Many small and mid-sized business owners who have decided to sell their business have no prior experience in that process. Obviously you will want and need to seek the advice and counsel of someone experienced in mergers and acquisitions.  Before you do that, however, here are a few things to think about.

Where is the real value in your business? It is often not the machinery and equipment. Those things are fungible and can usually be easily acquired or replaced, unless they are quite unique or the way you have combined them and/or used them is unique. It is sometimes in the employees, but only if they have special skills, experience or knowledge that is not easily replaced. It can be in the customers and the revenue stream they produce, especially if it is monthly recurring revenue from customers that are not readily transient, i.e. under written contracts. Most often it is in you, the owner. It is your special relationships with the customers, your business reputation or the special talent or knowledge you have that you either have not, or cannot, pass on to others. If that is the case, your exit from the business after the acquisition will decrease the value of the business to a potential buyer. Identify the real value and focus on how that value can be transferred to a new owner.

Who are the potential buyers for your business? If your business is unique or a “niche” business, the market of potential buyers may be limited to your competitors. Many business owners do not really want to sell to their competitors, which can severely limit the number of potential buyers and/or the value of the business, if not make the business virtually unsaleable. Obviously, the more potential buyers, the greater the price that your business can bring. Evaluate the market and create a list of potential buyers. Then you can adjust your sales efforts to optimize your success.

How can your business be made more salable? Start with your overhead and cost of goods/services sold. Identify where you can reduce costs that will increase profit margins. Doing this before a sale will bring a better price because the buyer will not have to address those issues after the sale. For many owners that is very difficult, especially if it involves cutting the workforce.

What is a realistic asking price? Many business owners, especially those who have started their business from scratch and grown it to be successful, have a natural emotional bias that leads to an unrealistic sense of the worth of their business. Independent business valuation specialists are readily available, but shy away from having anyone value your business who is going to be involved in the marketing and sale of the business, such as business brokers.

Be prepared to negotiate. Remember that the asking price is merely a starting point. It is rare that a buyer will accept the asking price, unless it is set too low. Most buyers expect and want to go through a back and forth discussion to address their points of concern and how your business will fit into their model.

Be prepared to share your information. Even though most buyer “due diligence” occurs after a purchase price has been established, most buyers will want to see some basic information about your business - starting with your financials - before the price is set. Many business owners are reluctant to share that information. Proceed with some caution, however. Make sure there is a written confidentiality agreement in place and never divulge the actual identity (names and addresses) of your customers until the deal is sealed with a binding purchase agreement.

Categoried under:  Business Valuation, Mergers and Acquisitions, Negotiations, Selling Your Business