buyer. The buyer only sees what is left after you are gone. You only view the business as the head. It rarely clicks to you that the buyer will not buy your vision. He or she is interested in the product of that vision.
Ask yourself a few questions. Are there key employees that can help carry the vision? Are there decisive contacts that the buyer requires to move ahead? Evaluate your business from that perspective.
It takes about six months to make a successful sale
It will take you some time before you can get that cheque. Selling businesses in under six months can be considered lucky. In my experience, the biggest determinant is the marketing strategy, which is informed by the simplest business question. Is your business ready to go up for sale? You can do a few things to make your business ready. They include:
- Operationalize functions, but it is not a must
- Tie in loose contracts ends
- Prepare all business documents
- Update business information and obligations
- You can work on curbs appeal where necessary
The team tasked with selling businesses matters a lot
Hiring the best business broker is a good move. He or she can enlarge your customer pool, number of offers, and eventually the value of the sale. You may need an experienced team to back him or her up throughout the process.
That team that will help you get ready for the market. They should help you avoid potential pitfalls that most sellers often find themselves in during the process. For example, a good lawyer will help you navigate the legal terrain.
Most sellers ignore deal breakers
There is a popular belief among sellers that having a business broker is enough. However, a few things can go wrong. They range from employee welfare to missing business records. Put yourself in the buyer’s shoes. Would you buy a business where there are missing contract documents? Would you buy from an entrepreneur who includes rented items in the list of assets? Be truthful and realistic when going to the market.
I encourage my clients to get ready for due diligence. Most buyers will try to drive the price down during the exercise. It is rational for them to do that. The better prepared you are about the process, the easier it will be for you. It is also good to prepare for the worst. Even those things you think you have swept under the rag may come out.
It takes significant industry experience to know how to market and sell businesses within the shortest time possible. It also requires expertise to negotiate the best deal for the seller.