3 First Steps to Sell Your Business
Get off to a good start when you’re ready to sell your business by putting these three things in place as early as possible.
I know you’re thinking about how much you’ll get. You might even be working on the project that you want to start after the sale, whether that’s your next venture, a long vacation, or retirement.
Bear with me though, it will be worth it.
While these are key elements of a successful sale, they are for you not necessarily for sharing. That means the format and formality can be whatever you need them to be.
Let’s get started:
- Explain why you’re selling.
- Establish your timeline.
- Get your business ready to sell.
Step 1 | Explain Why You’re Selling
According to vikingmergers.com the top three reasons for entrepreneurs to sell are
- It’s Time to Do Something Different
In every case I’ve been involved with either the other party has asked why my party was selling and I always ask when I’m talking to a seller.
There are two parts to this answer.
First, it’s important to have an answer that you’re prepared to share with a buyer.
Second, you need to be very clear about any personal reasons that are contributing to the sale. You’re well-advised to work through how you feel about it.
Why? That’s a great question.
How you feel about selling your business may come out in ways you don’t expect during the negotiation process. Keeping tabs on how you feel in general; and at the moment, will help keep you on an even keel and can provide you with an indication when you need to defer a conversation.
This is not just about taking care of yourself or making sure you don’t sour a deal although that’s important. When we’re at our best during a negotiation we do our best work for ourselves and for the other party.
When you start crafting your narrative it’s important to realize that words matter.
For example: “I’m ready to retire.” may convey that there is no inherent problem with the business, you’re not burnt out so it has been a good experience but… you’re expecting the proceeds to fund the rest of your life in the Caribbean. If you’re sharing that you are, in fact, burnt out, that will raise questions in the mind of your buyer as well.
In all circumstances, honesty is the only policy here. Remember that the way we describe our situation will matter.
Before we move on I’d like to add a few more reasons that you might want to sell that the article I referred to didn’t cover.
Declining Business - We don’t like to talk about it but sometimes a business just doesn’t go as planned or the economic conditions change and it becomes unsustainable. It happens. Before you close up shop you may find that there is a buyer out there who has the knowledge and/or resources that can be used to leverage your business into something great. There is no doubt that a business in this situation will not command the same valuation as a similar business in a growth stage. There can still be valuable to the right buyer.
Life Change - Becoming an entrepreneur has an impact on your life and the lives of those around you. You may find yourself in a situation where the time and effort required by your business aren’t sustainable for you. This can be due to any number of factors like starting a family, personal or family illness, or anything that shifts your priorities necessarily away from your entrepreneurial journey. That’s fine. By recognizing that you need to adjust your lifestyle, you’re doing yourself, your employees, your business, and your buyer a service. That’s a win all the way around.
The reasons for selling a company can be every bit as personal as the ones that set you on the path to business ownership. Sometimes they can be even more personal.
Be clear about your reasons in your mind and be ready to discuss why you’re selling from a place of professional authenticity (shorthand: be honest and avoid oversharing).
Step 2 | Establish Your Timeline
You’ve already done the hard one so this one is easy!
You may have heard of the quality triangle that consists of Quality, Speed, and Price. The saying goes that you can have two out of three.
It’s a good guideline and reference for us in this case as well. Think of it more in terms of Quality of Terms, Speed & Price.
So, the faster you want to sell the more pressure will be put on the Terms and Price. That’s not bad, it’s just a data point.
The further into the future you can predict the sale of your business and prepare for it, the better you’ll be positioned when the time comes.
I generally advise clients that, in a perfect world, they will begin exit planning 10 years before their desired exit date. It seems like a long time but there are reasons that you’ll benefit that are outside the scope of this article.
Okay, in the most perfect world you’ll begin exit planning as soon as you receive your EIN but let’s not go crazy here!
The more time you can give yourself to prepare the more prepared your business will be and the more opportunity you will have to find the right buyer.
Step 3 | Get Your Business Ready
What does it mean to prepare your business for sale?
It can be as simple as listing your business with a broker or it can be a process that takes every bit of those 10 years I talked about earlier.
There’s no right or wrong answer. Your answer; however, will impact both the objective valuation of your business as well as how prepared you are to demonstrate the future value of that business to your prospective buyer (think: curb appeal).
As you can imagine this is a huge topic but here are some considerations.
- Think in terms of designing, building, and updating your business around transferability.
- Get yourself out of the day-to-day operation.
- Document, prioritize and protect what makes your business special (unique value proposition).
The Bottom Line
Get clear on why you’re selling your business. In your initial discussions with a buyer, this is often one of the first things they will ask. It also helps you stay grounded during the negotiations and may even give you more peace of mind after you sign the agreement.
Achieve the exit you want by planning ahead. Decide a reasonable exit date and make working toward that part of your regular activity.
Begin preparing your business for sale. If you’re too busy to plan your exit… you might be too involved in the day-to-day operations.
As business owners, we do a lot of DIY. Remember that doing it yourself doesn’t have to mean going it alone.