Want to sell your business? What a stupid question – of course you do. Every business owner dreams of the day they can cash out. Unfortunately, one survey after another has shown that most small businesses put up for sale never get sold. To give you an idea of the odds, most business brokers operate on the assumption that they will need to list 5-6 businesses for sale in order to earn one commission
There is an entire industry of attorneys, CPAs, brokers and M&A advisors who help owners sell their businesses. Most make a very nice living despite their industry’s low success rate.
Perhaps you have a great attorney, a brilliant accountant and the best consultants in town helping you. You may even have a broker who is great at his job. But none of these people have as much at stake as you do.
They all have many clients from whom they will collect fees and commissions. Your team of professionals will be just fine whether you sell your business or not. Since you have the most at stake you can’t let yourself become too dependent on these advisors.
With these facts in mind, here are 7 proactive attitudes and concepts I suggest you adopt to maximize your chances of success.
#1. The Most Qualified Buyers Have The Most Options – You Will Have To Compete For Their Investment Just Like You Compete For Customers
Anyone who is qualified to buy your business is qualified to buy lots of other similarly priced businesses too. You can be sure that buyers will consider many other opportunities besides yours.
And they will continually compare those other businesses to yours. Sure, they will tell you all the right things. They will tell you they are very interested and they like your business the best.
The more money, experience and motivation a buyer has, the more you can be sure your competition is targeting that buyer too. Those sellers are doing all they can to get a deal with that exception prospect. And that leads us to the next important concept.
#2. It Is Your Responsibility To Move The Sale Along To The Next Step
Never wait for the buyer to follow up with you or initiate the next step in the process. Whenever you speak with a prospect always let them know what the next step is and try to set up a time to take that next step.
Never forget that one option buyers always have available is the option to do nothing. So not only are you competing with all the other businesses a buyer can choose from, but you are competing with the status quo.
Earlier I mentioned that brokers average only one business sold for every 5-6 they list. Well, the number of buyers they need is typically about twice that number. Whether it is an individual thinking about buying a very small business or a mid-sized company considering an acquisition, the natural tendency is to maintain the status quo.
Acquiring a new business is risky. Few people or companies are in a situation where they have to buy a business. Since you have to sell your business in order to retire or move on to your next venture you should be the aggressive one.
Whenever you share detailed information with a prospect give them some time to digest it. But not too much time. Send over the requested information and let them know you will followup with them in a day or two.
Setting the standard for quick followup sets the tone for the entire transaction. If you passively wait for buyers to take the next step or make the next contact you may be waiting a long time.
#3. Having One Buyer Is The Same As Having No Buyers
Even if you do everything right, your favorite prospect may choose to buy someone else’s business. You can never let your success depend on the decision of just one person. You can’t control or predict what any one person or company will do.
A mentor once told me that all great marketers expect their campaigns to fail – so they are always thinking about what to do next. If an idea or campaign doesn’t pan out they already have the next option in the works.
I suggest you take a similar approach. If you operate on the assumption that your best prospect won’t buy your business, you’ll always be cultivating new prospects. And then you will never be dependent on just one buyer.
#4. No Will Pay You Today For The Benefits Of The Work They Are Going To Do In The Future
Owners often value their business based on what the business could be…. potentially…. in the future.
It’s common for sellers to say of their company that “a new owner with fresh ideas and energy could come in here and blow the roof off the place”.
That may be true.
But someone will have to put in the work and invest the money to make that potential a reality. If you are convinced it will be easy to transform your business into a profit machine then hold on to it and make those changes yourself. But you can’t price it today as if you have already realized that potential.
I am not saying the growth potential of your business is not important.
Remember in Mind Set #1 we talked about how you are competing with all the other businesses that are for sale. Potential is one reason for a buyer to choose your business instead of all those other business he or she could invest in.
So do all you can to demonstrate the realistic upside of your business. It will help distinguish you from the other businesses on the market. But don’t expect to get paid for the work the new owner is going to do to make that potential a reality.
#5. Cash Sales Are Rare…. And Cost The Seller A Lot Of money
I know you would like to sell your business for cash. But if you want to sell sooner rather than later and put more money in your pocket you should be prepared to finance part of the selling price. According to BizBuySell.com over 80% of small businesses sales include some form of seller-financing. And among those sales that include seller financing, the eventual sales price averages 89% of the original asking price. But businesses that sell for cash bring in an average of only 69% of the original asking price.
Again, it all comes back to the fact that qualified buyers have options. They will compare your offer to all the others that are available. It is hard to entice a buyer to pay the entire price in cash up front without a steep discount in that price.
#6. If You Give The Buyer A Reason Not To Pay You They Won’t
If you lie or knowingly hide the truth about your business you are giving the buyer an excuse not to pay you. A big part of the sales contract is the representations and warranties. This is basically where you vow that everything about the business is as you have represented it to be.
When a seller hides the negative aspects of a business from the buyer it is usually uncovered during due diligence. Usually killing the sale. Another way to phrase this commandment is: “buyers aren’t stupid, don’t try to trick them”.
Recently Pepperdine University release results from an in depth survey of business brokers and M & A specialists. The brokers reported that 12% of all deals eventually fell through because of “seller misrepresentations”.
Any claims you make during the sales process will be verified by the buyer during the due diligence phase. And if by some chance you are able to hide the truth from the buyer, you will still be legally liable for any misrepresentations after the sale.
#7. Keep The Sale As Secret As Possible for As Long As Possible
It can take a long time to sell your business. Maybe 6 months to a year, if not longer. That is a lot of time for things to go wrong. Not only will your employees become distracted and possibly start searching for a new job but news of your sale could make suppliers less likely to extend terms and customers less likely to enter into new agreements.
Earlier I said you need to compete for a buyer’s investment just like you compete for your customer’s patronage. But that doesn’t mean you should market your business like you market your products.
Increasingly I see people marketing their business with video. Just because the technology has become cheap and easy doesn’t mean using it is a good idea. When you include your company name, pictures and video in your advertising you are giving up any control you may have had over the selling process. Strangers will have the ability to show up at your business whenever they please and talk to whomever they please, including your employees and customers.
When it comes to advertising your business for sale, less is more. Give the public just enough information to peak their interests. Then prospects will be motivated to respond to your ad so they can learn more. From that point you can gather some basic information on the prospect and then decide if they are qualified to hear more.
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