You’ve spent years, perhaps even decades, pouring sweat equity into your business. You’re ready to sell, but you’re not sure what to expect next. There are numerous variable to consider, and you know you want to get top value. So for the novice seller seeking to drive value and shepherd a successful sale to completion, here’s what you need to know.
How Much is Your Business Worth?
Value is in the eye of the beholder, which means that to drive value, you must convince a buyer that your business is worth something. Some common questions buyers will ask include:
- What are your profits and how are your sales?
- What is the trend in growth?
- What drives new sales? Is it sustainable?
- How are you positioned in the market?
- What systems and processes have you put in place to run the business?
The primary drivers of value that can increase valuation include:
- Reliable drivers of new sales
- Growing or stable customer base
- Established suppliers with backup suppliers available
- A clean legal history
- Many repeat sales
- A valuable brand without legal concerns such intellectual property issues
- Well-documented processes and systems
- Established growth potential
When Should You Sell?
Just as there’s no perfect time to have a child or get married, there’s no moment at which the heavens will part and tell you it’s time to sell your business. The answer varies from business to business, but it’s always best to sell during times of sustained growth. Sadly, some owners get swept up in a tide of growth, convinced it will last forever. Then the bubble bursts and value declines. So selling is always a subjective decision, but don’t wait too long.
Why Sell a Business?
The reason you sell your business can affect its value. If you’re cashing out because you need money or the business is tanking, this can be a liability. Other reasons for selling include:
- Starting a new business
What is the Sales Process?
The process of selling a business seems straightforward, but can be complex depending on the size of the business and other factors. The process goes roughly like this:
- The owner decides to sell and gets a valuation.
- You create a prospectus of key facts.
- You find key buyers, often with the assistance of a skilled M&A advisor or business broker.
- You negotiate a price, as well as terms of the deal.
- You transfer assets and cash.
- You train the new buyer to run the business.
The time it takes to sell the business depends on the terms of the deal. Large deals tend to take longer, but industry average reports suggest it takes about 10 months to complete a sale.
Who Buys Businesses?
You might be surprised by how many potential buyers there are. Some common choices include:
- Individual buyers seeking to own their first business. They are often a high-paid employee or C-suite executive with disposable cash.
- Other business owners, including industry competitors with a keen idea of how to run your business.
- Private equity companies that want to grow the business and sell it at a profit.