When
Selling Your Business,
Ground Your Exit Strategy in Reality
The emotional investment you
made in building your business notwithstanding, how can you determine the true
value of your enterprise?
If you’re looking to sell
your business, your exit strategy should be grounded in reality that includes a
clear under-standing of what the market will bear.
Whether you can afford to sell
your business depends on a number of key factors, including how much you need
and how the transaction is structured.
Once you’ve decided that
you’re ready to begin planning your exit strategy, a good place to start is by
asking yourself what you really want, or need, to take away from the sale. By
first defining, and then prioritizing your needs, you can focus on those aspects
of the sale that are most important to you.
Coming Up with a Price
The valuation of a business is
a highly customized task and putting a price tag on your business is likely to
be the most difficult step in the selling process. There is no simple formula or
rule-of-thumb for computing the value of a business. In fact, no matter how good
you are at running your company, when it comes to attaching a dollar value to
your business, it’s a good idea to call in a professional. An accurate
valuation puts you in an excellent position to negotiate the sale of your
business on the most advantageous terms.
Complicating the process of
attaching value to your business is the fact that, to a great extent, value is
in the mind of the beholder. A buyer who has a strong strategic reason for
acquiring your company may be willing to pay a premium over what the average
buyer might offer. Another buyer who is simply looking for certain assets to
augment his or her own business may be less willing to pay full value.
In terms of price, is there
some minimum sales price you need in order to make the sale a reality? Are you
looking for a lump sum of cash or a steady stream of income or some combination
of the two? Are you in a position to finance part of the sales price? Generally
speaking, if you need to get the entire purchase price at closing, you may have
to compromise on price. On the other hand, if you can offer the prospective
buyer an attractive financing deal, you may be able to command a premium.
Terms Drive Price
Quite often, the question of
whether you can afford to sell your business depends not only on price but also
on the terms of the sale. Here again, it’s important that you think seriously
about what it is you want from the sale. Are you planning to sever all ties with
your business or would you agree to consult on running the business for a while,
if the new owner wants you to? Would you be willing to sign a non-compete
agreement?
Timing also plays an important
role. Is now the best time to sell or would you be better off waiting? In any
case, be sure to allow time to attend to any housekeeping details that will help
reflect your business in its best light. Such details can range from sprucing up
your facilities to addressing out-standing legal or credit issues that may raise
a question in a buyer’s mind. And, to avoid being pressured into accepting
less than you had anticipated, allow plenty of time for the sale.
Once you’ve firmed up your
goals and needs concerning price and terms, you will be in a better position to
identify and qualify prospective buyers. Among prospective buyers might be
competitors, suppliers, customers, and employees. An experienced M&A expert
and an accredited business valuations expert can help you understand the
advantages and disadvantages of selling to specific buyers.
Turning
your business into cash is a complex endeavor. While you may see your business
as a living monument to years of hard work and sweat equity, you must be
realistic in determining the price and terms of the sale. And, you should be
willing to make some compromises. Rarely does the seller or the buyer achieve
all of his or her objectives.