Your answer to the question “Why am I selling my business?” determines to a large degree your final price.
If you are thinking about selling your business, it is important that you have a clear idea of how you are going to go about it. This can be achieved with a sales plan. To start this process, you will first need to identify the reasons that have led you to make the decision to sell your business, since they will directly affect the result of that sale. If you do not examine in advance your reasons for selling, it is very likely that you will make mistakes which could cost you both time and money.
– Examine your motives for selling and your desired results
The first step is identifying what is driving you to sell your business. You should be honest, because money is not the only motivation for selling a business.
- Would you like to retire?
- Are you ready to move, but your business’ success depends heavily on its current location?
- Are your assets directly connected to your business and would you like to sell it and regain your independence from it?
- Or, are you just tired?
- Are you no longer interested in this line of work?
- Are its financial outcomes no longer satisfactory, and are you not in a position to put in the necessary effort to change this situation?
- Do you need to liquidate your investment in order to direct the financial resources from the sale somewhere else?
- Is a fundamental team member, partner or executive leaving, and is this situation going to cause immediate issues for the future of the business?
- Has a patent which you were holding expired or has some technology been discovered that constitutes a serious threat for the future of your business in its current structure?
- Is serious investment needed to renovate your equipment or to upgrade some of the technology and are you not in a position to do so?
- Is there no successor to continue business operations?
- Do you want to reduce your exposure to financial risk by selling a portion of the company?
Factors such as serious illness, divorce and the death of a family member or even just general tiredness of the owner are all strong motives for selling a business. Under these conditions, because of time constraints, the owner may be in a position where they need to accept a lower price of sale in order to attract an interested buyer.
– An immediate need to exit usually indicates the need for a lower sale price
If you rush through the selling process, it is very likely that you will lose the opportunity to make a deal that is appealing to you. Additionally, you may find a more experienced buyer, and you will be able to reduce or even eliminate entirely the transitional period, which usually leads to a reduced sale price. Of course, there are also cases in which, either due to financial necessity or other circumstances, selling the business immediately becomes necessary, in which case you lose the ability to offer financing to buyers, which often means a higher sale price.
– Planning ahead will help you get a higher sale price
Some business owners plan ahead of time the strategy that they will follow while selling their business at a very slow pace. Their motives for selling may include collecting money for their retirement or looking to accumulate capital to invest in a new business. Under these circumstances, the owner needs to find a professional financial advisor so that together they can prepare the business for sale in the correct way, and then wait for a suitable buyer. These owners are usually more flexible and willing to finance a part of the business being sold (or to provide accommodations to the buyer so they can pay the agreed price). The selling process may last for a significant amount of time, but the outcome is more likely to bring in a specialized buyer who is willing to pay a higher sale price.
– Your interests after the sale
- Are you worried about the future of your business?
- As a seller, is it important to you that the business remain in its current location in order to minimize trouble for your customers and staff?
- Do you want to leave the business once and for all?
- Do you want to continue to participate in the business as either an owner or advisor?
- Is there a main competitor to whom you would prefer (or not prefer) to sell your business?
- Is there an important employee or member of your family to whom you would prefer to sell your business?
All sellers hope to get the highest price for their sale, but many are also worried about the future of their businesses. Some wish to leave once and for all while others would like to retain some level of involvement either as owners, as employees with contracts, or as advisors to the new owner.
– Sellers’ motives have a direct impact on the outcome of the sale
Sellers’ motives affect the terms of the agreement as well as their expectations for it. Besides the academic methods of evaluating businesses, the question of “why am I selling my business?” determines to a large degree the final price the buyer receives. The answer to this question profoundly affects the manner in which potential buyers will approach and structure their offers. Fully understanding your motives and the outcomes that you would like to achieve can define with certainty what variables will shape the sale and your exit strategy from the business.
– Identify and address whatever issues may be creating a conflict of your priorities
Having examined your motives for selling your business and the outcome you would like to achieve; you will likely have discovered some issues that need to be addressed immediately. You may prefer to receive the full price of the business in cash but, at the same time, you may want to settle on a high sale price. Perhaps, you want to sell the business for the highest amount but, at the same time, few changes need to be made to the way in which the business currently operates. Whatever possible conflict of priorities you may have as an owner can put the success of the sale in danger. Issues such as these must be addressed before you come into contact with a buyer.
– Create a list of priorities and build a sales strategy
Business advisors can help sellers address the above-mentioned conflicts, develop a well-thought-out sales strategy and achieve the best possible outcome. Developing a plan of action before selling can be one of the most effective means of eliminating a number of problems that commonly prevent an agreement from being reached. Proper preparation before selling not only will help the owners evaluate with greater accuracy their business, but it will also prepare them for the market and help them get the best possible sale price.
In every case, two conditions can really make a difference and lead to the best outcome for the seller: time and a thorough and objective valuation of the business.
- Selling requires time and patience. Studies have shown that the average time needed to promote a business before it is purchased by an interested investor/buyer is anywhere between 6 and 12 months and, in a significant number of cases, this period of time may need to be longer or shorter. However, the more the circumstances limit the time available, the more the pressure on potential sellers will increase.
- The fact that we have devoted a significant chunk of our lives to building a business does not mean that the market needs to pay us for it. Therefore, emotional detachment during valuation is an important criterion and usually is achieved by using professional appraisers who can be objective and provide a point of reference. Whether we take this point of reference into account and give a final price based on this valuation is clearly our own decision, but it is important that we have it as a guideline so that we know generally what is the range in which we will be negotiating. Besides the seriousness that we show to buyers, if we have not done this evaluation ourselves, they will do so themselves with their own staff, so it is crucial that we know in advance what we are selling, not from our own emotional point of view though, but from that of the buyer.
For these things and many more, direct all of your inquiries to the experienced staff members of Business Interval.
