5 Keys to Keeping the Sale of Your Business On Track

Selling your business takes many twists and turns. Here’s how to ensure you stay the course

In every business, whether it’s manufacturing a product, providing a service or retailing to consumers, those who are successful in making sales share some fundamental characteristics.  They all have a well-planned marketing strategy featuring qualified prospects, a detailed product (or service) profile that highlights the product (or service) features, and a clear definition of the benefits of a purchase.

The same can be applied to selling a business. But when it comes to selling your company, you also have to factor in the personalities and motivations of both the buyer and seller. To ensure you sell for the best price to the right buyers in a timely fashion, employ these five additional strategies:

Ask a reasonable price. Too often, inflated prices discourage potential buyers from giving the business any serious consideration.

In my experience, sellers who inflate the asking price in an attempt to create some “wiggle” room will find that buyers don’t give these businesses a second look. If they do, they are savvy enough to tilt the discussion in their favour, and negotiate lower prices because the lack of buyer activity makes sellers more anxious to discount the price.

A good litmus test is to honestly ask yourself if you would buy your business at the price and terms you’re offering.  If the answer is no, you need to reconsider.

Focus on day-to-day operations.  Continuing to operate the business as you always have is critical throughout the selling process. 

You don’t know when a buyer will materialize, so the business’s financial performance needs to remain strong. When a buyer does come forward, it will be important to both parties that the business is moving in the right direction before and after the closing date.

Those who let their firm’s performance slide should expect buyers to view the most recent performance as the most reliable indication of present value and future success. 

Maintain confidentiality. By interviewing and requiring all prospective buyers to sign a non-disclosure agreement binding them to complete confidentiality, all parties can comfortably communicate without impacting the business.

What would happen to sales if customers feared a pending sale might result in product delays or a change to product lines or services provided? Picture the performance of staff who worry that a pending sale will result in layoffs. What if your competitors found out and leveraged that information to steal market share, staff or suppliers?

By maintaining confidentiality, sellers will protect their current operation and be better able to transition a business that can appropriately plan and communicate the transfer of leadership to customers, staff, suppliers and competitors.     

Negotiate, but don’t dominate. Business owners are used to getting their own way, but for a successful transaction all parties need to find common ground.

If you attempt to rule the negotiation, you’ll unwittingly stifle buyer motivation—a critical ingredient to overcoming the inevitable sale-process hurdles. Buyers who feel they can work with the seller are more likely to navigate the bumps in the road.

When both parties focus on the issues that are important to them rather than details that are not critical, they find themselves more satisfied with the results. They are more likely to work in concert with each other and less likely to throw in the towel at the first sign of adversity.

Keep the process moving forward. One of the easiest ways to keep the deal going is to establish timelines and meet them. 

Few things kill deals like undue delays, which frustrate the process, slow enthusiasm and allow doubt to creep into the minds of buyers. Sellers forget that buying a business is risky. When a buyer has narrowed his or her options to your business, maintaining the buyer’s interest is imperative—once it’s lost, it’s impossible to get back. This does not mean rushing through the process. What’s important is to be open about the expectations and timelines, responsive to questions and willing to make the investigation and negotiations a priority.

Selling a business is not easy. The emotional tie you have to your business can make you do irrational things. The best way to prevent that is to remain objective and avoid the potholes along the way to realize your desired result.

Do you have a small business question you would like answered about this article or others?

Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.

 

What's Worse Than No Buyers? Just One!

Don’t fall into the trap of focusing all your efforts on a single buyer for your business--no matter how attractive they may seem

Finding buyers for an existing business can be a frustrating and time consuming process. Communicating that your business is for sale to the largest audience possible is the only way to maximize value, yet openly advertising it can be disastrous.  The possible ramifications of a concerned employees, customer, competitors and vendors can dramatically affect moral, hurt sales, increase direct competition and upset key relationships.

As with any kind of marketing, you need to understand their target market. Business sellers are no different, they need to identify the potential buyers of their company in order to effectively promote it.

The largest group of potential buyers are your competitors, suppliers and customers. Although there are risks associated with divulging proprietary information to them and word getting out that you are looking to sell, this group--if handled appropriately--can represent an attractive prospect list. Most often, this group understands the intricacies of the industry and can relate to the opportunities and threats that exist today. 

Competitors and suppliers, in particular, often have duplicate processes and functions that can be eliminated, adding additional benefit during the transition to new ownership.  A recent merger saw the purchaser implementing many human resource procedures into his existing company that he found in place at the business they just bought. In this case, the buyer was able to save on duplication of departments and add additional savings.  The additional added value to the buyer helps improve marketability to the seller, making these prospects very attractive.

Another potential group of buyers are strategic acquirers. Not to be confused with competitors, these are buyers who may be interested in the synergies created when integrating another company into their existing company.   For example, a similar business operating in a different market may be interested in expanding into a new regional market. Or, it may be interested in a business’s distribution channels, technology, or products, which would strengthen its existing infrastructure or product offering. 

Employees are another group of potential business buyers. Selling to an existing manager or to staff through employee stock-ownership plans can sometimes be beneficial but if the deal falls through, hard feelings and a stressed working environment can be the result. A careful inquiry and deployment of information is advisable for this group to determine if a viable conclusion is possible. Remember, regardless of motivation, buyers need some level of financial wherewithal to buy a business.  Proceed with caution if you are not confident they have the financial ability to step-up.

Investors and career changers are another significant pool of buyers.  Many investors have realized that as a business owner, the return on their investments can be significantly greater when successfully operating their own company versus the volatility of the stock market. Career changers, typically managers and seasoned executives and executives who have taken early retirement packages, see similar advantages of being in business for themselves.

Investors and career changers have certain traits that should not go overlooked. They typically have a strong business background and a real entrepreneurial spirit. Often the one trait that is usually not present is a specific knowledge of the business they are buying. 

This usually comes as a big surprise to many sellers. Many owners believe that there is no one who can run their business like they can. While they rightfully should be proud of their experience, a new owner brings a fresh set of competencies to the business, which can complement what’s already there.

One of my favourite examples is the junior executive with an international industrial company who had strong management and communication skills who ended up buying a flower business.   The other is a lawyer who had excellent negotiation and marketing skills that ended up purchasing a subcontracting business.  Even though these two buyers lacked specific in-depth technical knowledge of the business they bought, both found success in unlikely businesses.

Attracting a variety of buyers to a business acquisition is at the heart of maximizing value to the seller. Just like you wouldn’t market your house to one person, the same principles can be applied to a business transaction. If a buyer knows they are the sole interested party, they can control negotiations. Increasing buyer competition is the main reason why sellers turn to a professional business broker when deciding to sell. Business brokers have the know-how to generate more leads through their own database of buyers, other brokers and advisors; they broaden the pool of potential buyers through advertising and promotion; and they can approach competitors and suppliers carefully to preserve confidentiality.  By allowing a skilled broker to confidentially guide sellers through the sales transaction step by step, owners will protect their sale value and remain focused on their job, making their business as profitable as possible.

Do you have a small business question you would like answered about this article or others?

Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.

 

Disspelling myths for aspiring entrepreneurs

Buying or selling a business can be very time consuming and often times stressful. 

It doesn’t help matters that most business owners have never sold a business before, and very often, business buyers are on the market for the very first time.   

Therefore, it’s important to dispel some of the common myths about buying a business.

The first myth is that a buyer is going to find the perfect business.   Unfortunately, there are no perfect businesses.  Buyers need to accept the fact that every business has faults.

The key is to find the right opportunity for you as a Buyer, and make it your perfect business.  Once a buyer has decided to do this, the question then becomes “What business is the perfect opportunity for me?”

A second myth is that somehow delaying the buying process will yield a better result.  Like any big decision the investigation and analysis stage takes time, as does the negotiations and eventual closing.  However, delaying the process purposely may give another buyer the opportunity to swoop in and purchase the business right from under you.

The key to analyzing and negotiating is to make it a priority.  Understand what risks you are comfortable with and what risks you are not.  Then decide on the deal points that are most important.  Negotiate hard for an agreement that you are happy with.  Delaying with the motivation of tilting the table will likely only frustrate both sides and leave you unhappy with the result.

Another myth often believed by buyers is to look at businesses beyond what they can afford.  It is common and advisable to sellers to offer financing to buyers to buy their business.  It can mean that buyer with $100,000 can actually afford a business worth $250,000.  It does not mean they can buy a $1,000,000 business.  A buyer who overextends himself will almost guarantee failure when some unexpected problem arises.

The key is to get a solid understanding of your financial situation.  While financing may be available, it is imperative that all aspiring entrepreneurs know how much money they are prepared to invest.  Plus, and perhaps more importantly, how much they expect to make. 

A business broker is a professional that buyers should turn to for assistance when deciding to buy.  They can show the buyer a variety of businesses that are legitimately interested in selling and help them through the purchase process.  With plenty of businesses to choose from in today’s market, it is more important than ever for buyers to make sure that their efforts remain focused on choosing the right business for them.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 

William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.