1 Prepare your business: make sure your house is in order before you even start. Any prospective purchaser will want to see accurate financial – and other – management information as part of the process, so make sure things are ready, well-presented and bang up-to-date. This will give would-be purchasers confidence that you’re in control of your business and run a tight ship. If you need help to sort things, get it – you only get one shot at convincing a potential purchaser.
2 Prepare yourself: you’re going to have to share information, justify things on which you wouldn’t normally be challenged, and take negative comments in your stride. You may even have to stick around to ease the transition – few business owners are able to walk away as soon as the ink is dry. The better prepared you are, the less stressful the experience will be.
3 Have a realistic value in mind and know your walk-out position: There are lots of formulae for valuing a business. But, no matter how many numbers are cranked into various equations, price usually depends on profitability. So think about your numbers. Many small businesses show little profit. That’s good for tax purposes, but bad for determining the value of what you’ve built. You want to show the business in the most positive light, so it can be well worth restating your financial results to reflect what you, the owner, take out in terms of salary and benefits. This can be especially useful when dealing with a buyer who would operate the business himself. The actual multiple used varies from industry to industry and business to business and, generally, the more strategic the purchase, the greater the multiple. So, do your homework, know the market and be realistic (or you’ll probably be very disappointed).
4 Don’t count on a cash sale: More than half of all small business owners finance the sale of their businesses through deferred payments and earn-outs. You could find yourself effectively lending as much as 70 per cent of the purchase price to the new owner, so minimise the risk by checking them out thoroughly and agreeing what information you will receive to monitor your position going forward.
5 Keep it quiet: Employees can become nervous and start to look around – and good, experienced employees are part of the assets that are transferred in a business. You need to ensure that business continues as usual. Find a good adviser to act for you, who understands your business and your objectives. Seek recommendations from other business owners who’ve sold their businesses successfully – they’ll be only too pleased to share their experiences.
Jo Clarkson is operations director of peer-support and business-coaching organisation The Alternative Board.