For many small business owners, there will come a time when it’s time to say farewell. Here’s how to do it the right way…
Selling your business is the same as selling just about anything you hold dear. Whether it’s a family home, that motorbike you’d always wanted but now you don’t have time to ride, or a business that you’ve built from the ground up with blood, sweat, and tears – sometimes saying goodbye can be a very hard thing to do.
This is why, when it comes time to sell off your business, there are some huge factors that you’ll need to bear in mind, to help you maximize value and profit, and minimize pain and financial loss along the way.
Samantha Hurst is the founder of Click Start Digital and has a decade of experience in setting up, running, marketing, building & selling profitable online businesses.
Sam shared her wisdom with us a while back about how to go about selling a business, and what she had to say then still holds in selling your business today.
Step 1: Plan, plan and plan again
The first, and most vital step, is to make sure that you’ve got all your ducks in a row when it comes time to sell. We’ll go into those in a bit more detail shortly – but for now, the lesson is simple:
Make a plan for the sale, and stick to it.
This is often a difficult thing to do, as the process of selling a business and moving on can be a very emotional time. If you’re anything like most small business owners, you’re selling off something that you created, and which was a part of your daily life for many years.
However, having a solid plan in place can help to overcome a lot of the emotion, meaning you can keep your eye on the prize, and your head in the game, during negotiations with potential buyers.
Step 2: Valuing your business
One of the hardest, and most time-consuming parts of selling a business is figuring out what it’s really worth. There are three types of small business owners when it comes time to sell – those who grossly overestimate the value, and never attract a buyer, those who massively undervalues the company and lose the value of years of hard work… and those who are diligent, and know how to accurately assess what they have, and what someone should pay for it.
“You wouldn’t list a car or home for sale without knowing what a fair price for it is, would you?” Sam asks. “Of course not… But, believe it or not, there are a surprising number of business owners who actually think about selling their company and never bother to find out its total, real value.”
“Sales, profits, future prospects, the number of current clients, and many other variables all figure into the total value of a company. It’s much more than just your current holdings,” she says. “Of course, you’ve got some sentimental attachments to your business so letting a third party set a fair value is probably a better idea and one that will give you a clearer picture of the total value.”
That will mean bringing someone on board to help you figure out what it’s all worth – and not just adding up what’s in the stock room, attaching a ‘good will’ figure for the name of the business, and sticking an advertisement in the paper.
Yes, having someone come in to help will cost you money – but the potential extra windfall at the end of the process, when you get what your company is really worth from a buyer, stands a good chance of off-setting those fees by quite a substantial amount.
Step 3: Make sure you’re ready to sell
According to recent research by the Exit Planning Institute ‘State of Owner Readiness’ survey, 75 percent of small business owners who sold up “profoundly regretted” the sale “significantly” within 12 months of selling.
The possible reasons for regret are as complex as the entire human race – but whether it’s because you suddenly miss being the business owner or a change in the market has seen your old company boom without you at the helm, that kind of regret can be, personally, extremely damaging.
So… unless you’re selling the business as a matter of urgency, for reasons unrelated to the business itself (such as a family member falling gravely ill), selling up ‘on a whim’ can generally be considered a bad idea.
Step 4: Make your business as attractive as possible
While selling a business is a little bit like selling a home, it’s also vastly different in a number of ways. A lick of paint and getting the lawns done can help shift a home to a potential buyer, but for businesses, it’s a lot more complex.
That’s why tipping more time into getting the business running smoothly, and as profitable as possible, for a period of time leading up to when you think you’ll be wanting to sell is a very wise investment.
For starters, adding to your customer base over a six- or 12-month period leading up to the sale can only add to the bottom line when negotiations start.
And, if you’re adhering to Step 3 about making sure you’re really ready to sell, if you do decide that you don’t want to let your baby go just yet, you’ll still be the owner of a business that’s in vastly better shape than it was when you started the process.
Step 5: Have all your paperwork in order
Just like a sudden cloud of steam from beneath the bonnet of the car being test-driven by a potential buyer, nothing – and we mean nothing – will send a buyer scampering from your business faster than shonky paperwork.
And that means time, and energy, you’ll need to spend to make sure that your books are in order, and will be ready to pass some very, very tight scrutiny by the buyer.
“You wouldn’t send your kid off to school without the proper records, and your business should be considered the same way,” Sam said. “Buyers will want to make certain that they have a clear picture of your business and its finances before they even make an offer. “
“Maintaining good records throughout the life of your business will simplify this process, but be sure you spend extra time on it when the sale approaches,” she added.
Again, if that means getting someone in to help you get the accounts and paperwork up to date and squeaky clean, it will be well worth it in the long run – particularly if it means the difference between making the sale, or losing the buyer completely.
Step 6: Think about your employees
For some business owners, this step will be something that will weigh very heavily on their minds as they consider what will happen to the people they’ve worked with – often very closely – over the life of the business.
What will happen to the people who work for you? Will the new owners let them all go and bring in their own people? Or worse – will the new owners turn out to be the proverbial “boss from hell”, and potentially cause great angst for people you’ve known, trusted – and paid – for years?
“If your company is your child, its employees are the lifeblood that keeps it alive and well,” Sam said. “A sale can make your top employees nervous and if they exit before the sale is finished you may not even be able to close the deal.”
“Be sure that you let your employees know that they’re going to be taken care of. Compensate them, reassure them, and help them adjust to the possibility of working with a new owner,” she said.
Step 7: Sealing the deal
Negotiations can be a tremendously taxing experience, and you don’t need us to tell you that there is a veritable mountain of literature penned about how to do it, and how to ‘win’.
But the truth of the matter is pretty simple; some people are great negotiators, and some people simply aren’t. The trick is knowing which side of that line you sit on.
A crash course in ‘good negotiating’ will shine some light on the issue for you – and sometimes, being totally honest with yourself and reflecting on how you handle certain situations, could save you a lot of headaches, and help you achieve maximum value on the sale.
The general consensus is that it’s hugely important to be patient, to be prepared for there to be ‘grey areas’ during the initial negotiation, and – most importantly – to get to know the person or people you’ll be dealing with.
“ When you start going into talks with a potential buyer, learning more about them is important,” Sam said. “You’ll want to make sure your business actually appeals to their interests and, if you’re worried about your employees, that they actually care about keeping your business open and operating properly.”
Step 8: Saying goodbye
When all is said and done, the paperwork is signed and the business is officially someone else’s, it can be a very bittersweet moment.
We’ve already mentioned the percentage of business owners who regret the sale, for one reason or another, within 12 months of the deal being done.
However, emotions aside, planning for a successor to step into your role is just as important as every other step we’ve mentioned so far.
“It is especially important if you’re really in charge of the daily operation of your business,” Sam said. “You need to be sure that you delegate major responsibilities to your management team and that you insure your business’s continued operation success after you’re gone.”
“This way, the buyer will have confidence that the business can go on without you,” she added. “It’s important to make sure things will carry on the right way after the sale.”
If not only for the wellbeing of your former staff, it’s important to remember that your name will be attached to the business in the minds of a lot of former clients and customers.
So if it fails, or – even worse – treats those customers poorly, regardless of the fact that you’ve sold the business, it could still reflect poorly on you.
That’s why, when the ink on the contracts is dry, and you’ve either moved on to your next project, or – even better – you’ve got your feet up in the sunshine with a fishing line in the water, enjoying retirement, you need to make sure that everyone you’ve dealt with knows that the business has been sold.
It’s very easy to rely on the new owners to hang an “Under New Management” sign on the front door – but if you’ve had loyal customers for years, a personal note to them, even via email, to thank them for their business, and to let them know you’re moving on, can save you a headache down the road.
Plus, it’ll give them a chance to say goodbye, and thank you, as well…