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Advice For Selling Your Business
Thinking of selling your business? One of the first things you should know is that the process is far from a precise science. For example, business valuations can vary greatly depending upon the type of business, the valuation method used (there are several), and a variety of financial factors (which generally boil down to three things: assets, profits and/or cash flow). As if that weren’t enough, sometimes the most important factor in a company’s sale has nothing to do with the numbers- instead, it relates to the buyer’s motivation. (Case in point: eBay just paid $2.6 billion for Skype, the free internet phone service that has revenues around $60 million and isn’t expected to break even until the end of 2006. Why? The folks at eBay plan to use it to make buying and selling easier for their 157 million users.)
Although the process may seem bewildering at the outset, all in all it’s a lot less confusing and stressful than the experience of starting a business in the first place. If you survived that, you can definitely handle this. As with many things in life, the first step is to focus on the big picture. To help you get started, here are a few simple suggestions:
1) Start early. If you can, start the process three years ahead of time. Business brokers report that 99% of the businesses they list for sale are not properly prepared to be sold. Starting early will give you time to fix problem areas (outdated inventory, unprofitable product lines, poor staffing, etc.) and clean up any possible tax/legal/ownership issues.
2) Systemize your business. A company with an owner’s manual (i.e. a well-documented set of systems and procedures) will always get a higher price than a company without one. Furthermore, a systemized business is less dependent upon the personal involvement of the owner(s) and thus more attractive to potential buyers.
3) Optimize your financial performance. When somebody buys a business, they’re basically buying a stream of earnings. Obviously, the numbers are an important part of the overall story. Make as many financial improvements as you can leading up to the sale and you’ll be able to paint a much better picture for potential buyers.
4) Think of business valuation as a starting point. It’s rare that buyers and sellers come up with the same figure for a company. Naturally, the buyer wants a lower price and the seller wants a higher one. Your goal should be to come up with a ballpark figure that can be used as a starting point for negotiation. The ultimate goal: to come up with a price that both sides can live with.
Posted by
at 12:44 PM December 29, 2005
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