Common Questions Business Owners Ask About the Selling Process
Selling a business can be a lengthy and complex process. Before you even begin, you need to prepare for the sale by making sure your business is ready to attract your targeted buyers. During the process, there are several steps that must be taken to avoid common pitfalls and ensure a successful transaction. Along the way, business owners have many questions on how the process works.
Here are some of the questions most commonly asked by owners when they want to sell their business:
How long will it take for my business to sell: Every business is unique, and each individual circumstance is different. For this reason, there is no way of knowing for sure how long it will take to sell your business. For example, if you are in a ‘seller’s market’ and your type of business is in higher demand, it maybe easier to attract a buyer. If, on the other hand, there are multiple businesses like yours available and a limited pool of buyers, you will need to do more to make your business stand out.
How much is my business worth: Businesses are valuated based on several factors. The three general valuation approaches are:
- Market-Based: Comparing your business to historical sales of similar businesses in your geographic area.
- Income-Based: Determining the value based on the business income times a certain multiple. Example, business value = 2.5 X net annual income.
- Asset-Based: Determines the business value based on the value of the assets the business owns.
Many valuations are weighted based on all three factors, with the amount of weight given to each factor determined by the industry and other specific circumstances. You need to also take into account how attractive your business is to your target buyer, how easy it is for your buyer to obtain financing, how motivated you are to sell, and other important variables. At the end of the day, your business is ultimately worth what a buyer is willing to pay you for it and what you are willing to sell it for.
What can I do to make the business more attractive: The most important thing you can do is to make your business less dependent on you for its success. You need to be able to step back and let go of the important day-to-day responsibilities and put them in the hands of trusted employees who will be there for the next owner. Other things you can do include:
- Making sure your finances are clear and coherent, so it is easy for the buyer to do his/her due diligence;
- Making any necessary upgrades to ensure the business is competitive or superior technologically to similar businesses;
- Employing more advanced marketing techniques to grow your customer/client base and show that the business is on the rise;
- “Systemizing” the business by creating automated processes that are easy for the new owner to follow.
What mistakes should I avoid during the selling process: When someone is selling a business, there is a tendency to become complacent. Do not fall into this trap. This is the time to stay focused and work as hard as possible. The finish line is near, and you need to keep your business strong, so the buyer will inherit a good situation. Also, try to avoid making any major changes during this period. Do everything possible to retain your best employees, and train them to take over more responsibility.
How will a business intermediary help me during the selling process: A reputable business broker can bring an unparalleled level of expertise to the business sale process. For example, they can do a thorough evaluation of your business and help you prepare to list it on the market. They can also market the business to a much wider pool of qualified buyers than most sellers could find on their own. They can help ensure that non-disclosure agreements are in place and that the sale of your business remains confidential up until closing, which is very important for maintaining the confidence of your employees and clients/customers. Business intermediaries have extensive experience with the selling process; and having one by your side helps ensure that you avoid any major mistakes and that the sale of your business is smooth and seamless.