Thursday, May 8, 2008

Tips on Selling a Business

selling a business
Some days ago I found out a book about business. The book is "In and Out of Business...Happily". It 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 I have learned from this book.

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?

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.”

3. How to 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.”

4. Know the different types of buyer and what each type will pay.
To attract the right buyer (different buyers pay different prices), 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.

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

2 comments:

Rhonda Harts said...

Interesting article. I need to sell my business, so this is very useful. My only problem is that, while I know I should get a broker, I would like to post my business online first, but I haven't found any good places to do so. Do you have any suggestions? thanks

Doug Geofferson said...

@Rhonda -- Have you looked into your local Chamber of Commerce? They might be able to help you and direct you to some business brokers.

I also highly recommend looking into BizTrader.com, which is an online global marketplace where you can invest, buy, and sell in a business. It's inexpensive to use (and sometimes free, I believe). I know brokers even use it, should you hire one. Check it out and good luck!