By Marshall Lee
Starting a business means that you risked your credit and your assets, you worked plenty of 60-hour weeks for months on end with no time off, and at various times you have been the boss, the lackey, and the workhorse.
So now, maybe you are thinking that it is time to move on.
It could be that you have decided to get recharged by building a new business from scratch, or maybe after years of long hours you see a chance to cash in on your hard work. Either way, congratulations!
Selling a business is never simple, but with the right resources on your side, you can make the most of any opportunity to sell.
Where Is Richard Branson When You Need Him?
Here’s the dream scenario: A highly-motivated company swoops in with an offer. We want your business, what’s your price? Before long, the check has cleared and you have flown the coup for sunny Maui! Sweet. Now it’s time to relax and recuperate—and, of course, to plan your next big move. But first, you need another Mai Tai….
Hey, it is possible (send me a postcard!), but don’t hold your breath. The majority of business sales are, instead, the result of careful planning, complex negotiations, and, well, a little bit of luck. The timing has to be just right. Yes, you may be able to expedite the process by working with a broker, but be prepared for a long haul.
The fact is, motivated buyers can back out suddenly, and so too, brokers come and go, and as such, even a relatively simple and straightforward sale can stretch on for months. Deals that seem like a sure thing on Monday can fall through on Tuesday morning. Be patient and do not lose heart. Think of all the hours you have already invested building your business. As an entrepreneur, your goal should be to sell your business the same way you managed it: responsibly and (fingers crossed) profitably.
And while you wait, make sure you are doing everything in your power to make your business attractive to potential buyers. Here’s how:
My Lips Are Sealed
The first thing to understand is that mum’s the word. You will need to keep your business running smoothly, as though your company was not for sale. Sure, when it comes time to put your business on the market, you may find yourself itching to run and tell your family, friends, the neighbors, business contacts—after all, you want to find a buyer, right?—but be careful. Letting other folks, including friends and family, know that your business is for sale can be a big mistake.
Here’s why: If suppliers and vendors learn that your company is on the market, they just may terminate or suspend your lines of credit; nothing personal, they are only protecting themselves from ditching debtors. This can interrupt your cash flow, strain your bank accounts, and turn off potential buyers.
Similarly, employees may take the news of an impending sale as a reason to goof off, or raid the till, or move on.
Of course you want to be candid with your clients, staff, and your creditors, not to mention your own family, but remember: anything that threatens the stability of your business can compromise a sale.
Get Everything In Order
Spruce up the place. Give it a fresh coat of paint and clean out the storeroom. Get your books in order. Have a profit and loss statement ready. Organize your contracts and other legal documents. Getting ready to sell means putting your best face forward and being ready to show the place and share all relevant information whenever necessary, and sometimes, at a moment’s notice.
You not being ready, as unfair as it may be, can be a red flag to a buyer.
Price It, Push It, Make It Legal
The next step is to figure out what your business is worth. There are many ways to do this:
- Check out the site BizBuySell. This valuable resource can help you value your business, hire a broker, find buyers, and more.
- Hire a professional appraiser to run a valuation. Not only will the valuation lend credibility to your asking price, but the appraiser’s detailed report will also help you get a clear picture of the value of your business in relation to your industry, and the wider economy.
- Hire a business broker. Brokers are in the busness of evaluating businesses, and hiring one can not only help you understand the value of your business, but also, can assist in the sale in all sorts of ways.
If you have chosen to hire a broker, then he or she will help seek out potential buyers. Brokers are discrete. And even better: They do not see a penny till the sale is complete. And because they work on commission, they are motivated to keep the sale price as high as possible.
Once you have a serious buyer on the line, ask them for a Letter of Intent, or LOI. An LOI indicates to a third party (a bank or a judge) that you and the buyer are in engaged in good faith negotiations. The letter does NOT guarantee a final sale, but it indicates the buyer’s intention to pursue negotiations to that end. And an LOI will help your buyer find financing to assist them in completing the transaction.
Once an offer comes in, you need to review it with your team – your broker, lawyer, and accountant. Of course you can manage the sale yourself, but be prepared for 80-hour weeks as you negotiate the sale, structure a financing agreement, draft documents, and manage the day-to-day affairs of your business. Not fun. This is the time to bring in the professionals.
Finally, upon closing, you will need to sign the bill of sale, sign contracts, shake hands, walk out the door.
And now it’s time to book that flight to Maui…