By Vishal Bharucha, president of VNB Business Brokers, a leading Business Brokerage and M&A Advisory firm.
You’ve been thinking and talking about it with family and friends and you’ve decided that it could be the right time to sell your business. According to one report, small business acquisitions have gained excellent traction, outperforming pre-pandemic levels in the fourth quarter of 2021. Even more interesting is that sale prices have risen by 16% due to low-interest rates and strong demand for top-performing businesses.
Once you’ve made this life-changing decision—whether it be due to divorce, an exit strategy, health reasons or to pursue other interests—you need to know five things that are going to help you sell your business for maximum value in this increasingly complex market.
1. Choose The Right Business Broker
Selling your business is a big decision. You’ve likely spent years building it, working tirelessly to drive its strategy and operations to ensure it remains profitable. Maybe you’ve reached a point where you don’t have the right skills to drive an expansion strategy and a new owner with a better-aligned skill set is able to achieve this next stage of growth for the business and scale it to its fullest potential.
Selling your business is an opportunity to generate a return on your investment of time, money and years of risk-taking to fund your dream. That’s why it’s important to appoint an experienced business broker with a proven track record to help you succeed.
Brokers are business field specialists with the majority of seasoned brokers having owned successful businesses themselves. This expertise enables them to provide sound guidance and industry knowledge that you wouldn’t have should you decide to sell the business yourself. Many brokers will tell you that in cases where sellers don’t get their asking price, the business wasn’t adequately prepared for sale or an unrealistic business valuation was given that sent serious buyers running for the exit.
When you choose the right broker to sell your business, you’re not only getting advertising, you’re accessing expert assistance with a market-related valuation, a marketing plan and assistance with agreements and legal documentation.
An experienced broker goes the extra mile to learn about their client’s business and doesn’t immediately go for a sales offensive. Understanding your business will ensure the broker can offer credible advice on what to expect during the sales process and ways to devise the marketing strategy. You’ve put in long hours, sweat and sometimes tears to grow your business, so don’t settle for an inexperienced broker to sell it.
2. Determine The True Value Of Your Business
Understanding what your business is really worth will help put a number to your endless hours of hard work and the investments you’ve made. Your broker can assist you to determine a fair market-related value for your business and offer advice on how to increase its value. Experienced brokers have the ability to identify current or potential issues in your business that you can address prior to placing it on the market.
Addressing these issues ensures that you don’t price the business too low and risk losing out on the years of hard work you’ve put in. This strategic knowledge helps to set KPIs that can assist you to continue to assess performance and make informed decisions even while the business is on the market.
Your broker will provide a fair, market-related valuation that will prevent prospective buyers from trying to whittle down your asking price with low-ball offers that won’t result in you deriving maximum value. Expert brokers understand the economic climate, buyer behaviors and trends and are equipped to offer transparent and honest valuations that are aligned with your sale objectives.
3. Present Your Business Professionally And Confidentially
When selling a business, the value of professional marketing cannot be overstated. Selling your business is arguably one of the most stressful things you’ll do as an entrepreneur, and if you’ve made the decision to sell, you want a seamless, expedited sale that gets you a fair asking price. However, to get the best asking price, you need to attract the best buyers. This means investing in a good marketing strategy that will help you reach a qualified pool of potential buyers.
Your broker will undertake the marketing and advertising on your behalf, communicating salient information about the business to prospective buyers including lease, assets, stock levels, financial and sales data and staff details. The broker should aggressively market the business but with the strictest confidentiality. The most important reason for this is that if certain specifics about the business become common knowledge, the viability of the business sale could be severely impacted. As such, a good broker is meticulous about the way the business is marketed as well as the channels used to identify interested buyers.
4. Find Quality Buyers
An active business broker will have a database of serious, qualified buyers. This is an important question to ask before appointing a broker to avoid entering discussions with buyers who are simply “browsing.” Generally qualified buyers make inquiries for specific businesses and your broker will be able to match you to these buyers.
Brokers must have confidentiality agreements in place and often credit checks are also conducted with prospective buyers, ensuring the highest level of discretion and confidentiality to protect your interests. A good broker should have a buyer profile that includes key aspects such as average income, education and demographics. This data will enable targeted marketing to reach specific buyers.
5. Structure A Good Deal
Deal structuring is a science that combines excellent communication and negotiation skills as well as industry expertise. A well-structured deal isn’t based on the asking price alone. There are several important aspects that must be agreed upon including, but not limited to the:
• Required buyer’s down payment
• Availability of seller finance and the terms hereof
• Structuring of the transaction
• Non-compete agreements, if applicable
There are several motivations to sell your business, and with buyer demand at an all-time high, there isn’t a better time to secure maximum value for your years of hard work.