Times have changed, and not every small business owner can pass down the reins to their children or grandchildren. While family businesses still exist and have created some of the most well-known empires, other means for exiting the business industry are becoming more prevalent: selling your business. Now, this is a challenging feat. A self-made business entrepreneur carries a similar emotional attachment of a parent to a child. Therefore, finding the right buyer within a limited network poses some of the greatest challenges to selling your business. However, there are steps you can take to determine whether selling your small business is the right move and resources to ensure the largest transaction of your life benefits you.
Understanding Your Business Goals
Before you can begin to understand the process of selling your business, you must look inward and understand the end goal for selling, or conversely, expanding, your small business. Start by asking yourself why: usually, this answer has a financial dimension. Therefore, you must determine whether the proceeds from selling your business will provide enough funds for your long-term goals. Determining this amount will require some leg work, and you will primarily benefit from working alongside a financial planner, tax lawyer or both. In either case, you want to determine the ideal case scenario. If selling is the right move, you must decipher the best time to sell and the optimal terms and conditions of the sale that will provide you with the liquidy for your next venture. If reinvesting and expanding your business will be more beneficial to your future, be prepared to double down on the work you are already doing.
Knowing the Value of Your Business
To better understand your business goals and how you can achieve them– either through sale or expansion– you must have a professional appraisal done. From this appraisal, you will be better suited to do a comprehensive cost-benefit analysis of whether or not strategic improvements can increase the value of your enterprise within a reasonable time frame. Conversely, your organizational value may peak, which means now is an excellent time to sell. In this case, you must determine whether the systems your small business currently runs on can be integrated seamlessly into the hands of a new owner. If not, can your unique knowledge and skills be transferred to a new owner to increase the sale value? These are all important avenues to explore when determining the current value of your business.
Entering the Market
When considering selling your business, timing is everything. You are the business owner and, therefore, an expert in your market. Using this knowledge to your advantage will be the first step in understanding when it is the right time to sell your business. Depending on the industry, you can analyze the market and prepare your exit strategy before the sale. However, even though the market is stable and your business appraisal is high, you should take time with the sale process. Another critical element is allowing sufficient time to strategically market your business for pursuing the sale.
On the other hand, don’t put off selling for too long. If you know the market is volatile, don’t get hung up on the best time to sell. Instead, focus on your strategic plan before you burn out. Leading as a burnt-out entrepreneur or business owner can cause many adverse effects on the performance and value of the business.
Making a Strategic Plan
Your strategic sale plan should focus on presenting your business in a detailed, professional manner that protects the confidentiality of the sale. Before approaching potential professionals, ensure your books, records and financial statements are current. This means going back into at least three years of financial history to assess and compile projections and forecasts accurately for the near future. These documents display the meat and potatoes of your business and are what potential buyers are considering. Ensure your materials present a cohesive message with incremental information throughout the marketing process. Your presentation should be about what your business offers and cover potential operational weaknesses and risk mitigation tactics. Presenting your business in the best possible light involves transparency about the negatives and a willingness to turn them into process improvements. While confidentiality of business practices should remain at the heart of all communications with prospects, you should remain ready to pitch or present your business any day of the week once the ball is rolling.
The more prepared you are, the better suited you will be to screen and meet with prospective buyers. Confirming identification, qualifications, and education will be crucial before engaging in more serious conversations with buyers. Remember, keeping your business running at peak performance is essential during this time. This will require working harder than ever. Cutting corners now will be detrimental to a possible sale. Throughout the entire process, consulting an intermediary will help keep you on track to obtaining what your business is worth.
The Role Of A Business Broker in Selling Your Business
Selling your business is daunting and can feel like a huge and stressful task, but thankfully there are experts out there who can make it much easier for you. Consulting an intermediary will help ensure that selling is right for your business and future goals. A skilled intermediary will help you decide the right course of action and provide you with resources such as negotiating expertise and access to a market of potential buyers interested in your business.
A Business Broker will be with you from the start of the selling process. They can help appraise your business, thoroughly review early goals, analyze the probable selling price, and do financial recasting to find any hidden value your business offers. From here, if you and your Broker decide selling is the right option, they can help you draft the necessary documents, such as a Confidential Business Profile, and provide the tools to market your business for sale– including campaigning and buyer screening.
Negotiating can be the most intimidating part of selling your business, especially if it is your first time. Here, a broker can get both parties to that win-win agreement while acting on your behalf. From experience, brokers know some aspects of your ideal sale will be more critical than others, so they can help advise you on where to put your foot down versus being flexible. In any case, it helps to have your intermediary there to rely on and remind you to refrain from taking the negotiation tactics of the buyer personally. Think of your Broker as your watchdog and an extra set of clear eyes that can help guide you through the process and toward a desirable outcome.
Benefits of Using a Business Broker
There are many benefits to using a Business Broker to help advise you on your business’s future course of action. The top reason is the ability to reduce any headaches and risks associated with selling so you can focus on keeping your business running at peak efficiency to maximize the sale value. More specifically, a business broker can conduct a valuation and give you a probable sale price as a starting point. Plus, their expertise in financial statement analysis, taxes and more will be there to guide you every step of the way.
More importantly, however, a Business Broker will ensure confidentiality throughout the sale process. If you want to take your business to the next level or let go of the reins, you likely do not want your bank, customers, competitors, suppliers or employees to discover your plans from some external source. Here, Broker expertise is critical, as when combined with their network of potential buyers, they can advise you on what information to reveal, when and to who. Additionally, they can lay out the necessary documents and agreements throughout the process.
Ultimately, your Business Broker will be your guide to the small business selling process. They will help you better understand the nuances of selling your business and prepare you upfront with a factual analysis of the time, money, and resources it will take to obtain your ideal sale. A broker will also be realistic with you and know when to negotiate. An excellent intermediary will value transparency and help push deals forward to obtain a win-win situation for both parties.
Determining if, when, and how to sell your small business is life-changing. There is much to consider to make the best decision for yourself, your family, and the company you have built. By determining your goals and the value of your business, you will be able to understand better if and when selling is the right move for you. In any case, enlisting the help of a Business Broker, can be vital in ensuring the success of your small business sale.
About the Author
Greg Kells is the Owner and Broker of Record of Sunbelt Canada. Sunbelt is Canada's most successful business brokerage and has been growing and selling businesses for over 20 years. Greg is a successful business broker, the past president of the International Business Brokers Association of Canada, and a serial entrepreneur, dedicated to helping entrepreneurs and small business owners in their business buying and selling journeys.