Selling a business is a significant step and one that entrepreneurs usually spend hours and hours agonizing over. There are just too many uncertainties when it comes to this transaction. Is the estimation of value correct? Are you exiting the market at the right time? How do you ensure that you get the amount that you think the company's worth? Growing a business from humble beginnings to the point where it commands a decent value takes time, effort and a bit of your soul. For many small entrepreneurs, it's like selling a part of themselves.
For an entrepreneur to be able to sell their company, they need to sever the emotional bonds they have with its growth and approach the sale more critically. The best way to do this is to examine the factors that go into a sale before even putting the business on the market. But what features are the important ones to consider, in this case?
Eighteen business owners from YEC delve into the elements they think entrepreneurs should consider before they decide to list their business for sale, and why those elements are so crucial to the decision.
1. Consider your next act first.
"The thought of selling your business and making some money can be really appealing. However, instead of just thinking about the money, consider what your next act will be. Do you already have something you're passionate about and want to start on once your business is sold? If so, then go ahead. Just make sure you have some kind of plan before selling your life's work!" – Dave Nevogt, Hubstaff
2. Assess personal and business readiness.
"You've been committed to your business for some time. You've sacrificed family, friends and personal time. Are you ready to be personally committed to selling your company in order to do so successfully? Is your business ready? Are there weaknesses you need to deal with first to give buyers more confidence? Step back and take an honest look at selling, from a personal and business standpoint." – Blair Thomas, eMerchantBroker
3. Evaluate opportunity cost against life goals.
"As with any decision, there is always going to be an opportunity cost. You need to ask yourself, "By selling, what am I forgoing?" For instance, growth opportunity. Then, are the benefits of selling going to contribute to your life and/or career goals? Only you know what's important to you, and only you can make that decision. Be radically honest with yourself, and don't block a deal out of ego." – Jaryd Hermann, WECAST INC
4. Show the true value of the business.
"It can be difficult to show all the value a business offers, including its long-term potential. However, you need to provide qualitative and quantitative proof that your business has the value that goes with your sales price." – Serenity Gibbons, NAACP
5. Involve the experts.
"When selling an online business, it's important to get expert merger and acquisition advisors involved. They'll be able to take care of the legal side and documentation. They'll also provide you with a fair and accurate valuation of your company, taking into account a plethora of valuation drivers. This ensures that you get the best deal possible, with an accurate reflection of the value of your company." – Thomas Smale, FE International
6. Keep empathy and perspective.
"When looking to sell a business, it is important that the seller keep empathy and perspective. The biggest problem I find when talking to fellow entrepreneurs is that they get emotional about the value of their business. It is important to be unbiased and look at the business from the seller's perspective. Ask yourself, is this business scalable without the owner? Are there repeatable and documented processes in place?" – Rishi Sharma, Mallama
7. Remove emotion from the deal.
"In reviewing potential purchase opportunities, I have come across people who are selling emotionally. They overvalue the business because it is theirs. They locate people who will affirm that belief. Remember that the person on the other side of the table isn't looking at the deal the same way you are." – Brad Burns, Wayne Contracting
8. Don't fixate on the purchase price.
"When selling your business, don't fixate on purchase price. Just as salary isn't the only component in overall compensation, purchase price isn't the only component in selling a business. Other considerations may actually yield a higher overall sale: future ownership stakes, salary guarantees, stock payouts, installed payments, etc. Don't let a high purchase price cost you money in your sale." – Jordan Conrad, Writing Explained
9. Create a unique teaser profile.
"When creating the anonymous teaser profile about your business, don't simply copy and paste from your website. Potential buyers can find you online with a quick search, impacting your valuation and sale price, but also breach any confidentiality agreements you might have. Write a brand–new profile that explains who you are and what you do without using the same words." – Thomas Griffin, OptinMonster
10. Be transparent in everything.
"Right from your first conversation through to every piece of documentation, be absolutely clear and transparent with the business you are selling. It can be as difficult to purchase as it is to sell, but having a clear and transparent process is key." – Nicole Munoz, Nicole Munoz Consulting, Inc.
11. Get multiple buyers bidding.
"Always get multiple buyers bidding since it will increase the perceived value for your business and create urgency for potential buyers to close on the deal. If you have one buyer, the saying goes that you have no buyers. This potential buyer won't have much urgency to make you a good offer or close in a reasonable time. Having more potential buyers completely changes the dynamic in your favor." – Andy Karuza, FenSens
12. Facilitate the buyer's success.
"Part of making somebody feel comfortable with purchasing your business is being there during the transition phase. Buyers want to be sure they're going to make a profit in the short term and the long term. If you just expect to sell the business and totally leave them hanging, you're doing the buyer a disservice. Help them succeed, you never know where it will lead." – Amine Rahal, Little Dragon Media
13. Remember people don't pay for potential.
"If you think your business has the potential to do better after it sells, that's great, but it's a horrible point to make to a potential buyer. People don't buy for potential – they buy for what is. If your business doesn't have the audience or revenue to back up its claims, it'll be difficult to hand off to someone else." – Jared Atchison, WPForms
14. Consider character.
"When you're selling a business, remember that you aren't desperately looking for someone to buy your business. You have to find someone who is as passionate as you are when it comes to your business. You have to make sure that the company is in the right hands. Most first–time founders find the highest bidder. That's the wrong approach. Choosing the right person will make your business endure." – Solomon Thimothy, OneIMS
15. Weigh upfront price against long-term revenue.
"If an offer lands on your table to sell the business, look at the long-term value the offer provides. If you could safely continue to make consistent revenue for years to come, does that revenue exceed the asking price? Be sure that the upfront offer is more than what you know you can safely make in cumulative years of business." – Jared Weitz, United Capital Source Inc.
16. Remember that buyers want profits over revenues.
"Many business owners mistakenly think their companies are worth more than they are because of large top-line sales figures. Although gross revenue does give buyers an indication of the company's size, it doesn't show the full picture. Buyers want to see healthy bottom-line profits regardless of total sales. Focus on increasing profits before you sell and you'll be able to negotiate a better deal." – Shaun Conrad, My Accounting Course
17. Make sure the new owners share your values.
"The company you've built is a reflection of what matters to you, and as it lives beyond your leadership, you'll also want to make sure that any new owners share the same values in terms of operating the business, supporting customers and taking care of staff. Carefully evaluate any potential acquirers to ensure they'll continue to maintain the same brand beliefs and mission." – Firas Kittaneh, Zoma Mattress
18. Make the transition smooth for employees.
"When selling a business, it's important to consider how it affects people who are working for that product or company. How can you make the transition smooth? What will their new role be? You need to make a lot of important decisions that especially affect the people who work for you. It's important to keep them in mind." – Syed Balkhi, WPBeginner