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How to Sell Your Business
[Prefer to listen? You can find a podcast version of this article here: E194: How to Sell Your Business]
If you’re a business owner, you probably love what you do. Most people start a business because they have a passion for their particular craft or skill and want to have freedom over how the work is done.
Because of this, many entrepreneurs see their business as a lifetime pursuit and could not imagine a day when they retire from it.
However, things change and it’s common for even the happiest of business owners to gradually lose interest in the business they started long ago.
Maybe they are ready to slow down and spend more time with family. Maybe they want to try something new. Most entrepreneurs have lots of ideas for new ventures and it might be time to start something different.
Whatever the reason, you may be wondering what an “exit” could look like for you.
Unfortunately, many business owners don’t think about how to make their business “sellable” until it’s time to actually sell, which is too late.
Whether you plan to sell your business or not, it can be valuable to start thinking about how to increase its value now so that you have options in the future.
And the nice thing is, all the things that go into making a business easier to sell also make your business healthier even if you don’t sell it.
So what do you need to have in place to sell your business?
A strong brand can add a lot of value to your business. This doesn’t mean you have to spend six figures with an expensive branding agency.
The elements that help create a strong brand include:
- A professionally-designed logo
- A well-designed website
- A consistent color palette and styles throughout your brand materials
- A positive reputation in your market
- Positive media exposure
- Great customer service
- Clear messaging
These are all things that don’t have to cost a lot of money.
A strong brand helps a potential buyer see that you’ve put effort into your business and have made it more valuable by developing the brand.
Potential buyers want to see that your business has a system for consistently generating revenue.
This can mean that you have done Search Engine Optimization to earn consistent website traffic. It can also mean that you have an advertising program established, either online or offline or both.
You need to have some sort of system for getting new business in. The stronger your marketing system is, the more valuable your business is to a potential buyer.
Not all small businesses have intellectual property but if you do, it can significantly increase the value of your business.
Intellectual property can be a patent or trademark. It can be proprietary processes or a way of delivering service that is unique and difficult for others to replicate. It can be a recipe or a formula for a product.
If it’s something unique, proprietary, and difficult for competitors to copy, then you may have intellectual property that is worth something in your business valuation.
Consistent and growing profits
When it comes down to it, the most important factor in selling your business is generally your financial statements.
Is your business profitable and is it growing every year?
There are many businesses that generate a decent amount of revenue but very little profit. Revenue is the amount of money your business takes in as a whole. Profit is how much money is left after expenses are paid.
And don’t forget to factor in your compensation. A healthy business should be generating a strong profit while also paying the owner (you) a reasonable income.
So what is a healthy profit margin? It will vary by business and industry. The norm for some service industries can be 10% give or take while other industries would expect profits of 25% or more.
Be sure to look at benchmarks for your industry and see how your profitability compares. If you are behind the curve, you’ll want to find ways to increase your profitability before attempting to sell your business.
If you’re a solo business owner, this won’t apply to you. You can still sell your business but it may not be worth as much as it would be if you had a team in place.
A strong team can make a business more valuable because it means that there is already a system in place for delivering service.
If your business is run by a team (even a few people) it means a potential buyer is truly buying an investment, rather than a job.
The less work the buyer has to do to run the business, the more valuable it is.
Which is a great segue to…
Less owner involvement
The less you are involved in your business, the more valuable it is.
If you are constantly involved in the day-to-day operations of your business and it can’t run without you, then a potential buyer will see that as a downside.
A potential buyer wants to be able to take over your business without having to untangle the previous owner (you) from operations, relationships, and administration.
So how do you get yourself “unplugged” from your business?
If you’re a solo entrepreneur, you can start to outsource activities to trusted contractors or service providers. Or consider hiring team members to take some parts of the business off your plate.
If you have a team, work toward empowering your team members to do more and more so that you don’t have to be involved in every operational aspect of your business.
Often, the ideal path is to position a trusted team member as the operations lead in your business. If you can get to the point where your trusted manager is running most parts of your business, this can significantly increase the value of your business.
Systems and processes
Strong systems and processes are vital to running a healthy business. Anything that is done more than once should have a process.
These structures guide how a business operates on a day-to-day basis and play a vital role in ensuring efficiency, consistency, and scalability.
Here's why strong systems and processes are essential to running a healthy business:
- Reduces Redundancy and increases efficiency: By having defined processes, a business eliminates repeated work and streamlines tasks.
- Saves Time and Resources: Automation and clearly outlined procedures allow staff to complete tasks more quickly, using fewer resources.
- Standardizes Output: Well-defined processes ensure that the products or services are consistent in quality, meeting the expected standards.
- Improves Customer Satisfaction: When customers receive consistent quality, their trust and satisfaction with the brand increase.
- Facilitates Growth: Having robust systems allows a business to accommodate growth more effortlessly, as processes can be replicated and scaled.
- Eases Onboarding: Clear systems make it easier to train new employees, enabling faster integration into the team during expansion.
- Compliance with Regulations: Documented processes enable businesses to stay compliant with legal and industry regulations.
- Disaster Recovery: Proper systems and processes often include contingency plans for various business risks, allowing quicker recovery from unexpected events.
- Data-driven Insights: Systems that collect and analyze data provide valuable insights, facilitating informed decision-making.
- Clear Expectations: Defined roles and processes let employees know what's expected of them, leading to higher job satisfaction.
- Fosters Innovation: Well-defined processes create a stable environment that allows for experimentation and innovation without risking core operations.
- Enhances Agility: Strong systems enable quicker adaptation to changes in the market or industry, keeping the business competitive.
Strong systems and processes are not just about keeping things orderly; they are integral to building a resilient, adaptable, and thriving business.
They contribute to various aspects of the business, from daily operations to long-term growth strategies.
Investing in the creation, documentation, and continuous improvement of these systems can lead to increased efficiency, consistency, compliance, employee satisfaction, customer loyalty, and ultimately, a healthier bottom line.
Having solid systems and processes is fundamental to sustainable success.
A commitment to strong systems and processes goes a long way toward increasing the value of your business and making it much more attractive to a potential buyer.
So what now? How do you actually sell your business?
So let’s say you’ve implemented the things discussed. Your business is profitable and healthy. You have a strong brand and a marketing system. You have delegated as much as possible so you are not vital to every part of your business. And you have systems and processes in place to keep things running smoothly.
How do you actually sell your business?
I’m a big fan of working with a business broker when you’re ready to sell your business.
Working with a business broker when selling your business can provide several benefits that might not be immediately apparent if you try to handle the sale on your own. Here are some of the key advantages:
- Expertise and Experience: Business brokers have experience in selling businesses and understand the intricacies of the process. They know the legal requirements, necessary documentation, and typical pitfalls, helping you navigate them more efficiently.
- Valuation Assistance: A broker can provide or assist with a realistic valuation of your business, based on current market conditions and their knowledge of similar transactions. This ensures that the price is neither too high, which can deter buyers, nor too low, which could undervalue the business.
- Marketing and Advertising: Brokers have established channels for advertising businesses for sale and access to networks of potential buyers. They know how to position and present the business to attract suitable buyers.
- Screening and Negotiation: Brokers screen potential buyers to ensure they are serious and financially qualified. They typically are skilled negotiators who can help achieve the best terms for the sale.
- Confidentiality: Maintaining confidentiality is often vital in a business sale, and brokers are accustomed to handling these transactions discreetly. They can market the business without disclosing its identity and ensure that potential buyers sign Non-Disclosure Agreements (NDAs).
- Time and Effort Saving: Selling a business is a time-consuming process, and a broker takes on much of the legwork. This allows you to continue focusing on running your business during the sale process, which is crucial to maintaining its value.
- Professional Network: Business brokers often have a network of professionals such as attorneys, accountants, and bankers who specialize in business sales. This network can make the process smoother and more efficient.
- Emotional Detachment: A broker serves as an intermediary and provides a level of detachment in negotiations. This emotional distance can lead to a more objective and successful negotiation.
- Structuring the Deal: Brokers are adept at structuring deals in ways that are appealing to both buyers and sellers, considering various financial, tax, and legal aspects.
- Assistance in Closing: Closing a business sale involves several complex steps, and a broker's expertise can help ensure that the closing goes smoothly.
Hiring a business broker when selling your business can add value in various ways, from providing expert guidance to saving time and effort.
While there are costs involved in hiring a broker, the benefits they provide often justify the expense. By utilizing their experience, network, and skills, you may achieve a faster, more profitable, and less stressful sale.
Ensure that the broker you choose has experience in your industry and a track record of successful sales, as this will likely translate to a more positive experience for you.
Ultimately, selling a business is not easy. It’s common for a business owner to overestimate the value of the business because of emotional attachment. This can cause you to hit roadblocks and difficulty moving forward with a sale.
If you’re serious about selling your business, be sure to remember the key elements that will you find success as you hand over the reins to a new owner:
- Get your business profitable and healthy
- Take yourself out of day-to-day operations as much as possible
- Develop a strong brand and marketing system
- Implement strong systems and processes
- Work with a broker
- Let go of emotional attachment and be willing to sell for less than you think your business is worth
And above all, focus on “why” you want to sell your business – this will help you look forward to the next chapter.