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Deciding to sell your business is a significant milestone. After determining that you’ll sell, finding a potential buyer is an essential next step.
It may seem simple, but many factors go into attracting the right buyer and setting up a successful sale. You don’t want to sell the asset you’ve spent years building to the wrong buyer, so it needs to be the right fit.
Whether you’ve already decided to sell, or are still on the fence, here’s how to approach a potential buyer of your business and the steps to set up a sale.
After deciding to sell, it’s critical to research the market. Find out how much similar businesses sell for, taking into account the differences and similarities to your business, as well as the average length of time they spend on the market.
Researching the market also means identifying potential buyers interested in your business. If you don’t want to use a business broker, you can check out dedicated websites that focus on businesses in your niche or geographical area. There, you may be able to find comparable businesses currently for sale or be able to get in touch with other small business owners potentially looking for opportunities to expand. Some sites also give you access to financial information about specific companies or industries.
Do you know how to find buyers for your business?
A potential buyer for your business will typically come from one of two places:
While there may not be a “perfect” buyer, some candidates fit better or are more strategically aligned with your business than others. Identifying the type of buyer most interested in your company can help you tailor buyer requirements marketing and get the best fit.
A strategic buyer sees how your business fits in with their established company. A potential buyer like this might also have a strong management team, which could help further grow your business once you’ve sold.
An opportunistic buyer may be looking for an opportunity to enter a new market or geographic area. They may or may not have an established company and might need additional resources to finance the sale.
A financial buyer might be interested in purchasing your company for its assets or cash flow. They’ll want to keep costs low and generally rely on existing employees to see a profitable return on investment.
Because selling a business can be time-consuming, focusing on a market fit can help streamline the process. This may help you qualify a buyer and avoid time-wasters or tire-kickers.
It’s sometimes said that a sale’s preparation starts the day you start your business. Sale preparation means ensuring clean documentation for everything from the company’s start to the present day, plus future projections.
Preparing for a sale includes having detailed financial statements and your business plan ready. They describe the history of the business, its financial performance and forecasts, strengths and weaknesses, and long-term strategic plans. You might also include a description of any problems or opportunities for improvement that you see in the future.
If it bolsters your business’s value, another helpful document to prepare is a market survey (or commercial review) comparing your company with similar businesses in your area. It might include their strengths and weaknesses, customer opinions, and how much they charge for their products or services.
This information gives the buyer an idea of what they’re getting and how much it will cost. In short – for a qualified buyer, you should be prepared to lay all of your cards on the table.
Your situation and preferences will determine how to approach a potential buyer of your business. Some owners prefer to contact the buyer directly and avoid allowing someone else to act as an intermediary. Others believe it’s best to go through an objective third party, like a broker.
As the potential seller, it’s essential to understand who you’re talking to and if they represent themselves or are acting on behalf of another party (i.e., an employer or partner).
Transparency is critical when talking to a potential buyer. But don’t share specific information until the potential buyer has signed a confidentiality agreement. Also, to avoid weakening your position in the negotiation, both parties should align on how much data each can provide.
Once you’ve spoken with a potential buyer, promptly follow through on any open points. Not doing so can be a red flag and indicate a lack of interest or credibility.
Negotiations begin as soon as you contact a potential buyer. Continue negotiations until either party pulls out of talks or signs an agreement. Understanding the negotiations at each stage of the process can help avoid surprises later on — especially when it comes time for the closing!
You can do this by phone, email, or both when initiating contact with the buyer. Over the phone or video call is a great way to get to know the potential buyer, but email is often best for exchanging facts and figures. Plus, there’s less confusion about who said what later on.
Another nice thing about email is that you have time to consider your response. Even if you prefer the phone, it can be helpful to treat phone conversations in a similar way – if you’re unsure about something, take it as an open point and follow up later.
Selling a business is a complex process, with many steps involved in setting up and ensuring the sale goes smoothly. There are a few key things that can help the sale go smoothly.
Once you decide to sell, start preparing as soon as possible. Make your business more attractive by improving sales and profitability, updating your website and marketing materials, and compiling due diligence information. Here it can be smart to hire an outside consultant or attorney to help you prepare your financial statements, inventory, and other records.
Also, define early on how much of the business you want to sell and your ideal terms. For example, if selling only a portion of your company, consider how much equity you’d be comfortable giving up and what kind of control over operations would remain with you after the sale. Don’t forget to consider how much money you expect from the sale and what kind of exit strategy best fits your goals and timeline for leaving the business.
Angie Henson was recently featured in a recent Metal Center News issue regarding succession planning.Read More