Selling Your Business May Be the Last Thing on Your Mind, or you may think of little else.  Or the thought may have crossed your mind but now is not the time to entertain it.  At some point, however, every owner of a small to mid-size business (under $20 million) must make a decision:

•  Do I transfer the business to family member?

• Do I sell to an outsider?

• Do I close down the shop?

You might say, "I don’t have to worry about selling the business; I have two children who can take over."  Or, "I'm sure some of my employees would jump at the chance to own this business."  Well, expectations and reality are not always in sync.  The table below shows that, in many cases, what owners wound up doing with their businesses was different from what they had expected to do. 

Source:   an address to the International Business Brokers Association 

Not even a third of the owners who expected a family member to take over the business actually had that happen.  Even fewer than that sold to employees.  And what happened to the 60% not shown in the reality column?  Our research indicates that most owner are just too busy with business to take the time to a) prepare their businesses for sale or b) understand the unique environment in which businesses are sold.. It appears that those businesses simply closed down.   

Making the sell/merge decision at the right time and following through in the right way is critical to getting top dollar for your business.

(If you’d like some help right now in determining your position on selling/merging
take the One Minute Quiz for Business Owners Only.)

Mergers, Consolidations and
Buy Out Activity at fever pitch
We see more industry consolidation and buy/sell activity today than we have ever seen in over twenty years in the business.  One savvy observer commented ~ "Today it is either Buy - Sell or get out of the way!"  We agree. 

Deal Maker Toolkit provides you with the insider intelligence you need to either buy/merge or sell at the right price.

"The right tools can make you an expert"

How to Prepare Your Business
to Sell at the Right Price
In and Out of Business. . . Happily provides practical tips for getting your business ready for sale and negotiating that sale to your advantage.  With these tips are dozens of examples of what companies did to enhance the value of the business and raise the selling price.  Here are just a few of the tips you will learn from this book.

 Tip #1.                        Don't let anyone know it’s for sale but sell it quickly.

“Why?” you might ask.  “Wouldn’t I want to broadcast it and get as many buyers as possible to bid against one another and raise my price?”  No!  First of all, announcing the sale of your business makes people nervous.  Your employees look for other jobs, your suppliers worry about extending credit, and your customers wonder if you'll be around long enough to complete the contract they are about to sign.  And your competitors play on those fears to lure away your best employees and customers.  Makes sense, doesn’t it? 

And what about your prospective buyers?  When they see employees, customers, and suppliers jumping ship, will they raise or lower their offer?  We both know the answer. 

 Tip # 2.              Be sure all the right things are wrong!

“Why should anything be wrong?” you ask.  Because few people are willing to pay top dollar for a small business that’s perfect.  That may sound strange, but think about it.  The people who buy a small business have more than a financial interest in mind.  They also have personal motivations—just as you did when you became an owner.  These buyers will pay more when they find a business that meets their personal motivations, one that offers them opportunity to “do their thing.”

For example, the strong points on which you built your business may have been printing and management skill.  But you'll be the first to admit that stronger marketing skills are needed to take your business to the next level.  The buyer comes along and sees the same thing.  And he’s the right buyer because he is strong in marketing.  There’s synergy here because “the right things are wrong.”  The buyer can buy your business. Put his own stamp on it and make it his business. 

 When a buyer sees opportunity to build the business from a financial standpoint and to gain the kind of personal satisfaction he’s looking for—he will pay a higher price.

Tip # 3.            Increase the Value of the Business without Increasing Profits

Reduce the business’s dependency on you.  Transfer many of your tasks to subordinates, so the new owner sees that he can “manage” without having to “do.”

Maintain good financial records.  If you have not done so until now, whip your records into shape.  Buyers and bankers get a boost in confidence when they see professionally prepared financial statements.  (My Business Valuation Software is a big help here.)

In addition, prepare information on: 

•  Customer concentrations: A heavy dependency on a single customer decreases the value of the business in proportion to perceived risk.  Change that.

•  Margin Maintenance: Show how you manage costs and measure profitability.

• Credible Projections: Support with evidence your expectation for stable and increasing profits, so the buyer can see the opportunity in the business.

• Stability of Tenancy: Secure leases, to eliminate relocation worries.

• Risk Perception: Anticipate situations that might raise a perception of risk.

There is an entire chapter in the book devoted to this subject.

Tip # 4.            Know the Different Types of Buyer and What Each Type Will Pay

To attract the right buyer, you have to recognize the four types.

• Strategic acquirer: These pay the highest prices, usually in cash.  They buy for strategic reasons such as economies of scale and market share.  But typically they look for companies with sales of $20 million, and expect management to stay on. 

•  Sophisticated or corporate acquirer: With backgrounds in corporate America, these buyers examine a business closely.  Size is less important than opportunity.  These buyers, maybe a group, may review a hundred businesses before selecting one.

• Financial buyer: These are the most plentiful.  They will not pay prices based upon projections.  So they will not pay top dollar.  This group expects terms or the ability to finance the buy.  They are primarily interested in purchasing a job.  Small businesses attract this type when they do not position themselves for the sale.

•  Industry buyer: These can be the best or the worst.  The best, when they have a strategic reason to buy.  Otherwise, watch out!  Most industry buyers look only to selected assets to determine value; they do not pay for goodwill or future prospects.  They pay significantly less then a sophisticated or corporate buyer. 

This information is important because, as with anything else, only the right buyer pays the right price.   The book shows you how to identify the best buyer for your business ~ how they think ~ what turns them on or off ~ how to position your business so that the right buyer will recognize your business as an exciting opportunity.

Are you beginning to see that selling a business is more than just putting an ad in the paper or “spreading the word”?  If you hope to get the price you want and the price your business should command, you’ll have to do your homework.

Selling Your Business: from A to Z

I can discuss here only a few of the many valuable, concrete ideas you need to know to properly value, sell, or merge your business.  Here are some of the others. 

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