Nothing is forever; even your business. You start a business, see it grow, steer it through the ups and downs, and finally, get out of it. It’s not a question of whether you will exit your business –but when and how.
One exit strategy is by selling the business. Selling a business is not easy, and you need a lot of preparation and assistance to help you navigate this complicated process.
More than a business decision, selling a business is a very personal (and often emotional) decision. After all, the business is your “baby” – you’ve started it and watched it grow. You invested time, money, energy, and knowledge; and put everything that is in you into that business. By selling the business, you are letting go of it and giving up control, even passing the opportunity to make it grow even more. And of course, you want to get the best price for it.
If you plan on selling your business, here are some questions you need to ask yourself:
1. Why are you selling your business?
This is the first question that buyers, as well as advisors you will hire, will ask you. Why do you want to sell?
There are many reasons for selling a business. For one, keeping the business may no longer make any economic sense. Perhaps you can no longer support yourself with the business, as it is not making as much money as you hope it would. Or maybe the industry overall is in a downturn, and there’re no signs of improvement down the road.
The reason may also be very personal. Maybe the passion and interest are no longer there; that every day feels like you are stuck in a terrible job and you’d rather be elsewhere than running the business. Or maybe a new business has caught your attention and you’d rather do that than your current business. Or you just want a new lifestyle, without the burden of running a business.
If you feel any of these reasons, then it may be time to sell.
2. Is selling the business the best option for you?
Consider all your available options before selling the business. If you’ve owned your business only for a short time, it may not reap the financial reward you were hoping for if you sell it now. An established business has many financial advantages over a business that is only a few years old.
Your family or relatives may be interested in running the business themselves, with you in a consulting capacity. Or your employees may be interested in banding together to buy the company.
If your gut or intuition tells you that selling the business is the best approach – and your business has done well when you follow your instincts – then do so.
3. What do you expect from the sale?
You need to be clear about your expectations from the sale:
- What price range are you willing to accept?
- What payout options are you willing to accept?
- What are your limitations in your negotiation?
Having clear expectations will allow you to move forward with the sale with more confidence. Plus, in the event you will be hiring advisors to help you during the sales process, having clear expectations will allow your team to understand the parameters you are willing to accept, and thus make it easier for them to work with you.
4. Is it the right time to sell?
If the business is your main (or even only) source of income, it is scary to think that all that can be gone if you miss the right opportunity to sell. Timing the sale of your business is critical.
You’ll get the best price for the business if the business is on the upswing, and considered a valuable asset. But if the industry looks bleak, you need to sell quickly before the business becomes obsolete and potential buyers stay away in droves. Buyers will not pay a premium price for a business that has lost its ability to sell its goods or services. If you sell when the business has lost its value, it will be extremely hard to get a price that you think the business deserves.
5. Are you willing to put the time required by the process of selling a business?
In the same way that your business took years to show its potential, selling a business also takes time. The whole process cannot be completed in a month’s time, or in many cases, even in a year.
It may take you months or even a year to just to prepare the business for sale, and it will take several more months to find interested buyers. You need to be willing to dedicate time and energy to the selling process.
6. What type of business are you selling?
If you are not performing as well as your competitors, it may be difficult to sell your business right now. Potential buyers may believe that your business isn’t healthy enough. The ideal time to sell your business is during a strong economic cycle because it should be keeping pace with others or outperforming competitors in your industry. If your business is outperforming competitors during a recession, for instance, it may be time to sell.
If you own a small pharmacy, for example, will the big corporate pharmacy chains be closing in around you in a year or two? Do you think that you will lose your customer base? Now may be the time to sell before these changes occur.
7. Who can help you with the process of selling your business?
Selling a business is a tough process to do all by your self. It is best to get the help of the following in your team:
- Lawyer = the process of selling a business requires legal and binding agreements, and you need to have a lawyer on your advisory team
- Financial specialists = needed to advice you on financial options and capital funding issues
- Business valuation expert = this person will establish the value of your business
- Accountant = from the preparation of financial statements to understanding tax implications of the sale, accountants are essential in this process
- Real estate appraiser = needed if you will include the building and land in the sale of your business
- Equipment appraiser = if your business have machinery and equipment and these forms a substantial part of the value of the business
8. Do you have a selling strategy?
Your selling strategy will depend on what you want to see for your business after you sell coupled with your definition of ideal buyer. You can choose to sell the business to companies likely to become your top competitors, preferably those with expansion plans.
Or you can propose to sell your business to companies in your industry that are actively in acquisition mode. These types of companies are on the lookout for businesses to buy, and you can alert them of your intention to sell the business.
Another way is to determine businesses that have surplus cash that may be interested in your business. Or find businesses that have just announced a public offering because these businesses are desperate to expand their business before going public in order to further boost their stock.
Then, of course, there is the option of selling your business to businesses that cater to the same customer as you do.
9. Have you identified the right buyers for your business?
There are buyers who will buy your business because it complements the current operations they run. Some buyers are actually your competitors. There are also buyers who share the same industry as your business, though not necessarily the same market – e.g. they may be focusing on the high-end of the market while you are focusing on the low end).
There are also buyers who will purchase your business purely for investment purposes only, and these types typically go after the profits and keep the business for a given period (say 5 years) and then sell the business again once their investment has yielded the desired profit.
Then there are the international buyers, typically absentee investors but willing to pay a premium to acquire a US-based business to gain entry into the market and use the business as a distribution channel for their own businesses.
10. Do you have specific buyers in mind?
When you sell the business, you may have an “ideal buyer” in mind. It is but natural to make sure that you are leaving your “baby” in good hands. You may be looking for someone who shares the same values and business objectives as you have. Or one who shares the passion for the industry whom you know will dedicate resources and energy to take your business to the next level. You may prefer one who already knows the business, or has proven their capabilities in other successful business ventures. You may also choose to avoid buyers who you think may steer your business in a different direction.
The more restrictions you have in terms of your ideal buyer, the harder it will be to find the best buyer for your business, and the longer the process can take.
- How to Raise Money to Finance a Franchise
- 10 Rules for Starting a Business on a Shoestring Budget
- 20 Questions to Ask When Selling a Business (Part 2)
- Pros and Cons of Financing a Business
- Luck By Design: Living and Working with Purpose
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