Things You Need to Know Before Selling Your Business

Business,Business Tips

Things You Need to Know Before Selling Your Business

16 May , 2018  

Selling a business is a versatile process that involves crucial points of consideration. It is not a simple and easy process but can be highly rewarding if done with extra care. If you are planning to sell your business, then you need to know the primary factors that can help you in maximising your chances of success. If you do not research well and follow the key steps, then you may end up wasting months and getting the right deal.

Experienced buyers will see you and the business you are selling and will quickly pass it over if they see any potholes. Hence it becomes imperative to measure the factors and see where your business stands a chance. Things like determining the worth of your business, finding suitable buyers, how to maintain the confidentiality from your customers, competitors and employees, are few critical factors that you need to know before you start out in the market.

Consider the following important points to maximise the chances of selling your business:

  1. Overall Process

Before you start the selling business, you should be aware of the overall process and how the business is valued. It is common to take minimum time of six to twelve months to sell your business once you are in the market.

Also, don’t rush into the whole process; give yourself enough time to study the basics and the facts. Do your research and know the key steps that you should follow:

  • Confidentiality
  • Management Meetings
  • Valuation and Maximizing Value
  • Engaging Buyers
  • Negotiation
  • Letter of Intent and Term Sheet
  • Closing Documents and Process
  1. Understand Evaluation

Understanding the value of your business is crucial when thinking of selling your business. One of the most common mistakes business owners make is to value their business based on revenue, however, they don’t know that growing revenue at the expense of cash flow, will often diminish the value of the business.

The primary metrics for determining value are the cash flow and other factors like depreciation, taxes, amortisation, earnings before interest, are the primary metrics for determining value.

One more critical factor is to remember that buyers do not just look at the financial aspect, but also at things like strong management, infrastructure, growth capacity etc.

  1. Maintain Confidentiality

Maintaining the confidentiality of your business deal is essential.

For that, you can use a third-party to engage buyers. Most business owners hire a business broker who assists in locating a buyer and protect confidentiality.

Or you can also use an effective Non-Disclosure Agreement which is specific and detailed.

  1. Be Honest

Be upfront about everything while making a deal with your buyer. The investors are experienced, and they will understand it if you are not informing them everything in the beginning. Remember that any business is not perfect, and each one of them has positives and negatives and buyers do understand this. Being honest since the beginning will lower the risk of failing a deal.

Honesty is the best policy in all business transactions and the same works with selling any business.

  1. Focus on Present Statistics Instead of Past

Buyers are not interested in the previous success or previous statistics of your business. At the time of sale, the past success of a business is almost irrelevant. Buyers are interested in the current performance of the business, generally of the past one year. They look for future sustainability and feasibility.

  1. Negotiate the Deal

Use effective techniques for the negotiation while selling your business to get the best prices. Focus on the deal structure, non-price financial consideration, taxes and intangibles to make a smart negotiation. Different businesses such as retail business, manufacturing business, cleaning business etc always undergo negotiation. For instance if you are selling your cleaning business, you need to have all the necessary details that buyers of cleaning businesses require. If you are able to give any information about your business such as simple tips to remove water stains from leather or carpet, then the buyer will have a positive impression that your business has potential and deserves negotiation.

  1. Preparing Documents

Collect all your important documents such as financial statements, tax returns etc. and review them with the help of an accountant. Make a list of contacts related to sales transactions and supplies, and cover relevant paperwork. Create copies of these documents to distribute to the potential buyers.

  1. Finding a Buyer

Finding a buyer is the most significant step when selling your business. However, getting the right buyer can be a tough task, and for that, you need to be fully prepared. Here’s how you can get potential buyers for your business:

  • Do not limit your advertising
  • Always look for 2 to 3 buyers so that that deal can be sealed with one for sure
  • Stay in contact with all the buyers
  • Have some room for negotiation
  • Look for a financially qualified buyer

Conclusion

You worked hard for your business, but selling that business is a huge task and takes careful planning to get the best results. Study the points given above and make sure you make the perfect deal for your business.