Most small business owners plan to sell their business as their exit strategy. While this is the most desirable outcome, it is important to recognize not all businesses sell.
In fact, up to 90% of listed businesses do not sell at all, according to the International Business Brokers Association (IBBA). As a business owner thinking of selling, you would want to be a part of that 10%. This requires you to understand what you want, what potential buyers want, and how to present your business at its best. In short, a plan.
Although there is no specific time or a eureka moment (that we know of) in exiting your small business, there are some things you need to consider when planning to let go of your business. It is vital to take a moment and deep-dive into these considerations as any outcome you choose has massive personal and business impacts.
1. What is my exit goal?
Ask yourself, “Why am I thinking of letting go right now?” Consider the reasons behind the urge to let go of your business. Determine the top driver for why you have ended up with this decision.
Distinguish whether your reasons are personal or business-related. A decision as big as letting go of your business should not be purely subjective. Think of it this way; one should not be making big decisions based on the prevailing emotions at the spur of the moment. Perhaps you are suffering from burnout and that is driving your desire to exit when finding a way to have more work life balance may be the answer.
Take a step back and consider the bigger picture. Do you think your business is doing what you expected? Do you think you will be able to reach your business goals in the near future? Depending on your answers to these questions, you’ll know if you need to stay and give the business some time to mature before letting go.
Part of defining your exit goal is knowing if you are truly ready. Your own circumstances and priorities will likely influence your exit. The most obvious area of concern here is the readiness financially. It is a wise idea to look at your goals after the exit and see if you have the capacity to fulfill the financial needs they require. Remember that you should also consider the needs of your family.
If the financial preparation aspect of business exit sounds overwhelming, it is best for you to seek advice from a small business coach or financial advisor.
2. What's in it for prospective buyers (aka W.I.I.F.M)?
Understandably, it is hard to be objective about what are the positives and negatives about your business. To attract buyers willing to pay your price, you want your business to be in the best shape. That means a pattern of profitability, a good customer base, and a long-term growth plan. You may be familiar with WIIFM which stands for “What’s In It for Me?” and that is the mindset a prospective buyer will have when evaluating your business.
Examine your financial records and look for ways to make improvements. Create a cash flow forecast and a plan to drive more growth and revenue for the near future. This includes cutting expenses or redirecting them to an income-producing factor. It will take months to see the results, give yourself time to see at least two quarters of improvements.
3. Is there someone qualified who is interested in buying your business?
Though it is great to have an interested buyer for your business, they might not be qualified. An interested buyer may be in it just for the sake of being a business owner, but a qualified buyer has what it takes to keep your business up and running.
In most cases, the first offer is not the BEST offer.
Make sure the buyer has plans for your employees and customers. Find someone who has the ability to handle the challenges you’ve come across. Make sure the buyer will take your business to the next level so that you can feel confident it will continue to grow.
Here’s what to watch out for to weed out qualified buyers:
- Has strong background in handling a profitable business;
- Able to interpret and prepare financial plans upon acquisition of your business; and
- They ask detailed questions that demonstrate they understand the business
Make an informed decision by carefully evaluating your options.
All points considered, do not sell:
- If you are not ready
- If your business is not in a good shape
- To the wrong person
Over 60% of transactions are “seller financed” which means that the buyer will pay the seller over a period of time (the term) using proceeds from the business. Choosing the wrong buyer may risk not getting your money or getting paid over a longer period of time than expected.
The best time to sell is based on a combination of factors such as your readiness (financially and personally), market conditions, and identifying the right buyer.
Even if you don’t anticipate selling anytime soon, planning for an eventual exit is still important to avoid making mistakes and ensure a smooth transition to a new owner.
Though there is no magic moment or formula on when to let go of one’s business, these things may help you in arriving at the most appropriate decision. Big life decisions do take time, and it’s better to analyze everything first and weigh the wins and losses; rather than acting on an impulse and regretting it after the transaction has closed.
It is also essential to note that most business owners don’t sell their business on their own. You may be an expert at building a business but selling it is a different task. Selling a business is a complicated task. Turning to a coach, accountant, lawyer, or broker can do your business wonders. They’ll help you get the best value for your business and sell it for the most favorable price so you can move forward and enjoy the next phase of your life.