Needless to say, selling a business can be a complex and time-consuming process. But the right business selling services and a well-planned strategy can help you to sell your business quickly and efficiently.
In this comprehensive guide to selling your business, we’ll explore the various aspects of selling a business, from choosing the right business brokerage (or not, as we’ll come to later) to creating an effective exit strategy. By following these points, you can help to ensure a smooth and timely sale of your company.
1. How to Choose the Right Business Brokerage
One of the most important steps in selling a business quickly is to make sure that you choose the right business brokerage to represent your business.
A professional business broker or business transfer agent can help you navigate the complexities of selling a business and ensure that you receive the best possible price for your company.
But be careful, not all business brokerage firms are created equal. The industry is awash with poor firms who’ll do nothing more than put up a listing online (and change your handsomely for the privilege). Then, when you complain that your business hasn’t attract a buyer, they’ll simply blame it on the asking price being too high and recommend that it’s reduced to attract interest.
You may not realise, but research carried out by the IBBA suggests that as few as 1 in 10 businesses listed for sale via a business broker or business transfer agent will ever actually sell. But don’t worry, there are other options that’ll look at later in this article.
So, here’s how you can separate the wheat from the business transfer agent chaff:
a. Does the Brokerage have Experience in Your Industry?
When selecting a business broker, it’s essential to choose one with experience in your specific industry. This will ensure that they understand the unique challenges and opportunities associated with your business model and can effectively market it to potential buyers.
b. What’s Their Track Record of Success?
Look for a business broker with a proven track record of success in selling businesses similar to yours. This will give you confidence in their ability to sell your business quickly and at the best possible price. Don’t be afraid to ask them what their listing to sale ratio is – if they avoid the question then that should speak for itself.
c. Do they have a Strong Network of Buyers?
A business broker will have an easier time selling your business if they have a strong network of potential buyers. This is especially important if you’re looking to sell a company within a tight timeframe, as having access to a large pool of qualified buyers can speed up the sales process considerably.
2. How to Prepare a Business for Sale
Before you can sell your business, you’ll need to ensure that it’s in the best possible condition for sale – you don’t want to attract a buyer, only for the sale to fall through further down the line.
This broadly includes addressing any outstanding issues, organising your financial records, and preparing documentation. Let’s take a look at the various areas of the business that need to be considered:
a. Financial Records and Documentation
Potential buyers will want to review your financial records and other documentation related to your business. Ensure that your financial records are up to date and comply with current accounting standards, and prepare documentation such as contracts, leases, and employee agreements.
Never try to gloss over anything untoward in the business’s accounts. Not only could this result in issues post sale (such as legal action), but it’s likely to damage your relationship with your chosen brokerage. Any issues highlighted when preparing a business for sale are best tackled head on.
b. Operational Excellence
Demonstrate strong operational excellence by having well-defined business processes and efficient day-to-day operations. This will show potential buyers that your business is well-managed and can continue to run smoothly after the sale.
Whilst nothing is business is guaranteed, the buyer will want to feel that the business has the personnel in place to continue operating effectively. Depending on the size of the business, it’s often a good idea to prepare a document outlining each key personnel in the business and their responsibilities. This can be provided to a potential buyer when required and demonstrates that you’ve considered the sale carefully.
c. Business Valuation
Obtain a professional business valuation to determine the fair market value of your business. This will help you set an appropriate asking price and ensure that you’re not underselling your company.
With this said, there’s no set rule or method when it comes to valuing a business prior to sale. Aside from a simple assets minus liabilities calculation, the business is ultimately worth whatever someone is will to pay for it.
Pragmatically, the buyer is likely to consider the return they’re likely to receive on their money from buying your business, versus what they could expect from alternative investments – such as a savings account, for example. Would you buy a business if it meant working full time and only receiving a marginally higher return on investment than that offered by a traditional savings account? Probably not.
3. Developing an Effective Exit Strategy for a Business
Having an effective exit strategy in place prior to sale is crucial to selling a business quickly when the time finally comes. An effective exit plan should detail how you’ll transition the business to the new owner, as well as consider any potential tax implications and other financial considerations. Some common aspects of a broader exit strategy include:
a. Succession Planning
Prepare a succession plan that outlines how the business will be handed over to the new owner. This will help ensure a smooth transition and demonstrate to potential buyers that you’re committed to the success of the business after the sale.
It’s in the interest of all stakeholders – employees, customers, suppliers and the owners – to know that there’s a solid plan in place relating to how the business will operate in your absence.
b. Tax Implications
Consider the tax implications of selling your business and work with a financial planner or accountant to minimise any potential tax liabilities. This is particularly important when the business is a separate entity in its own right (such as a limited company).
Appointing a qualified and well experienced tax planning expert to assess the sale of your business will not only help to ensure that you avoid any nasty penalties, but also ensure that the sale is treated as efficiently as possible when it comes to tax. Nobody likes to pay any more tax than they have to after all.
c. Financial Considerations
Ensure that you have a clear understanding of the financial considerations involved in selling your business. This includes managing any outstanding debts, the potential impact on your personal finances (in the case of personal guarantees, for example), and any potential tax implications.
You don’t want to be left in a situation where your personally liable for future company debts, incurred at a time when you don’t even own the company, due to historic agreement with suppliers or creditors.
Ideally, the business should be sold on a debt free/cash free basis. This means that it’s passed to the new owner with no outstanding debts and free of any surplus cash.
4. How can you Market a Business Effectively?
Marketing your business effectively is essential to being in a position to sell it quickly. This involves identifying the most appropriate channels for reaching potential buyers and creating a compelling marketing message that highlights the unique opportunities that your business can offer a potential buyer.
You may not realise it, but there are other reasons that an individual or competitor would want to buy your business aside from simply generating a return on their investment. For example, one competitor buying another can allow a business to expand its customer base extremely quickly. This happens more often than you may realise and is known in the merger & acquisitions industry as a “roll-up”.
a. How to Target the Right Buyers
Identify the most suitable potential buyers for your business, such as those within your industry (your competitors) or those looking to enter your industry for the first time. This will help ensure that your marketing efforts are targeted and effective.
Be careful however, competitors can often appear interested in purchasing your business for the sole reason of gaining key information about your operations. This could come back to severely impact the business if the sale ends up falling through.
b. Using Multiple Marketing Channels
Utilise multiple marketing channels to reach potential buyers. In simple terms, you want to put your business in from of as many (qualified) potential buyers as possible.
This may include placing listings on online platforms, being featured within industry publications, approaching competitors and reaching out to your business broker’s network.
There are even firms out there, such as Excelco, who will offer to acquire your business directly – as long as it meets the firm’s criteria. Such firms usually offer the highest overall sale value because they tend to work to “deferred consideration agreements”.
c. How to Create a Compelling Marketing Message
Develop a compelling marketing message that highlights the unique selling points of your business and demonstrates its value to potential buyers – again, value doesn’t always mean bottom line profit.
What makes your business a better investment that the net business for sale? Is it your brand recognition? Overall profitability? Product/service offering?
In reality, building your marketing message isn’t something that you should be expected to undertake alone if you’re working with a broker; the broker should be more than capable of building a compelling offering based on the information you provide.
5. How to Screen Potential Buyers when Marketing Your Business for Sale
You need to make sure that the potential buyers your business attracts are a good “fit”. This can involve verifying their financial/professional qualifications and ensuring that they’re genuinely interested in purchasing your business.
Someone who isn’t prepared to answer a few simple questions at the outset is unlikely to the buyer you hoped they would be further down the business selling process.
a. Verify Financial Qualifications
Request financial information from potential buyers, such as their net worth and available liquid funds, to ensure that they have the financial means to purchase your business.
This may sound offensive, but it’s extremely common in the world of business acquisitions for sellers or their agent to request “proof of funds” – it’s a good way to discern serious buyers from the tyre-kickers.
b. Assess Genuine Interest
Determine whether potential buyers are genuinely interested in purchasing your business by evaluating their level of engagement and responsiveness during the sales process.
If you’re constantly having to chase for updates and feedback, then they’re probably not as interested as you’d like to think they are.
Assessing buyer interest is relatively easy in practice. It can be as simple as casually asking question in conversation, such as: “Why was it about this business in particular that attracted you?”. They’re answer will provide some key insight into their motivations and general level of interest.
Asking the potential buyer questions will also help you to understand what’s important to them: it is a lifestyle choice? Purely a return on investment? This will enable you to highlight the key aspects of the business that meet their requirements, rather than focussing on the aspects that they’re less interest in.
At Excelco, we prefer to ask these questions as early business selling process as possible – so that out time and the time of our clients is protected and best utilised.
6. Negotiating Offers and Terms when Selling a Business
Negotiating offers and terms is where the process starts to get serious – the buyer has demonstrated a keen interest, passed vetting and now it’s time to talk specifics of the sale.
This involves evaluating different offers, considering the various terms proposed by potential buyers, and working with your business broker to negotiate the best possible deal.
Be prepared to negotiate; it’s highly unusual that a business will be sold for “all cash, upfront on closing”. It’s far more common for some, or even all, of the overall sale proceeds to be paid in line with a phased payment arrangement, or based on the future performance of the business.
This should be seen as an opportunity. Not only can you benefit from the sale of the business itself, but also from the future performance of the business after you’ve ceased owning it.
Turning down such an arrangement outright will likely raise eyebrows with potential buyers and leave them asking questions like, “does he/she not believe that the business is viable in the long term?”.
a. Evaluate Offers
Consider the various offers you receive for your business, taking into account factors such as the proposed purchase price, payment terms, and any conditions attached to the sale.
As discussed above, offers contained a provision for phased payment can often be used to negotiate a higher overall sale price for your business.
b. Negotiate Terms
Work with your business broker to negotiate the best possible terms for the sale of your business, including transition arrangements, and any other conditions related to the sale.
It’s not uncommon for previous owner to stay on board for a period of 6 months to a year in order to help ensure a successful transition.
7. Managing Due Diligence when Selling a Business
At this stage, you’ve almost managed to sell your business, but we’re not done yet. Once you’ve accepted an offer for your business, the buyer will typically conduct due diligence to verify the information you’ve provided and ensure that there are no hidden issues or liabilities.
Making sure that you’ve prepared the required information beforehand can help the due diligence process to move more efficiently, but it’s rarely a particularly quick endeavour. The due diligence process under by the buyer of a business can be lengthy (often in excess of 3 months) and involve a number of professional service providers, such as accountants and legal experts.
a. Be Prepared and Transparent
Prepare for the due diligence process by having all necessary documentation and information readily available. Be open and transparent with the buyer during this process, addressing any concerns or issues that may arise.
It’s important that you make yourself aware of the legal implications of deliberately concealing or attempting to conceal information; you should never attempt to conceal any information from a potential buyer. Doing so could have serious legal implications, even following the completion of the sale.
b. Minimise Delays
Work with your business broker and other advisors to minimise any delays during the due diligence process. Whilst it’s not possible to control things on the buyer’s side, you can be proactive in identifying potential sticking points.
Experience tell us that the longer it takes for the due diligence process to complete, the more chance a sale has of falling through. So, try to keep the due diligence process moving smoothly and try to agree upon a timescale beforehand.
8. Finalise the Purchase Agreement and Closing
After the due diligence process is complete, you’ll need to finalise the purchase agreement and close the sale of your business. This is arguably the most important part of the business selling process and what we’ve been building towards.
a. Negotiate the Purchase Agreement
Work with your business broker and legal counsel to negotiate the final terms of the purchase agreement, ensuring that it accurately reflects the terms agreed upon during the negotiation process.
b. Prepare for Closing
Prepare for the closing of the sale by ensuring that all necessary documentation and funds are in place, and addressing any last-minute issues or concerns that may arise on the buyer’s end.
c. Close the Sale
Once all terms have been agreed upon and the necessary documentation has been prepared, it’s time to close the sale of your business and transfer ownership to the buyer – essentially signing the legal paperwork and making the sale final.
9. Post-Sale Transition and Support
After the sale of your business, it’s important to provide ongoing support and assistance to the new owner during the transition period. Of course, the specific details of the post-transition support that you offer should be contained within the sale agreements, rather than agreed informally.
a. Provide Training and Support
Whilst the new owner may have significant industry experience, every business operates differently.
Offer training and support to the new owner to ensure a smooth transition and help them become familiar with the day-to-day operations of the business. This isn’t only for the benefit of the owner, but also for employees and other stakeholders.
b. Maintain Relationships
Maintain positive relationships with your former employees, suppliers, and customers to help ensure the ongoing success of the business. This is particularly important if your overall “consideration” received from the sale is dependent on its future performance.
Of course, you should never do anything post-sale that could potentially harm the new buyer’s investment – such as starting a rival business. Aside from the fact that there are likely to be clauses in the Contract of Sale preventing this, it simply demonstrates poor moral standing. We’ve seen this in practice, and it never ends well; sellers get sued and reputations get ruined. It’s simply not worth it.
10. Engage International Business Selling Services (Optional)
For businesses with an international presence or those looking to attract international buyers, it may be beneficial to engage international business selling services.
These services can help you navigate the complexities of selling a business across borders, including dealing with different legal and regulatory requirements, managing currency fluctuations, and variation in business etiquette.
Sell your Business Quickly – Summary
So, as you’ve read, selling a business quickly and efficiently requires careful planning, the right business selling services, and a well-executed exit strategy. By following the steps outlined in this guide you can maximise the value of your business and ensure a smooth and timely sale when the time comes.