As the owner of a business, you may make the decision to sell your business. You may be thinking, “How do I find a qualified buyer that I can trust?” or “What’s should I be doing to make sure I pick the right buyer for my business to succeed?” These questions are common and it is important to know that there are many options out there and resources for you to move forward in the selling process. Here are 7 must-know tips for that process to move smoother.
1. Figure out what type of buyer you are looking for
There are three categories of buyers: strategic, financial, and operator. Each type of buyer will see your business differently and manage it differently after the transaction. Making a decision about the type of buyer will help you sell at the highest possible price and avoid any buyers who won’t take you seriously based on factors such as size, profitability, location, and sector.
- Strategic buyers buy because they have a need to buy for reasons like expansion, getting rid of the competition, or synergy and have significant resources. This type of buyer is ideal and tends to pay the most.
- Operator buyers are people or groups that want to run a successful business in order to enjoy a nice lifestyle and have a good income. They lack experience as well as resources making this a risky transaction.
- Financial buyers are professional investors; they focus on income and pricing. Because of this, they tend to negotiate aggressively when it comes to pricing.
2. Hire an intermediary
Consider hiring an intermediary, which depending on the size of the deal could be a broker (usually $10 million or less), mergers and acquisitions professional (more than $15 million), or an investment banker (a large or public company). The intermediary’s job is to determine the appropriate value for your business and find the perfect buyer to purchase it at the asking price. With the right intermediary, you will be able to avoid business disruption, maintain confidentiality, professionalize the process, and maximize dollar value for the company. The intermediary can reach out to potential buyers as well as financial investors and operating companies to communicate your interest in selling. They will also filter through the interested parties and present selected choices to you, which is extremely time-saving.
3. Know what your business is worth.
Several elements of a business make it an attractive buy. A solid history of profitability, a competitive advantage, a large and loyal customer base, growth opportunities, brand loyalty, intellectual property rights, licenses, and issued patents are all things that have value in the business world.
Get a formal valuation from a reputable firm. Know what you have to offer a potential buyer.
When setting a price, use your valuation to make an educated decision. A price too low and you can lose out on potential money and a price too high and you could scare away potential buyers
4. Make your business attractive.
If you are looking to attract possible buyers, give them confidence by having all your books in order. It is recommended to get audited for several recent years. While costly, it is a great investment. While getting your financials in shape, get your business in shape as well. Clean up, move the broken down truck in the back, and get organized. You want to make sure you are giving the best first impression. With a great first impression and by being as prepared as possible, you can achieve a higher selling price.
5. Get the word out.
Use the internet to get your company’s sale information out to those who may be looking to find a business. You can use ads as well as seek a local audience using craigslist and a local newspaper.
6. Keep your options open
Consider all your options such as selling to employees, the general public, using a broker, and business organizations. Anyone can be a prospect. Buyers typically fall into two categories: strategic buyers and financial buyers. Knowing your potential buyers will help you pitch to them.
You can reach potential buyers throughout your community, within your business, through networking. You could also do advertising. But a broker or advisor has access to deal flow and can approach potential buyers confidentially.
7. Know what a qualified buyer looks like
Documents like confidentiality agreements and financial background information are standard documents for prospective buyers. If you use a broker or investment banker, they can pre-screen buyers to make sure they are financially qualified to purchase the business. You should be looking for someone who knows business and management and who has the skills to take your business to the next level. Find out what their primary interest is in buying your business. Get to know them and see if you can trust them with your business.
Cassi is a research guru and content crafter for the Marketing Zen Group. As a Psychology Major she thrives on creating unique and insightful content about marketing, trends, finance and fashion. In her spare time she has a passion for music, reading and psychology. You can connect with her on twitter at @kungfucassi