- How to improve your bargaining power and ask for the price you want
- Put your business in the best position to attract buyers
- What to do today to make your business irresistible to buy tomorrow
- Five-step process to prepare your business to go to market
Whether you’re selling your business to raise capital for a new venture or to fund your retirement, you must prepare. If you don’t prepare for the sale, you may end up among the 70 to 80% of businesses that never get sold.
Most business owners do not have an exit strategy. The absence of a strategy to prepare a business for sale is too prevalent. A survey of 200 businesses in San Diego showed alarming figures about how unprepared most business owners are for a prospective sale.
88% did not have a transition plan, and 80% did not ask for advice on transition planning. Two-thirds of businesses had not gotten business valuation in the last 3 years or more. You don’t have to be part of this statistic, so let’s show you the right path.
Why You Need to Prepare Your Business for Sale
It is more than just an exit strategy. This preparation is similar to how property sellers stage their property before listing it for sale.
Unfortunately, most business owners never prepare for the sale. Experts recommend preparing your business for sale even if you do not plan to sell it soon.
1. The buyer’s bargaining power is usually higher than yours
A business is typically bought, not sold. This statement represents the bargaining power of the buyer. It is a fact that most business owners sell their business when they do not have an option other than selling it. However, in the market of buyers, you can position yourself to get a competitive price.
Every business buyer will be interested in a business with a written transition plan, clean financials, sorted legal matters, etc. Therefore, preparing your business for sale is indispensable in increasing your bargaining power as a seller.
2. Organic is always better than synthetic
Preparing your business for sale early is critical. Suppose a business owner wants to sell his business immediately. He will work to clean up his finances, settle legal matters and contracts for the recent years. However, history can not be changed.
Compare it to a business that has adopted good practices in financial reporting, legal affairs, day-to-day operations, and management from day one. Which business will you like to buy?
Your answer would certainly be the second one. A business with everything aligned over a long time is more attractive than one with adopted some good practices few months to exit.
3. The better you do, the higher your selling power
As described earlier, most buyers have the higher bargaining power. However, business owners who are prepared for sale get a better deal. A business with no or fewer grey areas is always successful in hooking prospective buyers.
The reason is that a business with a defined succession strategy, operational hierarchy, working environment, etc., will require less work. Buyers will be more attracted to businesses like that. The seller will be in a position to ask for a higher price
4. You should always be prepared for uncertainties
Reality is volatile sometimes. Uncertain circumstances can put you in a situation where you have no way out than to sell your business.
For instance, an excellent business opportunity that you have always envied opens up. But the only way to cash in on it is to sell your current company.
However, you might fail at selling because you never prepared to sell your business. Be alert for any eventuality and stay prepared to sell.
How to Prepare Your Business for Sale?
Here is what you need to do to prepare your business for sale:
Step 1: Decide to sell
The reason behind selling your business has a fundamental importance — both from the seller’s and the buyer’s perspective.
While you question yourself on why you want to sell your business, also state the definition of a successful deal. A successful deal is not only a positive financial outcome. It can be succession strategy, future of business operations, management transition, etc.
Step 2: Get a business valuation
When you get on the negotiation table with a prospective buyer, you must be armed with accurate valuations of what you own.
When you have a figure on the paper, you can pitch a price to your prospective buyer. A professional outsider valuation will also highlight the strengths, weaknesses, and financial situation of your business. You can correct the issues and problems before listing your business for sale. Therefore, get a valuation of your assets, business worth, etc.
Step 3: Work on the internal aspects of your business
You have found the net worth of your business, along with its weaknesses and strengths. Now you will improve your business from an internal perspective.
It requires a skeptical judgment and professional assessment of all internal aspects. Consider it as an internal audit of your business and then taking corrective actions.
Improve your financials
When a buyer shows interest in your business and starts the due diligence process, they are usually interested in the financials. The buyers assess the earning ratios, return on equity, etc. Professionally created financial and forecasting reports positively impact the sales process.
Cultivate a healthy workplace environment (or improve)
The employees of a business entity are assets, and they drive profitability. Therefore, you cannot sell your business overnight and leave your employees amid nothing.
Managing the human side of acquisitions is a critical subject. This PwC’s survey highlighted that only 25% of respondents were confident that leadership succession will not affect the workplace environment and management.
Invest in your business relationships (customers & suppliers)
A buyer buys your business assets, but your suppliers and customers have value in the deal. Many acquisitions fail right after the sale because suppliers and customers vanish when the leadership changes. Therefore, build trust and solid relationships with your customers and suppliers.
Your customers and suppliers will be your advocates in the process of due diligence –make sure to invest in it.
Announce your wins
Profitability is the central point in most business deals. Therefore, as soon as possible, make moves today to make your business profitable tomorrow. Look for different investment opportunities that bring positive cash flow over the years.
As soon as possible, make moves today to make your business profitable tomorrow.
Besides, announce your wins publicly because it will increase your company’s value in the future. However, confidential news is an exception because it can hurt your competition in the market.
Use a balanced approach to display public recognition of your partnerships, collaborations, key employee hiring, etc.
Step 4: Work on the external parts of your business
Start from marketing research and move forward to make your business attractive.
Define who might be your business buyer
Business owners must define who their business buyers should be. You will start by questioning yourself about business size, scope, etc. Check out the different kinds of buyers.
Once you know who your potential buyers are, you will be able to curate specific advertising campaigns and marketing strategies to target them.
Portray your business as ‘Great Opportunity’
Get into the shoes of your potential buyer and look at your business from a buyer perspective.
Will you be willing to buy your business?
Highlight the problematic areas that can turn off a potential buyer. Then, work to improve these areas and make your business a great opportunity in the eyes of your prospects.
Think of a price and your sales pitch
You can not randomly land in the market to sell your business. After business valuation, estimate a number you will be willing to pay if you have to buy your business. By doing this, you define a price range. This gives you sufficient ground for negotiations with prospective buyers.
Work on your legal contracts and paperwork
Clumsy legal matters and disputes are a big turn-off point for acquisition entrepreneurs. Do not take the risk of leaving your legal contracts and disputes unattended. Update the corporate governance rules, company contracts, partnerships, disputes, etc.
Step 5: Get advice from third-party advisors
You can do yourself a favor by hiring the services of third-party advisors. A large portion of businesses that go out to sell themselves on their own fail. Therefore, getting professional advice from a specialized broker, lawyer, and/or accountant (or all 3-in-1 via Acquira) will save you from selling your business for pennies.
Preparation is very critical to the success of your deal. Do not compromise any external or internal factor that can hurt your selling price or negotiating power when debating with potential buyers. Make your financial look great and orderly, work to organically improve your business, and get advice from professionals.
Acquira is a business acquisition in a box service. We help entrepreneurs buy businesses and we invest in them and their chosen businesses. We are here to help ensure that each business we work with is posed to make the biggest positive impact possible for its owners, employees, and community.
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