It can be argued that going into business for the sole purpose of selling it at a profit is no reason to go into business at all. The fact remains that those business owners who sell want to do so as profitability as possible. With that said, there are a number of factors that can influence the final selling price of a business. To help you in this regard, keep reading for 5 pro tips when selling your business for maximum value.
Have SMART Goals
When building up their business, many entrepreneurs understand the importance of having SMART goals. When it comes time to sell the business, this practice can often go by the wayside as they slap a “For Sale” sign out front and hope for the best. Don’t fall into this trap and be SMART about the sale from the very beginning:
- Specific – make a list (write it down!) of the who, what, where, when, and why associated with the sale.
- Measurable – everyone knows that a business sale will involve some negotiation. Be prepared with a list of metrics so you know what figure you can accept while still attaining your financial targets.
- Achievable – entrepreneurs inherently dream big, but you have to be realistic with your sale. Pricing it too high or setting terms that are not feasible are surefire ways to keep your business sitting on the market.
- Relevant – there is usually a multitude of factors behind an owner’s decision to sell. Each of these can affect the business’ monetary and intrinsic value. Make sure that a sale to a specific buyer satisfies as many of these as possible.
- Time-bound – time is money in the world of real estate. The longer a business sits on the market, the more costs it will accrue. Be sure to have a time stamp on your sale to keep motivation high throughout the process.
While the focus on goals may sound cliche, the practice of goal setting is strongly supported by research. Statistics indicate that people are 42% more likely to achieve their goals by writing them down and reviewing them regularly.
Partner With a Business Broker When Selling Your Business
There are entrepreneurs experienced in buying businesses at a discount and selling them for a profit. The majority of those who build their business from the ground up will be attempting a sale for the first time. As such, many business owners have little idea of how to value a business correctly.
To help in this regard, it is highly worthwhile to consider partnering with a professional business broker. Some of the ways in which a business broker can facilitate the sale of your business include:
- Valuation – business brokers have extensive experience in the realm of business valuation. They can apply the specific metrics and multipliers that will help you come to a competitive price for your industry.
- Industry research – although you likely have a strong pulse on the market, business brokers bring years of experience to the table and can provide concrete figures for what similar businesses have historically sold for and what your potential is in the given market climate.
- Buyers – a business broker can help expand your network of prospective buyers, creating all-important competition in the market.
- Negotiation – business brokers are skilled in the negotiation and transaction of businesses. Ensuring that you are getting the best possible price with the lowest administrative costs possible.
While many business owners may try to sell their company by themselves or use the services of a general real estate agent, leveraging the experience of a business broker is an investment that can help guarantee the most profitable sale possible.
Every business owner understands the principle of supply and demand. They should apply this knowledge to the sale of the business. Hitting the market with only one buyer in mind is no way to create leverage during negotiations. As such, it is paramount that you create an environment of competition for your business. Introduce your business for sale to the whole market in one go rather than presenting it to buyers individually. This will create a sense of urgency for someone to make the most competitive offer possible, creating the potential for a bidding war.
Demonstrate Diverse Revenue Sources
Buyers will purchase your business for its potential to earn them a steady profit in the future. If your business has only one revenue stream, buyers will be scared of what may happen if that stream suddenly goes dry. By showing the multitude of ways that your company generates revenue, buyers can be confident that its success is not dependent on the presence of a single revenue source.
Time Your Exit Well When Selling Your Business
This is a bit of a contentious point because it is not always possible to sell at the perfect time. Some owners will be forced to sell for factors outside of their control and do not have the ability to wait. For those who think the timing is perfect, history has shown time that it is nearly impossible to time an exit perfectly.
With that said, there is no denying that timing is a critical factor in achieving maximum value. It is always best to sell when there is bullish sentiment surrounding your market. Look to sell when your business has strung together several profitable quarters. As buyers will be more likely to pay a premium for a business on which they can project continued success.
Get the Maximum Value When Selling Your Business
When you sell your business, there are important points to keep in mind to help you maximize value. Some are setting SMART goals, partnering with a business broker, inducing competition, demonstrating diverse revenue sources, and timing the exit well. If you accomplish these it is highly likely that you will receive the best price possible for your company.
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