Money Matters - Simplified

So How Do You Sell Your Business?

Selling your business could very well be the most important high-stakes financial decision of your life. Make sure you do it the right way.
There is a whole lot to learn about meeting the prospective buyers. These meetings will make or break the deal.

Selling your business can be hard, especially after investing so much money, time, and energy on building it up. If you do it right, you win; if you do it wrong, you lose. Selling a business is a delicate balancing act, and takes time.

Ask Yourself These Before You Sell
Anthony Tjan, in his book The Founder's Dilemma: To Sell or Not to Sell?, advises entrepreneurs to ask themselves these questions:
1. Do I need to sell? Explore whether there are other options such as investing in assets with long-term value that push this question off until you are ready.
2. Can I take some chips off the table? Look at other options such as a recap, a dividend, or a partial sale of your stock.
3. Do I want to sell? What you want personally is as important as the dollar amount you might get. Ask yourself whether you will be happy or feel as if you sold out too soon."

However, Bo Burlingham, in his Foreword of Built to Sell, by John Warrillow, provides a counter-intuitive advice about building and selling a business: “The point is that the best businesses are sellable, and smart businesspeople believe that you should build a company to be sold even if you have no intention of cashing out or stepping back anytime soon.”

The reasons for selling may vary: market saturation, burnt-out feeling, seeking a new adventure, the pleasure of creating something new, and worries about the economy and future of the company and industry.

Basics of Selling the Business
Selling your business could very well be the most important decision in your life, so make sure you do it the right way.

1. Professional Valuation
First up, it is a must to get the worth of your business evaluated from an independent, professional source. A professional valuation gives you details about your business’ strengths and weaknesses, market position, buyer’s offers, and an idea about the gains from the sale.

Domenic Rinaldi, president and managing partner, Chicagoland Sunbelt, Chicago, says: “there are many formulas for valuing a business. The sale price depends on such factors as sales, profits, business fundamentals, future prospects, client concentrations, and others. A third-party independent valuation is one of the most reliable methods of establishing a market value for your business.”

2. Keep Records up to Date
Buyers prefer detailed financial and company records that give a complete picture of company’s financial position.

Loraine MacDonald, in her article Preparing to Sell Your Business, says: “Buyers evaluating your business generally require at least three years' worth of financial information. The more formal your statements (accountant-reviewed or -prepared vs. internally generated statements), the better the impression you'll make-and the easier the due diligence for a buyer. Tax returns may suffice.”

3. Listen to Advisers
Professional advisers have seen the situation before and know how to go about it.

As Domenic Rinaldi, says: “No matter how independent you are, the sale of a business is not something to handle on your own. A good team should consist of a business intermediary, transaction attorney, and accountant. The performance of the company during the time it is on the market is crucial, so working with a transaction team will allow you to focus on the ongoing operation of the company while the team handles the sale.”

4. Know How to Meet Buyers
There is a whole lot to learn about meeting the prospective buyers. These meetings will make or break the deal. As Domenic Rinaldi says, don’t lose leverage by appearing desperate at trying times.

5. Sell When There is More Than One Buyer
When you have multiple buyers, you have more leverage and higher value. Domenic Rinaldi says: “Brokers constantly remind sellers that having only one buyer is like having no buyers. A good business brokerage firm has the marketing muscle to generate heavy buyer interest even if the business and owner are not in top form.

“A brokerage firm should have a large, existing database of buyers who may be interested in your business, an internet presence that attracts buyers and a trained, professional staff that knows how to manage a difficult situation. Engaging multiple buyers will enable you to get the best price and terms possible.”