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To sell or not to sell

After the decision to start a business of your own, perhaps the most challenging decision you can make is whether to sell that business. You conceived it, built it, poured your lifeblood into it, and now find yourself with a viable, profitable enterprise you can call your own. You have built an asset! Now… what to do with it?

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For many business owners, the prospect of selling their business is both daunting and alluring. For others, it is something of a dilemma – how do you decide whether selling is the best strategy?

If it’s such a good thing, why shouldn’t I keep it?

Taking a strategic approach to the prospect of selling your business is essential. The decision to give up ownership of your business and all that went into building it is no less significant and life changing than the decision to start a business in the first place. A number of key questions need to be addressed before you even put your business on the market.

  1. What is your primary reason or objective for selling your business? The motivations to sell are almost always personal and never purely financial. Being clear as to why you want to sell is crucial for making the final decision.
  2. If you have decided to sell, is the timing right? Some will argue that economic downturns are not the best time to sell a business. And other timing issues may involve personal concerns, the financial health of your business and even how well developed your systems and processes are.
  3. What selling price do you realistically hope to get for your business? What you would like to get and what the market will offer may differ significantly. If you find that your selling price is not being met, how will this impact your resolve to sell your business?
  4. Is your business “ready” to be sold? An informal poll of business brokers revealed three major reasons why a business either cannot sell, or cannot demand a selling price that represents an acceptable ROI for the owner:
    • The business cannot operate without the business owner. For example, key relationships, sales, and deliverables are largely dependent on the owner as an individual contributor.
    • The business has no management systems to support a seamless transfer of ownership. Without a smooth transfer the amount of cash needed by the new owner to support overhead and operations goes up because of downtime and loss of productivity, as do the risks of failure and the loss of key employees.
    • The business has no strategic valuation. To maximize the value of a company the purchaser needs to see more than the EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) - the business must also have a strategic vision of how the business will provide the new owner with growth and profit that increases the value beyond current financials. 

In addition to the questions above, a prospective seller should also answer this last question: What are the alternatives to actually selling my business and should I consider them first?

Prepare for a winning transaction

Your potential buyer may be assuming the greater risk in buying your business, but it is up to you to maximize your return while ensuring a truly successful transfer of ownership. Here are some essential considerations you will need to address:

  • Is the business fully developed so that a new owner can step in and run it just as you do?
  • Have you identified the “ideal” buyer and the optimum price for your business?
  • Are there potential buyers in the market who can afford your price?
  • Will you have to finance part of the sale and, if so, how much?
  • What will the expenses be in selling your business?
  • What kind of due diligence, or investigation, will a buyer want to do?
  • Will you have to stay on after the purchase and will the buyer keep your current employees?

These questions are not exhaustive, and you should prepare as completely as if you were looking to buy a business – taking into consideration all the relevant factors, and seeking professional advice to help you in areas you are not experienced in.

Once you decide, it’s time to act

A Gallup poll conducted among owners of private companies with an average of 50 employees revealed that 65% planned to pass the business on to family members while only 7% planned to sell or liquidate their business. Yet, incredibly, 75% of the respondents did not have written succession plans! 

According to some experts the single largest reason most businesses are not sold is that the owners never acted on the decision to sell. As a result, the succession or transfer of many businesses is determined by outside forces. Hesitation, indecision, or simple procrastination has derailed the successful sale of more businesses than price issues, timing, or the state of the economy.

Alternately, you do not want to act on impulse – like receiving an unexpected cash offer for your business – when selling is not currently in your strategic plan and goals. Ultimately, however, the realities of life demand that you have a strategic exit plan in place.

EMyth Team

Written by EMyth Team

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