Good preparation is always the key to success, which is why it is always better, where possible, to plan well ahead when selling a business.
Getting prepared means you are ready for whatever questions a potential buyer throws at you, and that your financials, HR, inventory, procedures and database are all in order.
When getting ready to sell a business, the focus is mainly on the practical elements, such as bringing your financials up-to-date, stocktaking, reviewing employment documents, getting a valuation etc.
However, it is also important to prepare yourself. Most SME owners are very involved with their businesses and have made not only a financial investment but also an emotional investment. It is important to be in the right frame of mind to sell.
You need to be absolutely sure that selling is the right decision for you at that time. You also need to be clear on your intentions:
- Do you want to sell the business yourself or engage a broker?
- Do you want to keep the sale confidential or inform your staff and customers?
- Do you have plans in place to protect your employees?
Most importantly, do you have a Plan B if the business doesn’t sell?
Many people planning to sell already have one foot out the door. If this happens, the business value may start to decline, causing increased stress. In this scenario, it’s unlikely you will achieve the price you desire.
You should have a Plan B in place before you even market your business for sale. Not only will this create a better economic future for you, but it’s good for potential buyers to know you have other plans besides selling to them!
Your Plan B may include continuing to run the business yourself, putting management in place to run it for you, or something completely different.
Prepare the business
If you were selling a property, you would ensure that it was clean and tidy, and that everything was working. You’d deal with any repairs, mow the lawn, clear away clutter and ensure it was looking its very best.
The same applies to your business. All aspects need to be tidied up, from your financials, policies and procedures to the bricks and mortar. Make repairs, clean up, ensure the workplace is safe, stocktake and organise your legal paperwork.
Staffing and lease agreements are a priority, too.
Get a professional valuation on the business and be clear in your own mind what figure you will drop to if necessary.
Price your business accurately
This is extremely important. More often than not, the business owner believes the business is worth more, which is quite understandable. However, over-pricing your business can have serious consequences. Remember, ‘worth’ and ‘value’ are two different things.
What happens if the business is overpriced?
We all know that you price a business or property higher so there is room for negotiation. However, it still needs to be a realistic figure.
If you don’t price the business right, it could end up costing you thousands of dollars when you sell it. It’s all about market dynamics.
Serious business buyers will look at your business as soon as it hits the market. They have been looking at businesses for several months.
We know that most enquiries about a business for sale come in the first 60-90 days.
Let’s say your business is valued at $1 million, but you want to market it for $1.5 million. During those first 60-90 days, buyers will enquire about it. However, even if they think it’s worth $1 million, they won’t offer you $1 million.
To begin with, trying to slash that much off the asking price will make most prospective buyers feel uncomfortable and they don’t want to offend you. Secondly, because you are asking so much more than the market value, they are likely to conclude that you’re serious about selling your business.
So, what happens next? You start dropping the price. But those serious buyers have already looked at your business and dismissed it because it was over-priced. The business sits on the market for months, prompting buyers to question what’s wrong with it. The result? You end up selling for far less. Not a good scenario for you or your broker.
Undertaking Appropriate marketing
A pie chart of business sales would show that buyers come in from three different sources: traditional advertising, a business broker’s database, and through a direct approach to people in the industry.
Out of those three methods, approaching potential buyers in the industry is the most effective, but sellers are often afraid of using this method, as they have concerns about confidentiality.
This approach is likely to generate a better financial result for the seller, so don’t do yourself a disservice by refusing it.