10 steps to consider when selling your business:
Estimates suggest 85% of all business owners do not have an exit strategy. Selling a business takes time and planning. All too often, business owners get forced into selling due to health issues, age and so on. Worse yet, they begin to see falling revenues and try to sell when the future is less certain. A well choreographed plan, carefully prepared in advance will increase the value of your business and attract the type of buyer that you feel would be most appropriate.
Step 1Set a time-line on the sale and your eventual exit
The first question you must ask yourself is: ‘When do I want to exit?’ Age 55 or 60? You also must determine: ‘How much is enough?’ One has to have a number in mind. So, for instance, if your corporate sales revenues are $5 million and you want to sell when the business grows to $10 million, you must set forth a sales growth curve and figure out how you will achieve it. This may be in the form of organic growth or acquisition. Either one takes time.
Step 2Plan your level of participation - time and money
There are several paths when selling a business. Depending on the type of buyer, you can walk away the day after the sale is completed, stay on for a few months or a few years, or be hired to manage the business after it is sold. This will of course depend on the type of buyer that you attract, their expectations and what you negotiate.
Step 3Evaluate the true value of your business
The biggest trap that sellers fall into is believing that their business has a higher value than what it really has. One has to be realistic when coming up with a valuation. There are very few Apples and Googles. A common approach looks at the bottom line and then applies a multiple. A good starting point is 4 X profit. Tangibles include inventory, equipment, receivables, and future orders. The ‘multiple’ will increase based on ‘good will’ factors or intangibles such as brand awareness, trademarks, patents, distribution channels and customer lists.
Create an attractive picture for the buyer
Whether you are selling a business or a piece of chocolate, a beautifully packaged presentation is more attractive to the buyer and it creates a sense of confidence. A clean well-organized business with a happy staff is immediately noticeable. It is your job to create a healthy work environment along with a strong, attractive brand as this will command a higher price. Remember, the value is always in the eye of the beholder.
Step 5Make sure all of the processes are in place
When preparing to sell, it is imperative that you have all of the pieces in place. You should be able to run your business from the beach! This means generating departmental reports and ensuring you have the discipline in place to ensure they are being produced in a timely fashion. This includes key performance indicators, a management dashboard, sales forecasts, expense budget and financials. A well-run business that has all of the processes in place will be viewed as being much more attractive than one that is chaotic, even if both make the same bottom line.
Step 6Demonstrate steady growth and future earnings
It is critical that you present both a proven past history and your future growth potential. A consistent upward trend with great new products, services, or expansion plans in the pipeline sets the stage for greater value. You also want to demonstrate consistent profitability year after year. No one wants to buy a stagnant pond or sinking ship.
Step 7Get your management team in place
Depending on the buyer, they may or may not want your participation. However, they will want to see a well-oiled machine with department heads that will be able to run the business. If you are the one that is doing everything, then you will have a problem! You must learn to delegate and make sure you have the right people in place. Good people, as they say, will always be your biggest asset.
Prepare your numbers
This begins with concise financial statements that go back at least three years. But there is so much more. Monthly internal statements, sales forecasts, expense budgets, production schedules, a management dashboard… Smart buyers look for businesses that have controls in place and methods of measuring productivity and results.
Who will buy your company?
There are four types of buyers to consider: You could sell your business to a family member in an effort to create an on-going legacy. You could sell your business to your management team. There are strategic buyers out there that may want to buy your company so that they can enter into a related business segment. And there are financial investors that see your business as a tool to satisfy their shareholders. There are pros and cons to each, depending on your expectations.
Ready, set, go… you are now ready to sell
Depending on the value of your business, you may want to sell it on your own, bring in some help from a consultant or hire the big guns. If your business has a value of $10 million or more, you will want to bring in a mergers & acquisition specialist to orchestrate the sale. These folks will work with you to develop a list of potential buyers or dig into their chest to find investment groups that may be well suited. You will then need to bring on strong legal representation and tax guidance. As this may well be the biggest deal of your life, you will want to get it right!
Leave something on the table
The buyer needs to see a bright future. Leaving something on the table is critically important. Keep in mind that the new buyer will likely change some of the business activities in a direction that he believes will benefit the company in the future. Part of the reason to sell your business includes knowing that it is time to let someone else drive the bus. So, let them enjoy!
Selling a company is like painting a picture. A nice sunny picture with a beautiful sunset is much more attractive than a dark grey day. This may sound simplistic; a buyer is looking for a good news story that he or she feels good about investing in. It is up to you to paint your picture with plenty of color and detail!
One more thought to share… keep your ego in check. The biggest obstacle to a successful sale is often the seller’s ego. You must be ready to let go.