Third in a Series … Click Below to Review the First Two
Welcome to the latest article on the planning stage of getting ready to sell your business. In the last article on this topic, we discussed reasons entrepreneurs cite for selling their businesses … and you will have your personal objective as well. Then we dealt with the issues of:
- Am I ready to sell … financially and emotionally?
- How much is my business worth?
- Who do I turn to for guidance?
Now, we’ll tackle four considerations with which you will need to come to grips.
- Realistic Expectations
- Business Value
- You’re Too Busy to Sell Your Business
- Potential Buyers
Many closely held business owners start their sales-price thinking based on their perceived retirement plan needs. Please … don’t fall into that trap. It will only result in your frustration and the potential to turn off prospects who have the wherewithal and willingness to buy at a realistic price … one that is market-driven, not your desired life-style in your golden years. The value of your company is “in the eyes of the beholder”. That means what a qualified buyer is willing to pay, not what you would like to walk away with from the closing table.
Ideally, the beginning of your planning process is a third-party valuation by a professional valuation expert. This valuation supports the thoughts above about realistic expectations by creating an objective value or range in value based on evidence of the financial health of the company and its being a viable entity without you, the current owner, on board.
Note: Rich-Biz will provide a free preliminary valuation to qualified business owners seeking to sell. Be sure to ask how you may be eligible.
Once the valuation is completed, your asking price will reflect the optimum sale price that the market is likely to bear. By the way, the dollar figure at sale is likely to be more or less than your asking price depending on the buyer. For example, if your company is viewed as a strategic purchase by a competitor or larger company seeking to diversify, you may enjoy a sale price at a premium over and above your asking price … especially if there are competing bids. (More on that in a bit.)
You’re Too Busy to Sell Your Business
You already have a full-time job running the very business you seek to sell. “Stick with the knitting” to maintain and enhance the value of your salable asset. That points to the need for expert advice and execution by a proven advisory and business broker resource.
A competent business advisory/broker resource will help you sell your business today if that is your goal. Moreover, employing its advisory services, a full-service resource will work with you to groom your business for future maximum curb appeal and peak sales value. And at the forefront, a competent resource will not offer a one-size-fits-all formulaic approach … your company is unique and advisory services must be tailored accordingly.
There are two broad categories of business buyers … financial and strategic. Each has its own evaluation and decision-making criteria in selecting a candidate for purchase.
Financial Buyers are investors/operators interested in the profitability, cash flow and future exit opportunities of buying your business. Their assessments of your business may include the potential to grow cash flow through revenue enhancement and expense reductions. Note: They are much more likely to keep the current personnel in place than strategic buyers.
Financial buyers may be one or more of the following:
- Employees … They know the business, how to run it and can pay for the purchase from business revenue. That does not preclude an up-front cash purchase in whole or in part.
- Family members … Caution! The stats point to interest on the part of 2/3 or more of family members when offered. However, only 1 in 10 businesses are successfully sold to this class of buyers.
- Third-party buyer identified and nurtured by a capable business brokerage firm.
Note: Rich-Biz has developed a local and national network of qualified buyers.
Strategic Buyers have a long-term business view of how your company may fit into their plans toward diversification, eliminating competition or enhancing its own shortfalls, e.g. technology, marketing or R&D. Strategic buyers are often willing and able to pay more for a company than financial buyers because they may see savings in eliminating duplicate functions or ramp-up costs to capitalize on a new market. Note: Strategic buyers are much less likely to retain all the current personnel.
Screening, vetting and selecting the right buyer prospects will make all the difference in the outcome of your sale. Financial buyers may pay closer attention to the current workplace culture, workforce makeup and chain of command. Strategic buyers may exhibit less an emphasis on these in favor of a determination of how to retrofit your existing company into its vision for its immediate and future acquisition value.
Financial Capacity: In screening a potential buyer, it is important to determine that person’s or entity’s ability to finance the purchase. That means immediate availability of cash, stock, notes for a cash sale. In circumstances where the prospective buyer is a “preferred fit”, sellers may be willing to finance some portion of the transaction.
Regardless of the type of buyer that you seek or that seeks you out, the next stage in the sale process is Preparation. That is the topic for our next 2 issues of the Rich-Biz Newsletter. Don’t miss it! You’ll learn how to “dress your company for success” … a successful sale, that is, at peak sale value.
Rich-Biz Brokers helps sellers and buyers of businesses … with motivation driven by an alarming statistic. The fact is that 70% of small businesses are never sold … they just close. The upshot is business owners and their families in Central Virginia are in financial jeopardy. So back to our motivation … to enhance the financial well-being of this at-risk group to avoid becoming one of the 70%.
In large measure, the reason so many businesses are not sold – but shuttered – is a lack of foresight and planning. And that’s fully understandable when small business owners are faced with the daily challenges of generating revenue, juggling inventory, customer satisfaction, employee relations and the pursuit of profit to survive.
R-B’s mission is to financially enrich small business owners and their families through sale-of-the-business Planning, Preparation, Promotion and Post-sale guidance … the 4-Ps.
We will help! Just give us a call or drop an email. We’ll respond promptly!
Click Here: Access more insight to prepare your business for sale and enjoy peak sale value.
Note: Be sure to check out our next issue for the continuing installment on Preparation to sell your business.