How to Increase the Odds of Selling Your Business
You may be surprised to learn that if you want to sell your business, there is about a one in five chance of actually achieving that goal. Even with strong financial performance, sometimes businesses with less than $1,000,000 in revenues don’t sell.
According to BizBuySell, the largest online business-selling platform:
Here's my list of Why Businesses Don’t Sell:
Your business selling team includes: you, your CPA, your business attorney (not your divorce or criminal defense attorney), business valuation expert and your business broker. Note: a good business broker will often provide valuation services as part of the package to list and sell your business.
If you decide to sell, your focus must be on maintaining your company’s peak performance. Grow your revenues and profits. Get new business. Manage expenses. Organize your financial records. Document specialized processes.
Buyers want to purchase successful operating companies. Buyers will pay higher multiples of earnings for companies that have a sustainable and repeatable cash flow stream, documented procedures and are staffed by competent and loyal employees.
There are also buyers seeking businesses that are “challenged”. However, those buyers are not going to pay a premium price. In fact, they are only interested in buying your financially strapped business at a steep discount.
So if you want to sell, decide where your business fits in the scale of business performance. Is your business at the peak of productivity, profit, sales and market presence? Or are you barely squeaking by? Do you consider it a “good month” when you get a paycheck?
Wherever you are on the scale, expect a related price. High profits over the last three to five years equals the maximum price. Low or no profits .... it may be time to regroup and determine if you are going to fix your business or liquidate it.
Here are three major ways to increase the odds that your business can be in the 20% that sell:
Be willing to accept, within reason, what the marketplace is willing to pay for your company. It's not what you, your CPA, brother-in-law, attorney, banker, or neighbor say it's worth - it's what a willing and qualified buyer is willing to give you. Period.
Be willing to finance the sale. Wanting to sell for all cash or assuming that the business can be financed by a third party may eliminate your chances of selling at all. By assisting in the financing, you gain the buyer's confidence in purchasing your company. If you believe in it, so will the buyer.
Also, seller financing also gives the bank lender confidence in approving their piece of the transaction. Remember that by financing the business, you earn a greater return through receiving interest on the note.
Hire a professional business broker to “quarter-back” your selling team. You have a full-time job and your CPA and attorney have their roles. The business broker is the only one, besides you, that has a vested interest in making sure the transaction is handled correctly, survives due diligence and reaches the closing table.
Following these tips doesn’t guarantee a sale, but it will increase the odds. Almost any business will sell if you are realistic and have the right guidance.
Join me on January 17, 2017 from 11:00 am to 1:00 pm for the no-cost workshop “Selling Out: Is Your Business Ready?” I’ll be discussing ways to maximize business value, find qualified buyers, manage negotiation and due diligence and obtain the right resources. Register at idresources@zionsbank.com or call 208-501-7573 to reserve your seat to this complimentary workshop sponsored by Zions Bank Business Resource Center.
According to BizBuySell, the largest online business-selling platform:
- only 20% of all of the businesses listed for sale ever sell,
- roughly 50% of the deals agreed to between buyer and seller never close
- only 10% of sales are handled by business brokers
- The last fact may explain the first two!
Here's my list of Why Businesses Don’t Sell:
- Seller believed the business was worth more than valuation showed and wouldn’t negotiate on the price or terms.
- Seller wanted all cash and was unwilling to carry part of the financing.
- Buyer liked the business but it failed the “rule of thumb test” meaning that the cash flow was insufficient to pay the acquisition debt payments and provide the buyer with a living wage.
- Seller didn’t provide the necessary information during the due diligence period and the buyer backed out of the deal.
- Buyer was unable to qualify for third party financing due to lack of cash down, lack of experience or poor credit.
- Seller believed a “friend” would buy the company and ignored a serious buyer who eventually got cold feet and moved on.
- Buyer insisted on using an inexperienced or unwilling banker for the business loan. The banker’s inability to get an approval killed the deal.
- Seller’s financial statements were inaccurate or unavailable.
- Buyer’s attorney advised him not to sign business broker’s purchase and sale agreement even though there was no risk to the buyer.
Selling your business is a team sport. It’s not the time to be a rugged individualist. Most business owners will only buy or sell a business once in their lives. And even if you’ve done it once, you don’t have the depth of experience to handle all the issues needed for a successful sale. And most importantly, you don’t have time to run your business and try to sell it.
Your business selling team includes: you, your CPA, your business attorney (not your divorce or criminal defense attorney), business valuation expert and your business broker. Note: a good business broker will often provide valuation services as part of the package to list and sell your business.
If you decide to sell, your focus must be on maintaining your company’s peak performance. Grow your revenues and profits. Get new business. Manage expenses. Organize your financial records. Document specialized processes.
Buyers want to purchase successful operating companies. Buyers will pay higher multiples of earnings for companies that have a sustainable and repeatable cash flow stream, documented procedures and are staffed by competent and loyal employees.
There are also buyers seeking businesses that are “challenged”. However, those buyers are not going to pay a premium price. In fact, they are only interested in buying your financially strapped business at a steep discount.
So if you want to sell, decide where your business fits in the scale of business performance. Is your business at the peak of productivity, profit, sales and market presence? Or are you barely squeaking by? Do you consider it a “good month” when you get a paycheck?
Wherever you are on the scale, expect a related price. High profits over the last three to five years equals the maximum price. Low or no profits .... it may be time to regroup and determine if you are going to fix your business or liquidate it.
Here are three major ways to increase the odds that your business can be in the 20% that sell:
Be willing to accept, within reason, what the marketplace is willing to pay for your company. It's not what you, your CPA, brother-in-law, attorney, banker, or neighbor say it's worth - it's what a willing and qualified buyer is willing to give you. Period.
Be willing to finance the sale. Wanting to sell for all cash or assuming that the business can be financed by a third party may eliminate your chances of selling at all. By assisting in the financing, you gain the buyer's confidence in purchasing your company. If you believe in it, so will the buyer.
Also, seller financing also gives the bank lender confidence in approving their piece of the transaction. Remember that by financing the business, you earn a greater return through receiving interest on the note.
Hire a professional business broker to “quarter-back” your selling team. You have a full-time job and your CPA and attorney have their roles. The business broker is the only one, besides you, that has a vested interest in making sure the transaction is handled correctly, survives due diligence and reaches the closing table.
Following these tips doesn’t guarantee a sale, but it will increase the odds. Almost any business will sell if you are realistic and have the right guidance.
Join me on January 17, 2017 from 11:00 am to 1:00 pm for the no-cost workshop “Selling Out: Is Your Business Ready?” I’ll be discussing ways to maximize business value, find qualified buyers, manage negotiation and due diligence and obtain the right resources. Register at idresources@zionsbank.com or call 208-501-7573 to reserve your seat to this complimentary workshop sponsored by Zions Bank Business Resource Center.
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