For most people, selling their business means cashing in their biggest asset. In other words, in must be handled with great care if you hope to protect and capitalize on your investment.
This guide was written with one goal in mind; to give you the tools you need to maximize your profits, maintain control, and reduce stress that comes with the business selling process.
1. Know why you are selling. The reason you look closely at why you want to sell is that your motivations play an important role in the process. They affect everything from setting a price to deciding, when is the right time to sell your business.
For example, what's more important to you: the money you walk away with, or the length of time your business is on the market? If your goal is a quick sale, that can dictate one kind of approach. If you want to maximize your profit, the sales process will almost certainly take longer.
2. Once you know why you are selling, keep it to yourself. Your reasons will affect how you negotiate the sale of your business, but they shouldn't be given as ammunition to the person who wants to buy it. For example, a prospective buyer who knows you must move quickly has you at their mercy in the negotiation process.
3. Do your homework before setting a price. Settling on an offering price shouldn't be done lightly. Do not try to sell your business without having it priced correctly and knowing how that price was derived. Even though the final price will be decided on whether you decide to take all cash or elect to participate in financing some of the purchase price, you will need to have a starting point that has some substance and basis to it. Too many people decide to sell their business, advertise it and then expect the buyer to know what it is worth. Most of the time they don't sell their business, because they are unprepared and if they do manage to sell their business they may sell it for less money than what it was really worth. Don't make these mistakes. Be prepared.
Once you've set your price, you've told buyers the absolute maximum they have to pay for your business. The trick for the seller is to get a selling price as close to the true value of the business as possible. If you start out pricing to high, prospective buyers might not take you seriously. A price to low can result in selling for much less than you hoped for.
Ask a business broker to do a valuation of your business based on the current market for your kind of business. A knowledgeable business broker will have the information and tools available to give you a current market valuation.
4. Find a good business broker. The majority of the people who sell their own business say they wouldn't do it themselves again. Sellers surveyed point to difficulties in setting a price, marketing handicaps and liability concerns among the primary reasons they would turn to a business broker next time. And selling a business yourself usually eats up more time and effort than you might initially expect. Plus the concern that when you are dealing directly with a buyer you are in an adversarial situation. As the old saying goes, "Do what you do best in your profession and let the professionals do what they do best".
Once you understand how much work it will be to sell the business yourself, talk to a business broker you trust, even if you decide to strike out on your own. At least you will have a relationship with a broker if problems do arise that requires professional help.
If you decide to work with a business broker contact two or three. Explain to each that you're thinking about putting your business on the market and you'd like to meet to talk about pricing and marketing. By having this group "evaluation" done, you should end up with a fairly tight price range to help guide your decision. The business broker who is substantially higher or lower than the group should be able to justify their valuation. Just as you should be concerned about to low of a price, beware of a broker who gives you the highest price, they may be trying to buy your listing.
A good business broker knows the market. They will supply you with information on past sales, a marketing plan, something on their background, and references from past clients. Take the time to carefully evaluate candidates on the basis of their experience, qualifications, enthusiasm, and personality. More importantly, make sure you choose someone who's going to put in a lot of hard work on your behalf.
5. Give yourself room to negotiate. Make sure you leave yourself enough room in which to bargain. If what you ask for is unacceptable to the buyer, and their first offering is unacceptable to you, then you better make sure you have someplace to go that it is acceptable to you.
Start with the absolute minimum price you would accept, and then pick the price you'd get if the world were perfect. This gives you your range to keep in mind when working with your business broker to negotiate the sale.
In setting your asking price review your priorities. Do you want to maximize your profit or sell quickly? You'll price high for the former and closer to market value if the latter is the case.
The rule of thumb when selling a business is, if a buyer is going to pay all cash for a business the business will generally sell for lower than the asking price. However, if the seller is willing to carry some of the financing in the form of a note, with the buyer paying a substantial down payment, the seller is more likely to get a sale price much closer to the asking price.
6. Rely on other people's judgment as well as your own. The key to effective marketing is knowing your products good and bad points. In the case of your business, accentuating the good can mean a faster sale for more money; failing to deal with the bad can mean months on market and a lower than desired sales price.
The biggest mistake you can make at this point is to solely rely on your own judgment. Are your books and records in order? Do your tax returns and profit and loss statements show the same gross sales? If your books and records in good order, and if they show an upward trend in sales and profits this will help you to achieve the sales price you are asking for.
After a business broker has reviewed your books, records, tax statements, and inspected the business, ask them what needs to be corrected. An experienced broker will not be bashful on sharing with you the pluses and minuses of your business.
7. Fix everything no matter how insignificant it may occur. Don't have unnecessary equipment or fixtures sitting around. Nor do you want non-functional equipment or fixtures, on site for the buyer to observe.
They might be minor annoyance to you, but they can also be deal killers. The problem is that you never know what will turn a buyer off. Even something minor that's gone unattended can suggest that perhaps there are bigger, less visible problems present as well. Don't leave the door open for possible deal killing items that may surface after price and terms have already been negotiated.
8. Let your business shine. I am sure you have heard the old clique that you only get one chance to make a first impression? Well, the first impression that your business gives a buyer will set the tone and mood for any future consideration that a buyer may have in pursuing the acquisition of your business. Do not stumble when making a first impression.
Present your business in it's best light. Have prepared and be willing to use a business profile. What is a business profile? A business profile tells a story about the business. It is a short story that is written answering the basic questions about the business, such as the history and background of the business, where the business is located, the amenities of the location, the physical assets, the operations, employees, working conditions, possible competition, skill level sought, owners reason for selling, the offering, price and terms and financial statements. You may ask why do I need all of this? Well, these are the same questions you would ask if you were buying a business. Well, you say why I am going to tell a buyer all of this? Because people will believe the written word before they will believe everything you are going to tell them. Plus most of the time they are either not going to be paying attention or forget to ask some of these questions and will want the answers to these questions sooner or later. It also gives the buyer a reference tool to refer to and discuss with any of the other parties involved in the purchase of the business. To many times I have seen people try to sell their business without any details of the business in written form. As a matter of fact when they talk to one person they tell them one thing and when they talk to a second person they will tell them something different forgetting to inform the buyer of the information needed to sell the business.
9. Disclose everything. Smart sellers proactively go above and beyond the laws to disclose all known defects to their buyers. If the buyer knows about a problem, he can't come back with a lawsuit later on.
10. The prospects, the better. By maximizing your businesses marketability, you'll increase your chances of attracting more than one prospective buyer. Why is this better? Because several buyers compete with each other; instead of a single buyer competing with you.
11. Don't get emotional during negotiations. The extent of most people's experience in the art of negotiation begins and ends at their local auto dealership. Few of us have pleasant memories of haggling with a car salesman. Just let go of the emotion you've invested in your business and approach negotiations in a businesslike manner, then you'll find the process to be a lot less painful. In fact, you might even enjoy it and you'll definitely have an advantage over prospective buyers who get caught up in the emotion of the situation.
Remember; "never fall in love with a business, because a business can't love you back." You may have grown the business from its inception to a thriving business, but it's still just a business.
12. Know your buyer. In the negotiation process, your objective is to control the pace and set the duration. The better you know your buyer, the more easily you can maintain control.
As a rule buyers want the best business they can afford for the least amount of money. Knowing specifically what motivates your buyer enables you to negotiate more effectively. Maybe your buyer needs to move quickly, or maybe the maximum amount he can spend is just a little below you're asking price. Knowing this information puts you in a better bargaining position.
13. Find out what the buyer can pay. As soon as possible, try to find out the amount of money the buyer is willing to invest and the size of their down payment. If you are dealing with a qualified business broker, they will be able to eliminate the "lookers" from the buyers. If the buyer makes a low offer, question the buyer about their ability to really pay what your business is worth.
14. Find out when the buyer would like to close. When a buyer would like to close is often when they need to close. Knowing this gives you his deadline for completing negotiations--again, an advantage in negotiations
15. Don't give yourself a deadline. Forcing yourself to sell by a certain date adds unnecessary pressure and puts you at a serious disadvantage in negotiations.
16. Don't take a low offer personally. The first offer may invariably be below what you know the buyer will end up paying for your business. Don't get angry or feel insulted; evaluate the offer objectively. Make sure it spells out the offering price, adequate earnest money, amount of down payment, mortgage amount and terms, (if you are to be carrying a note), the closing date and any special request. Now you have a point from which you can negotiate.
17. A really low offer may mean the buyer is not qualified. If you feel an offer is inadequate, now would be good time to make sure the buyer has is qualified and is capable of an opportunity of this size. Ask how they arrived at the figure, then suggest that they get additional information or contact a broker to establish what businesses are selling for in your marketplace.
18. Don't take a low ball offer seriously. An unacceptable a low offer should not be taken personally or seriously. Rather, it should be countered, even with the slightest reductions in your asking price. This lets a buyer know that their first offer isn't seen as a very serious one.
If this all sound like a lot of work, it is. But it's to be expected when you're selling anything of such great value. And you'll thank yourself for all expense and hard work when the outcome works to your satisfaction.
Terry Monroe is a Professional Intermediary, with achievement degrees in Entrepreneurship, Education, Law, Accounting, Finance, Operations, Management and Psychology and author of "The Art of Buying and Selling a Convenience Store". He is also the founder and President of American Business Brokers. To receive a Free report on on how to increase sales or maximize the sale of your business go to http://www.TerryMonroe.com.
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