Maybe your idea has grown well beyond your capacity to control it, like one recent company which allowed users to ship their “enemies” envelopes filled to the brim with glitter. Perhaps business has started to turn down and you want to get out while the getting is good. It could be that you’ve been ready to retire for a little while, and the idea of running your company is starting to weigh on you more than it uplifts you.
Regardless of the reason, you’ve decided it’s time to sell. You’re not alone in the least; since 2012, business-for-sale transactions have increased by almost 50%, owing mostly to Baby Boomer sellers who are interested in getting out of the game and retiring.
Actually selling your business can be a tricky prospect, however, and requires a lot of planning, care, and effort. If you’re interested in finding someone to buy your business outright, we discuss here some of the steps you should be taking to get your affairs in order before seeking a buyer, maximize your profit, and ease the transition.
- Make sure all your accounts are visible. Many businesses generate significant amounts of cash income, and while this can be nice for some business owners, it makes it hard to get a clear valuation of the business and is likely to render buyers less interested. A reassurance that there’s money in the business is no match for a clear paper trail and a good sense of how the business makes that money.
- Have a succession plan. If you’ve spent your entire life building your business and only now want to sell, this might be a foreign concept for you, but you absolutely need to have some idea of how your business will persist after you sell it. Start delegating responsibilities out to employees before you make moves to sell, as it will provide a clearer picture of how your business can generate value without your vision driving it.
- Build many relationships. Having a diverse group of customers, and having no customer who makes up more than 10% of revenue on its own, can make a business more attractive to a potential buyer. Many such customers are more loyal to a business’s owner or to its current personnel than to the brand or the company; accordingly, these customers can be risky for a buyer to rely on. A last push to grow your business will make it seem more reliable, and in turn, appear to be a smarter purchase.
- Know your worth. Everything has value, including your brand and market position. Customer data housed in a CRM system can significantly increase the value of your business to a potential buyer, especially a buyer with the ability to cross-sell to the sorts of customers you’ve accumulated over the years. A business valuation is always a good idea, but make sure that things other than the baseline revenue stream get a good, healthy look.
- Look at the numbers. Since 2010, small businesses have sold for a little under two and a half times their cash flow, numbers which have held relatively steady and never gone below about two and a fifth. Keep this in mind when considering asking prices.
- Consider who you do business with. Are all your customers in the same industry? This can make a business less attractive when selling. Just as potential buyers are looking for many customers, they’re looking for many types of customers; doing business solely with auto manufacturers, for example, can lead to a stark downturn during a natural weak period in car sales. By selling to a wider range of customers, you make your business healthier, and buyers want to purchase healthy businesses.
- Keep your expectations realistic. Your business is more like a house than a commodity, unless you’ve built up a truly exceptional brand that buyers are likely to know and covet. You will probably take a while to sell your business, and it may not draw quite as much as you think, unless you spend the time prior to the sale putting in the above improvements to make it a more attractive buy. Pace yourself, and don’t start fantasizing about the next venture or your life during retirement until you’re about to sell.
By taking the time to reassess your company before selling, and even going for one last substantial growth push, you can get a much bigger seed with which to finance your next venture or settle into retirement. Have you sold (or bought) a business? Do you wish you’d done something differently? Give us your insight in the comments.