How to sell your business

Small Business Advice 25 January 2018

Selling a business needs a strategy, much like setting one up in the first place. While finding a suitable buyer, your business will be under scrutiny and you’ll need to have all the facts and figures at hand.

Getting the timing right, preparing for the sale, and knowing the true value of your business are all crucial to getting the best deal and leaving behind a business that can continue to grow. Here are the key things to think about.

 

  1. Consider your timing

‘Why you are selling?’ is the first thing you’re likely to be asked. Perhaps you want to retire, or are ready to move on to a fresh challenge. There could be internal disputes, or maybe the company is struggling to grow and needs to bring in somebody with new skills and resources.

Whatever the reason, you must be completely transparent. Anything you don’t disclose will undoubtedly come to light later down the line and could throw the entire sale off course.

Unsurprisingly, a business with increasing profits, a solid customer base, and lucrative and long-term contracts is more appealing than a firm in decline. That said, a business with problems can still have potential and be considered a worthy project by potential buyers with experience in the industry or investment plans.

It’s not uncommon for business sales to come attached with an agreement stating that the owner must meet a two-year earn-out clause, to ensure the profit and growth forecasts are met. With this in mind, if your business is really struggling and unsaleable as a result, you might need to address certain issues before going to market.

 

  1. Value your business

Most business owners will have a rough idea of their company’s value, but you may still need to get an expert on the case to get a more exact estimate. Factors to consider include:

  • How profitable is it?
  • Does the company have a strong management team and workforce in place?
  • How risk averse is the business?
  • Is the company protected against competitors with patents, or a loyal, one-of-a-kind skills pool?

There are a few ways to value your business, some of which we touch on in our How to value your business guide.

A popular method for publicly traded companies is to use a ratio of share price divided by earnings per share. A private company might use a multiplier, where it multiplies its true net profit by anything from 1 to 10 – the figure being relative to the company size, the sector in which you work, or estimated by looking at the sale of similar companies.

The value can come down to perception as much as predicted future profits. Speak to your accountant or a qualified professional for an accurate figure.

 

  1. Choose who will sell your business

Unless you happen to have experience in selling businesses, consider enlisting the help of an expert. Trying to sell your own business can be a demanding process, and the money you spend on hiring a professional can save you time and effort – and they might get a better deal, too.

When it comes to choosing a broker, reputation is everything. Ask potential brokers to provide testimonials and any evidence of their success in selling similar companies. Read the small print and find out exactly what your money is paying for and if there are any hidden fees.

A good broker should not only work hard to get you the best possible deal but also guide you through the potentially long and complex process.

 

  1. Think about preparing the sale

Adhering to due diligence is crucial when preparing to hand over your business to a buyer. This is true of both businesses that are flourishing and ones that need some work. Again, honesty is the best policy. Before the sale goes through, your business will be under great scrutiny, with everything from your workforce to financials and IT networks being examined in detail.

Make sure you are prepared for this. Carry out some housekeeping to ensure any matters concerning HR and bookkeeping are up to date, and take care to consider the implications the takeover will have on your employees, clients, and suppliers.

A sloppy handover can lead to problems and be the difference between a business that sees a healthy, continuous growth or one that nosedives and loses its edge, which could impact your reputation.

 

A lot of time and effort goes into selling a business, but being honest and diligent will really pay off. The last thing you want is to walk away with a bad deal, or for the company to fail. Especially if you want to remain a shareholder. Done right, you can move on to the next stage of your life, knowing you gave it your all.

It goes without saying that the above is just offered as rough guidance and is not financial advice. Make sure to speak to a professional if you’re thinking of selling your business so you can explore all options and achieve your goals.

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