|Rich Best has spent 28 years in the financial services industry, as an advisor, a managing partner, directors of training and marketing, and now as a consultant to the industry. Rich has written extensively on a broad range of personal finance topics and is published on several top financial sites. Recent books include The American Family Survival Bible and Annuity Facts Revealed: What You MUST Know Before You Invest.|
Planning on Selling Your Business? What You Must Do Now
According to the PriceWaterhouse Coopers study titled, “Whose Business is it Anyway? Smart Strategies for Ownership Succession,” the number one reason business owners fail in selling their business is their failure to do necessary pre-sale planning. It’s during this planning when business owners realize what they don’t know, and can never expect to know unless they make selling their business their full-time job. That’s not realistic because it typically takes anywhere from nine to fifteen months to sell a business with a successful outcome, during which time most businesses would crash and burn without a full-time pilot at the helm.
The business sale process is long and complex, and no two transactions are alike. The only way to ensure a successful outcome is to prepare well ahead of the time you contemplate selling your business. At a minimum, these are the things a business owner must do right now if they plan on selling their business.
Know Why You Want to Sell
The reality is that many business owners don’t fully contemplate their reasons for selling. They just know they want to sell. As a result, they might have unrealistic expectations, and/or they may follow the wrong strategic path to selling the business, both of which will likely lead to an unsuccessful outcome or outright failure.
The reasons for wanting to sell the business can be vastly different than the reasons for needing to sell the business. Generally, business owners who decide they want to sell are in a position to plan their exit and develop the strategy around its timing. Business owners who need to sell their business may be forced to let circumstances dictate the strategy, which can reduce the amount of control they have over the process.
Determine if Your Business is Actually Saleable
Typically, when business owners assess the saleability of their business they tend to look at it through their own rose-colored lenses. So, naturally, they will focus on the positive attributes and largely ignore the negatives. The question business owners have to be able answer honestly is, “Would I buy this business?” It’s critically important to view your business from the perspective of a buyer, especially if you think your business should garner a premium price. Then your focus should turn to eliminating the negatives while accentuating or enhancing the positives.
Key factors such as profitability, solvency, market position, management capabilities, and customer base need to be assessed from a buyer’s perspective.
Know What Your Business is Worth
Most business owners have no idea how much their business is worth, and those who are keeping score are often too optimistic in their estimates. Valuing a business for sale is both an art and a science, so using general rules of thumb, as many owners do when they begin the process, has very little basis in reality. It’s a mistake, anyway, to try to put a price on the business as if it is a real estate sale. In the business selling world, the business owner doesn’t set the price; the market does.
Business owners shouldn’t wait until they are ready to sell to value their business. Getting a profession valuation well in advance will provide the opportunity to work on the aspects of the business that can increase its value.
Clearly Define Sale Objectives
If you don’t really know what you want to achieve in the sale of your business, you won’t know if you have a successful outcome from the sale. Clearly defined objectives are the key to structuring the sale process in a way that is most likely to achieve them. They also form the framework of your exit strategy, which should be developed well in advance. Your exit strategy should include a concise and precise statement of your financial and business goals with a target date for your exit and a plan to maximize the value of your business.
Build Your Business Sale Team Early
Because there is so much at stake, and there is so much that can go wrong, it is vital to begin surrounding yourself with trusted advisors as soon as you begin contemplating the sale of your business. The key members of your team should include:
Educate Yourself on the Business Sale Process
There are right ways to sell a business and there are wrong ways to sell a business. The right ways will give you the best opportunity to achieve a successful outcome and the wrong ways will almost certainly lead to an unsuccessful outcome, or outright failure. Understanding how successful business sales are conducted is critical to avoiding any number of the mistakes many business owners make.