Selling a business is a complex endeavor that involves many steps. To maximize the chances of selling your business at the highest possible price, you need to start preparing in advance.
Timing
A lot of owners consider selling their business when it becomes loss-making or when revenue is declining. While selling a business that is on a downward trend may seem like a normal reaction, it is not necessarily a good idea. It may be hard to attract buyers for such a business, especially in states like Connecticut that are considered “buyers’ markets”. Ensuring that your business is ready to be sold might be the difference between selling it and not selling it. Most buyers seek a business that has consistent or increasing profits and revenues, a strong customer base and a history of customer retention, meaningful growth opportunities, an easy transition from the current owner, etc. While it might take some time to adequately prepare a business for sale, often enough it results in a significantly higher sales price than a business that lacks some or all of these attributes.
Business Staging
Like a house, a business can have a lived-in look after a while. And just like showing a house for sale, you want your business to look its best when prospective buyers show up. Staging your business can involve general organization and cleaning, fixing small problems (minor machinery repair, broken fixtures, etc.) and other moderate fixes.
Information and Transparency
Make sure that your financial records are ready. At a minimum, you should have your last three years of tax returns, the latest financial information for the current year, and your lease, franchise and other significant business agreements (as applicable). Also make sure that your information is transparent. For example, try to avoid commingling your business and personal funds. Do not use your personal credit cards for business purposes, and eliminate any personal or non-business-related expenses from your business accounts.
Your Role
Every buyer, when looking at a business, tries to estimate how difficult it will be to manage your business. If your role seems too involved or too difficult to replace, it might scare a buyer away. A couple of years before you contemplate selling, start distancing yourself from the business by either hiring a manager or extending the responsibilities of your current employees. While it is not always possible, the less involved you are, the better your chances are to find a qualified and capable buyer.
Selling by Yourself vs Hiring a Business Broker
While it is theoretically possible for a business owner to sell his business by himself and save the broker’s commission, in most cases, the owner doesn’t have enough experience or enough time, or the subject is too personal for him to stay objective and fair. In my opinion, the only time it makes sense to forego hiring a business broker is when an owner sells to a relative or to a long-term trusted employee and there is no disagreement on the price. Otherwise, a competent business broker will add significant value and make your life much easier. The selling process is much more involved than just identifying a buyer. It’s a complex, multi-step process and things can go wrong at any point. A competent business broker will be there at each step of the way driving the process, addressing issues and overcoming obstacles.
Valuation
Typically, a business broker will provide an opinion of a value. That number is generally based on data regarding sales of comparable companies, and can be corrected for any internal factors that the broker believes to be substantial. If for some reason you decide to sell your business yourself, I recommend hiring a business appraiser to give you a clear understanding of the worth of your business (and to back up your assertion of value during negotiations with potential buyers).
Selling a business is always a time-consuming and emotional venture for any business owner. Planning ahead can make the process easier and faster.