By: Jacqui Roth
In business brokerage, we work with all types of businesses from just about every industry. The size, business type, or industry doesn’t discriminate when it comes to unifying business owners in a cloud of misinformation about selling their company—and the preparation needed to do it successfully. I’ve included the most common misperceptions we hear each day when speaking with business owners all over the Southeast.
1. I don’t need to think about it now.
For most small business owners, selling your business happens only once. The business is likely the most valuable asset you own, and yet owners generally are in the dark about the value of their company. What metrics affect market valuations, and more critically, what they can do to maximize the sales price before they sell? A good business broker will take the time to develop a relationship with you before you’re truly ready to sell. They will assess your business strengths and weaknesses and give you suggestions to make the company more attractive to buyers—thus increasing its value. Time is required to effect these changes and procrastination is your enemy. Selling a business is a complex process and often takes longer than you anticipate.
2. One of my competitors will be the best prospective buyer for my company.
It is hard not to think of a competitor as your most probable buyer. After all, who would want to buy a web-design business other than someone who knows how to design websites. This is reasonable logic; however, you will never achieve the best price for your business by selling to a competitor. Ever. The simple reason is that a competitor will value only the addition of your customer list and access to your suppliers or added market exposure. This is a surefire method to minimize the value built over the years. Between competing companies, there’s so much overlap in administrative duties, processes and procedures, the value of those to a competitor is near 0. Achieving the maximum value for your business is all about finding a buyer who is the right strategic fit for your business. In other words, a buyer who will benefit to the maximum extent by owning your business—because such a buyer will be prepared to pay more for your business than any other purchaser.
3. My numbers are down due to the economy, so no one would be interested in my business now.
What many business owners don’t realize is that there are options beyond liquidating your remaining inventory or just shutting the doors to the business for good—providing little in return for many years of hard work. There are more interested buyers than there are business owners interested in selling right now. The laws of supply and demand make this an ideal time to look for a motivated buyer to take over operations. Due to corporate downsizing, there are a lot of high net worth individuals interested in more entrepreneurial ventures than jumping back into big business bureaucracy.
4. I’m a great salesperson, so I’ll be able to sell the business myself.
Many owners believe they know how to sell their business. Many owners are the key salesperson for their company. But selling your business is not like selling a product or service. If you try to sell your own business, confidentiality is lost. You risk losing clients and employees—the very goodwill you are trying to sell! In addition to the confidentiality issue, there is the time issue. Do you really have the time to run your business and compile marketing materials, advertise, screen buyers, give tours and facilitate due diligence, negotiate a fair deal? Industry statistics suggest fifty (50) buyers inquire about a business before it is sold, and only 5% of buyers actually wind up buying a business. There are a lot of tire-kickers out there!
5. After closing, I’m free!
Even after the business is sold, the seller can be expected to put in at least a few months (or even years) of transition time to help the new owner with a smooth transition—thereby securing payback on the loan the seller most likely provided the new owner as part of the deal. This is one way to reduce the risk taken on by the buyer and to ensure continuity of revenues after the seller hands over the keys. Be prepared to tack on additional months or years to your transition timeline.
It’s never too early to begin planning. In fact, all businesses should incorporate an exit strategy within the initial business plan.
Jacqui Roth is a Certified Business Intermediary with Walden Businesses, Inc. in Raleigh. Walden is the leading M&A firm in the Southeast, representing business owners and qualified buyers of small businesses and lower-middle market companies up to $50MM in revenues. Walden guides shareholders and management teams through the sale process, bringing over 120 years of combined experience and judgment to maximize value and facilitate seamless transitions of ownership. For a no-obligation consultation, contact us today at [email protected] or visit www.waldenbus.com.