At some point, you might want to sell the business you’ve grown and nurtured. Before you take the big step, ask yourself these 5 questions.
Selling the business you’ve worked for years to build—and nurture and grow—isn’t quite like unloading your used car once it hits 100,000 miles. The stakes are enormous, and they’re often personal.
Sure, automobiles can signify a sentimental relationship for many drivers, but for most small-business owners, the story of their own company is attached to the very core of who they are—it’s part of their identity. “When you sell your business, win the lottery or make a drastic, good change in your life, you’re suddenly confronted with an onslaught of you,” says Erica Douglass
, who sold her Web hosting company for $1.1 million about six years ago.
And when it comes to selling anything you have a personal stake in, experts will tell you that emotions can get in the way of good plans and successful executions. So how should you approach the sale of your business?
For advice that’s already proven to work, one place to turn is the business experts who have successfully put companies on the market. In their experiences, you’ll find some important strategies for effectively selling your small business.
Ask The Right Questions
Creating a plan for selling your business at some future date involves understanding the elements of timing, opportunity and best practices. These five questions will help you craft a plan that will get you what you want when you go to sell:
1. What are the triggers for selling? There’s an element of enjoyment that drives most entrepreneurs to continue to want to work at their business. When that’s gone, it could be the trigger for your sales strategy to kick in. Once burnout is a topic of consideration, selling your business is one way to remain creative and viable as an entrepreneur.
2. What is the lifecycle? A key question to answer, according to serial entrepreneur Troy Hazard, is where your business is positioned in its lifecycle. “Our formula for pinpointing a sale time is to set up the business so that it’s trading at its optimum just before the cycle peaks,” Hazard says. “Always seek to sell on the upward trend, not at the peak. If you’re at the peak, typically, you’re already beginning to decline; you just can’t see it yet.”
3. What value have you added? You’ve likely introduced new intellectual property to your small business, and you’ve almost certainly developed your sales force and client base in a way that will be valuable to the next owner. Identify opportunities to further fine-tune your company in the run-up to selling. Adding staff or resources now can make your pitch better when it’s time to strike a deal.
4. How much is enough? You want to know that you’ve reaped enough from what you’ve sown—your sales price should reflect that. Most accountants say the formula for setting the right price should be based on returns on assets, a return on funds invested, or a profitability multiplication formula. Underlying all of this, Hazard says, is the concept of “enough.” Understand your concept of what your sufficient profit is. Knowing your number can make the difference between a successful sale and starting over again when the potential buyer balks.
5. Broker or no broker? A broker can protect you against frivolous offers. “If you don’t hire a broker to weed out real buyers from curiosity seekers, you’ll be wasting a lot of your time and energy,” says Harris Glasser, who has 50 years of business and business sale experience. “Interview many brokers. Some will tell you’re asking too much, and some will say you’re way too low. When you know what a fair price is, you’ll know which broker is the right one for you.”
Finally, a key step in selling your business comes after the sale is made. Train and educate the new owner, especially when your deal includes a payment schedule for the buyer.
“Stay with them, breaking them in, holding their hand, until you’re confident they can swim on their own,” Glasser suggests, “both for their sake and to guarantee you’ll get all your payments.”
Article Credits : James O\’Brien, PhD
Contributor, Amex OPEN Forum