Top 5 Things You Need to Know Before Selling Your Business
Selling your business is the biggest decision many people make in their lifetime. And there’s no need to risk making a wrong decision when help is available. Being confident in your decisions and understanding what steps to follow through the selling or acquisition process can help save you time and money. We have outlined what we believe are 5 of the most critical pieces of knowledge for selling your business that will reduce the roadblocks and ensure that you have a confident selling experience.
1. Kill Your Darlings
The writer, William Faulkner was quoted saying you must “kill your darlings”. Basically, if there are parts of your business that are near and dear to your heart as an owner they just won’t have the same value to a potential buyer as they do to you. Long-standing traditions or sentimental features or values of your company are irrelevant to a prospective owner and you must be willing to let go of them and not try and push them as value propositions.
2. Show them the Money
Investors want largely one thing…show them the profit! An informed buyer will be looking at the net income margins, what the current business owner retains after all expenses have been accounted for. Although top line revenue is a slight factor, the buyers are really scrutinizing the amounts available in the seller’s discretionary cash flow so they can make their acquisition loan payments and pay themselves a reasonable salary to support their family. With this in mind, consider the attractiveness of a $5 million dollar business with 15% net income margin ($750,000) versus a $10 million dollar business with 5% net income margin ($500,000). This simple example illustrates that, on the surface level, bigger business is not always better.
3. Be Transparent
People are worried their company won’t sell if they really tell the truth – the good, the bad and the ugly. The truth is that if a buyer is really interested in acquiring your business they will have to do a deep dig on everything. So it’s best practice to make your business as transparent as possible from the very beginning– flaws and all. You’d be surprised that honesty goes a long way with investors, especially seasoned ones who “always” know that there are skeletons in the closet and it’s just a matter of time before you find them. You will show good faith and save them time and money, meanwhile displaying credibility and confidence that you know everything about your company and are willing to represent it as accurately as possible.
4. The Proof is in the Paperwork
Buyers have more confidence in documents that are endorsed by a CPA as opposed to QuickBook reports alone. Furthermore, expect to be asked to produce legitimate supporting documentation about your company that would be relevant to the operations of your business. It is almost 100% guaranteed that you will not have a qualified buyer make an offer worth your time if there isn’t an exchange of solid data- nor should you trust that kind of transaction.
5. Choosing the Right Advisor
Business acquisitions and mergers are growing in popularity especially in online formats and many people just don’t know what they’re doing and they end up losing out. The obstacles and emotions that you will encounter during the experience of buying or selling can be avoided by simply choosing the right business broker for you. Additionally, towards the closing date of the business sale, sellers should consider engaging a sell-side attorney with transaction experience to review the closing documents for reasonableness. After the sale, the seller may seek the advice of a personal financial advisor on how best to use the large amount of proceeds received from the sale of their business.