Last Updated on October 30, 2024 by Owen McGab Enaohwo
Most business owners dream of the time when they sign that last paper, shake hands and say goodbye to their business for good. Wouldn’t you love that to be yours?
Selling your business might sound scary, especially when you hear stories from others who didn’t fare too well in selling their businesses on how frustrating it can be. Selling a business can be a daunting goal for you to work toward. According to the Exit Planning Institute, only about 30% of business sellers successfully sell. Yikes.
Not to worry, though! This article will guide you through the processes needed to sell your business successfully (hopefully for a huge profit). You’re a businessperson. You’ll take selling your business as seriously as you would pursue an important contract. There can be no slacking off while you’re on this semi long–term project. We’ll get right on it then!
Table of Contents
Chapter 1: What Every Buyer Looks For
Chapter 2: The Different Types of Buyers
Chapter 3: What You’re Selling
Chapter 4: 10 Steps to Selling Your Business the Right Way
Chapter 5: Wrong Approaches to Selling Your Business
Chapter 6: How SweetProcess Helps Make Selling Business Faster
Conclusion
Chapter 1: What Every Buyer Looks For
Alright! Wondering why this comes first? There’s a really old saying that goes like this:
“To catch a monkey, you’ve got to act like one.”
The person buying your business has your money, and you want that. You’ve got to know how to get him to give you what you want while making sure they get what they want, too.
To accomplish that, you must put yourself in the shoes of a business buyer so you know what they’re looking out for, get things in order, and present a fitting deal. Assume the position of a buyer, look for any flaws (immediate or future), and set any wrongs right. Most potential business buyers would consider the following points before agreeing to buy a business.
Profitability
Everyone is looking to make a profit. Unless a businessperson sees serious potential in a dying business, they’re not going to buy. Your business has to show that it is doing well in sales. Your books should have a record of profit going back three to four years. A business showing a steady rise in profit is very appealing and would attract buyers more quickly. You’ve got to up things if your sales aren’t looking too good.
Employees
How your employees are supposed to fare after you hand over your business is another thing buyers look out for. If you’ve been running your company in a way that suggests practically everything needs you to run smoothly, that’s a turn-off for potential buyers. They want to be sure that without you, your business can run just fine. If you’ve been the sole executor of your business, you should work it out such that your employees can handle tasks just fine without you. The less of “you” there is in your business, the better chance your business will be bought.
Customers/Concentration Risk
Buyers are interested in how much each customer is bringing in. Do you depend on a particular customer for most of your revenue? If that answer is in the affirmative, that’s not so good. Buyers will see that as a red flag and hightail it out of your office. What this means is that if that “important” customer decides to stop patronizing you, your business will suffer. That’s a lot of risk for a buyer, and the greater the risk, the lower the value. Reduce risk for the buyer. Expand your source of revenue flow. Reach out to more clients and have them stick with you.
Legal Matters
Say your business is in the middle of an ugly legal battle: you don’t expect someone to inherit all of that trouble, do you? The moment a buyer sniffs out that your business is tangled in some legal issue, they’re pulling the reins. Sort that out before you put out your business for sale.
Reason for Selling
This factor is so important. You have to know the answer before you decide to sell your business. Just why are you selling your business after so many years? Prospective buyers will be curious to know. Don’t lie to them if the reason is unattractive. Are you selling because your business is performing poorly, or have you simply lost interest? Those are not great reasons to sell your business. Your approach matters when you’re meeting buyers. If you’re not excited while pitching, buyers will suspect that your reason for selling is bad.
You
How much of you can be removed from your business without it affecting performance? Business buyers are keen on this answer. It’s best to let them know and see that you are easily dispensable. Selling your business is not the time to say how great you are at running your business or how much of a fine job you’ve done to increase sales over the years.
Don’t do that.
What the potential buyer is getting from all the bragging (even if you did do a good job in running your business) is that without you, sales will rapidly decline, and the business will struggle without you. You want to make the buyer confident that without you in the picture, things will continue going on well. At this point, emphasize the wonderful management team you have and other employees.
Revenue Type
The type of business you run determines how fast you get a buyer. A business that does well only on some particular period of the year is less likely to sell when compared to a business that generates revenue year-round. Without a doubt, there are honest businesses that have their seasons. Regardless, you and your team can brainstorm other areas from which revenue can come in when it’s not the business’s season. This way, there’s always a stable generation of revenue.
Chapter 2: Different Types of Buyers
There are three types of buyers in the market. Understanding what they are and what they look out for will help you know how to prepare your business for selling to each type.
Individual Buyers
These are people like you: simple entrepreneurs looking to have their own business, but without starting from scratch. When you pitch your business, they look out for the quality of infrastructure, your team of employees, and profitability. If you’re selling to this person, work on improving those areas of your business.
Strategic Buyers
Strategic buyers are business owners who operate a similar business in your particular industry. These buyers are looking out to either expand their business, decrease competition, or reduce the cost of operations. The strategic buyer isn’t necessarily looking out for profit when they are interested in buying your business. They believe that your company and their company combined will perform well together. What interests this type of buyer is how your product fits with theirs in a strategic manner to boost sales. When you’re selling to this sort of buyer, you want to market a valuable product or service. Emphasize how your product goes well with theirs.
Private Equity Groups
Private equity groups are investment funds interested in businesses that have strong earning and growth potential. They don’t care what your product is. They want to see a stable operating system and cash flow. They will invest in a company they believe in for a period of five to seven years and then sell for a profit.
Chapter 3: What You’re Selling
A business either sells profit or potential.
Most buyers are profit-minded and pulled toward a business whose records show an encouraging and steady rise in revenue. You might have a business performing badly, but with some financial assistance, it could do great. That’s potential. A strategic buyer might be interested in potential but not a private equity group.
When talking to individual buyers and PEGs, avoid the word “potential” as much as you can. That word is not only irritating – it could ruin your chances of making a sale. Think of it this way: if your business has so much potential, why am I only seeing these figures? Are you ready to show us just how much potential it has if we put you to it? Simply play it safe and let them see the potential without you showing them or stating it directly. Do it subtly.
Here’s a video explaining more about selling potential or profit.
Another thing to note is that the larger the purchase price of your business, the longer it takes to sell. Here are three major reasons why:
- The number of financially capable buyers reduces as the asking price increases.
- The due diligence process for larger acquisition takes longer because of the involvement of professional advisors.
- The operations of larger businesses are more complex, and it often involves lenders who take a long time to assess opportunities.
Chapter 4: 10 Steps to Selling Your Business the Right Way
Now we’re on to the juicy stuff: how to sell your business the right way.
Selling your business takes a good amount of time. This can take anywhere from six months to a year or more. Prepare your mind for that. You don’t wake up one morning with the idea to sell your business and then dive right in looking for a broker. You plan strategically to prepare your business for sale. Dedicate at least three years to get your business in the right shape for sale before putting out the “For Sale” sign. Let’s see some key points to selling successfully.
Step 1: The right time to sell
When is the right time for you to sell your business? Is it when sales are not looking good? You’ve lost interest? You’re running out of money? Any of these reasons are good for the right kind of buyer.
Say your business is going broke, and you need a way out. You don’t have the needed finances to pump life into the business. Why not approach the competition and offer them your business? This will be the best plan if you want to sell to a strategic buyer who is not looking at the profitability of your business. It’s up to you to let them see the value of your product while you’re pitching.
Don’t wait until you’re ready to retire or your business begins performing badly before you sell. Avoid selling under pressure to avoid putting pressure on yourself to accept any deal.
Step 2: When to get a broker
Who you’re selling to will determine whether or not you need a broker. When you plan to sell to family or friends, it isn’t exactly necessary. If you know selling your business by yourself won’t distract you from running the business, you can do it alone.
When the buyer is going to be an outsider, it’s preferable to employ the services of a broker. Using a broker means you’ll spend some money, but it’ll be money well spent in the long run. A broker understands the business world better than you do and will work hard to get the right deal for you. If your business is a large one, you need a broker. Don’t just get any broker, though. Get the right one for you.
Here are a couple of suggestions:
- https://www.bizbuysell.com/ BizBuySell (for businesses under a $2 million yearly revenue)
- https://hl.com/ Houlihan Lokey (for businesses over $5 million a year in profit)
Step 3: Finding the right buyer
This also translates to you getting as much competition for your business as possible. The more buyers, the more you can raise the value of your business. It’s better to have more options when selling, so you feel freer when picking out the right one. Find out why they’re interested in buying your business and the one you’re most confident about, then proceed to the next stage. Learn to spot a serious buyer and a suspicious one.
Step 4: Finances
An accountant helps with the financial information you choose to show to buyers. Get your books in order and keep an updated financial record. An audit for the past few years may be expensive but worth it. Be transparent, and don’t leave out important information on how you run your business.
Step 5: Increasing sales
The fact that you’re selling your business doesn’t mean you have to become sloppy while running it. When your books show that you have consistent profits for several years, it makes finding the right buyer easier. The time of selling your business is the best time to increase sales. So, go out and do that!
Step 6: FAQs of your business
Having an organized document telling prospective buyers the most Frequently Asked Questions (FAQs) about your company is a definite winner. While preparing for sale, ensure that the basics of your business are accounted for in a precise manner. Having the necessary documents when needed shows the buyer you’re professional. It also speeds up the sales process.
Step 7: Due diligence
This part is incredibly important. It is at this point that most business deals fall through because buyers discover things are different from what the business owner said early on. Due diligence is performed by the potential buyer to confirm the information you’ve supplied.
Business owners should be prepared for any questions that could be asked, along with documents showing proof. There will be a look into sales targets, profit margins, and working capital, amongst others. The process also involves talking to customers, suppliers, and employees. You see, there’s no need to lie about your business, as the truth would come out eventually. This process could be long or short, depending on the type of buyer and the size of your business.
Step 8: Professional management
Your team of workers should be good at what they do. This is a bonus if you’re selling to an individual buyer. Instead of them employing a new set of teams, the buyer is confident that your team is capable of running efficiently based on your assurance and facts, too.
Step 9: Information control
Selling your business can be an exciting journey. You can get carried away telling your story that you begin to give too much valuable information to the wrong person. Not all buyers have a genuine interest in your business. They could be looking for a way to get intelligence to sell to the competition. Don’t reveal too much until you’re convinced the deal is a good one.
Step 10: Having a procedure manual
Having a document that clearly outlines the role of each employee is an added advantage for attracting buyers. A place where they have access to your industry’s knowledge is an invaluable asset.
If you don’t have a document bearing this information, you should. It is not only good for the buyer, but it’s good for your staff as well. There will be no confusion as to what each person’s job is. The document can be updated to pass information. This manual also makes the process of transition easy for buyers. It’ll make them more comfortable with taking over a new business and all the employees within it. Different software options are available for performing this task, and yes, one of the best is SweetProcess (at least we think so)!
Chapter 5: Wrong Approaches to Selling Your Business
There are plenty of mistakes to avoid while getting ready to sell your business. These mistakes may delay sales, cause you to close a poor deal, or not sell at all. The following are some things you should make sure not to do when selling your business.
Being greedy
When you think of selling your business, the thought of cashing out big time is not far from your mind. After all, it’s years of sweat we’re talking about, right?
Not so fast!
You’ve got to be realistic while negotiating your price. Don’t insist on a particular figure. Leave some money on the table while you’re walking out. Your business worth is usually multiplied to get its real worth.
- Small businesses (under $3 million) get two to three times their profit.
- Medium businesses ($3 to $20 million) get three to five times their profit.
- Large businesses ($20 million and over) get five to ten times their profit.
Watch Dan Lok share some of his past mistakes as a newbie in selling business:
Ignoring curb appeal
Most business owners don’t bother themselves with priming their business for sale. You’ve got to treat your “baby” like it’s getting a yearbook picture. There are multiple businesses out there vying for the attention of buyers; therefore, you want yours to be outstanding. The little things matter when making a good first impression. Take care of the appearance of your business environment, inside and outside. Equipment should be in good working condition. Do the needed repair work if needed.
Not marketing your business yourself
Who can tell the story of your business better than you? You can say that again! No one. Knowing this, you don’t want to leave the work of marketing solely to your broker. Be involved in the process of selling. Meet buyers along with your broker. It is more professional because they’d like to see the business owner learn as much as they can about the business.
Not keeping sales confident
When you’ve decided to sell your business, carry on with your daily activities as you’ve always done. You shouldn’t go around announcing to family and friends that you’re selling (unless they can help in some way, of course). Besides the obvious reason that doing so can create panic among your workers, it can also affect your contracts. Hearing that you’re selling might make them think things aren’t going well with you, and they might take their business elsewhere.
Even if, in reality, your business isn’t doing well, mum’s the word.
Not having an exit strategy
Having an exit strategy for your business is necessary. It is advisable to have one even before you start a business. Not planning adequately for when you would like to sell may make you miss out on the best deal. Having an exit strategy helps you leave your business when you’re making a profit, and it will limit the loss when your business is performing poorly.
Doing everything yourself
Hold up, Jack. You weren’t also planning on doing this yourself, were you? Guilty as charged!
Spending as little as you can while you go about the business of selling your business is not a bad move, but there’s a limit to how tightfisted you’re allowed to be. Selling your business is not a DIY project. Remember: you’re investing to reap the benefits later. When it calls for it, get the help of a professional. They know best how to present what you’re selling to prospective buyers.
Waiting too long to sell
You already have it in mind to sell your business in the future, and you see a perfect opportunity, so why hold up? Go for it. Yes, it will be hard letting go of something you’ve worked hard at for most of your life, but you’ve got to do it. Passing up opportunities might come back to haunt you later. When you see a good deal, don’t wait too long to sell.
Chapter 6: How SweetProcess Helps Make Selling Business Faster
From most of the steps listed in this article, an important factor for selling your business successfully is how you’re able to present facts to the buyers. Showing the ins and outs of the running of your business in an organized document makes buyers feel more confident about your business.
This is why you need the SweetProcess software. Not only will it help you get ready for selling, but it also impresses buyers. Here’s how.
Documenting Processes and Procedures
SweetProcess helps you stay focused on tasks by documenting procedures and processes. Having a file where all your company’s procedures are stored will ensure you’re always on top of your game. One click and you’re reminded again what it is you’re doing. You can also easily access this information for potential buyers with the click of a mouse!
Knowing that documenting your business processes is more than writing a bunch of files, but rather how effectively the documents communicate to employees. Craig Bayer, CEO of Optiable, used SweetProcess to document the company’s processes and saved many hours fixing and verifying tasks. This happened because employees knew what to do by looking at neatly organized business documents.
Saving Valuable Time
SweetProcess makes information readily available to all your staff, thereby eliminating delays. When using our software, all the necessary information your team needs can be documented. Say goodbye to emails being overlooked, confusions, and mistakes. More time is spent doing the work that matters rather than resolving errors in communication.
CEO of Altvia Ben Hendershot used SweetProcess to fix his company’s problem of not having all the tools needed for work in one place. This problem led to team members asking too many questions about the company’s processes. SweetProcess came to the rescue, and workflow improved, as well as clients’ satisfaction.
Growing Your Business for Optimum Marketability
SweetProcess makes it easy to create, find, and work on procedures and processes. Using this tool, you have an environment where you can positively grow your business by adding needed changes to your business’s processes and procedures. This will make your business more marketable and appealing when it comes time to sell.
Kevin Trapp, director of operations in Forensic Analytical Consulting Services, an environmental health consulting firm, narrates his company’s breakthrough testimony with SweetProcess. He mentions how hard it was for employees to locate particular processes to complete their tasks.
These processes were documented in PDF files hundreds of pages long, and no one found pleasure scrolling or searching through, so they always came back to ask him how they were to do their tasks. This was time-killing. He found SweetProcess, and the frustrating story changed. Information about tasks became easy to find without going through whole documents.
Learning SweetProcess is Easy as Pie
SweetProcess allows you to easily assign tasks and keep up with them. You can know who’s doing what at the moment and then track how far they’ve gone with a task.
Another cool thing about this software is it’s also super easy to use and understand. Having this powerful tool in your service enables you to present needed documents to buyers and professional advisors.
Use SweetProcess alongside our free checklist, and you’re better equipped to sell your business. Better yet, our 14-day free trial is a great way to introduce yourself to our system – no credit card required!
Conclusion
You’ve seen how selling one’s business successfully is a dream only a few attain. You can be one of the few by following the steps provided in this article.
To help you get started with selling your business, download our free checklist here. This will help you figure out what you already have done, and it will also tell you what you still need to do before selling your business.
To utilize even more sweet benefits of using the SweetProcess software, go on and sign up for a free trial. No credit card required. Good luck!
