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7 Steps in Selling a Business Successfully
Is this you? You’re a stressed-out long-term business owner who declares “Enough is enough!” You’ve poured decades of work into your small business—but you’re burned out and you want out.
Over the years, we’ve had plenty of conversations with would-be sellers. Some of these sellers come to us with unrealistic expectations. They think they can find a buyer tomorrow and breeze into their next stage of life with a fat new wad of cash in their pocket.
But did you know it can take 8 to 12 months to go through all the steps in selling a business? Sometimes even longer. Are you aware of the complexity of a business sale process, and the time required over and above the long hours you spend on your day-to-day operations?
Plus, your odds of selling are disappointingly slim. According to business broker industry statistics, fewer than 20% of prospective sellers succeed in completing a sale. And out of those who do, only half sell on their own terms.
Wasted time, endless headaches, deals down the drain—what can you do to avoid them and increase your chances of closing a great deal? The answer is Prepare, Prepare, Prepare! In other words, be wise and join the mere 24% of business owners who actually have a plan to transition out.
Whether you’re looking to sell in Toronto, in the GTA, or elsewhere in Ontario, follow these seven steps to sell your business on your terms, on your timeline, and without leaving money on the table..
Did You Know...
Business broker industry statistics say that fewer than 20% of prospective sellers succeed in completing a sale!
Steps in Selling a Business
Step 1: Get the answer to “What is my business worth?”
One of the costliest mistakes you can make is either pricing your small business too high and watching it sit on the market unsold, or pricing it too low and getting less than it’s worth.
At Transitions Business Brokers, one of the first steps in selling your business is a thorough broker estimate of value for your company.
Step 2: Determine your selling goals
“Why am I selling?” you need to ask yourself. Formulate a considered response because this will be one of the first questions you get asked when interested buyers approach you.
Is it time for retirement … for a new venture … for an exciting move to another country? Or maybe you’re influenced by changes in the market.
To whom do you want to sell? Maybe you have an employee or a family member waiting in the wings, or perhaps you’re looking for a suitable outside buyer.
What do you want to get out of the sale? Consider your financial goals, any non-negotiable conditions your buyer must meet, and how important it is to you to preserve your legacy.
Whatever your goals, remember that Rome wasn’t built in a day. You won’t complete your sale overnight.
Step 3: Increase your company’s value
For your buyer, purchasing a business is a giant risk. The more you can lower the buyer’s risk, the more money your business is worth.
To reduce buyer risk, you can divide your thinking into 1) quick wins and 2) tougher actions to complete only if it’s realistic. “You want to make sure any change you implement is manageable,” said Vincent Côté, Broker and CEO at Transitions Business Brokers. “You don’t want to go through a massive change just before you sell and find your staff doesn’t understand the new rules and they don’t know the new processes. Then, the change becomes chaos.”
What are some easy wins? Clean up and update your bookkeeping, reduce discretionary spending, and look for simple ways to increase efficiency. Count and assign value to your inventory, and get rid of any inventory that’s old, damaged, or dated. Continue to invest in your property, equipment, employees, and other aspects of your business as you normally would.
Longer term? Work to decrease owner dependence, or be sure your business can operate without you or key employees who might not stay after the sale. Lower your customer concentration so no single customer accounts for more than 5% to 10% (depending on your industry) of your revenue. Document your systems and processes so they’re repeatable and teachable.
Did You Know...
A Certified Exit Planning Advisor (CEPA) can help you plan for the “business-sized hole” you’ll have in your life after the sale.
Step 4: Prepare your business, and prepare yourself
“Selling your business is a project in itself,” said Côté. “You’ll have to set aside time for business meetings and getting your paperwork in order.” If you have a messy office or a disorganized manufacturing plant with broken equipment, clean it up and make fixes as if someone were coming to visit. And settle any outstanding litigation or other legal issues.
To prepare yourself, ask “What comes next for me?” and start working toward that vision. For example, if it’s retirement, you may need to get your will completed, develop an estate plan, and think about your new lifestyle. At Transitions Business Brokerage, a Certified Exit Planning Advisor (CEPA) can help you plan for the “business-sized hole” you’ll have in your life after the sale … so you don’t end up regretting what may be the most important decision of your life.
Step 5: Accept only qualified buyers
Don’t waste your time with tire kickers, also known as window shoppers, dreamers, or bargain hunters. How do you know a tire kicker when you see one? Maybe they don’t have enough cash available. Maybe they’ve been looking for a long time for “the perfect business” and appear to be in no rush. Or perhaps they have a spouse who doesn’t support their fantasy of becoming their own boss.
At Transitions Business Brokerage, we vet buyers for you and bring only serious, qualified buyers to the table.
Step 6: Be prepared to offer seller financing
“The less demand there is for your business, the more likely it is you’ll have to offer seller financing,” said Côté, who added it’s not uncommon for sellers to finance 10% to 20% of the transaction.
If you’re like most sellers, expect to contribute a seller note. Seller financing can help bridge the gap between the sale price and available financing, and it lessens the risk of the transaction.
Step 7: Be open and flexible
You want it all—the maximum price, a fast sale, and terms that are perfectly in your favour. But given many of your interests run counter to your buyer’s, expect to settle for only two out of three. Remember that a good though imperfect deal is better than no deal.
If you haven’t been able to establish owner independence or if your customer concentration is too high, you may need to adjust your price expectations. And remember that closing any deal is a complex, time-consuming process. Be patient.
And if you want your price, be prepared to give up some terms. For example, you may get paid out over time instead of immediately, you may need to sign an unusually restrictive non-compete agreement, or you may find yourself agreeing to indemnify your buyer for any future tax liabilities resulting from filings up to now.
Final Thoughts
Remember, you only sell your business ONCE. Working with a Certified Exit Planning Advisor (CEPA) and seasoned business broker can help you create and implement a solid strategy to get it right … and to transition into your next stage of life feeling prepared and confident.
Let us guide you through all the steps in selling your business. Engage the Transitions Specialists today.
Transitions Business Brokers
November 17, 2022
