12 May Sell It, Make a Bundle and Get to the Good Life!
Who wouldn’t want to retire, sell the company and put money in the bank? Who wouldn’t want to have the time and freedom to travel, play tennis, exercise and volunteer? Even spend more time with the grandkids?
For most of us, the only questions are when and how.
To be sure, timing is critical. The time to sell is when your business is on a good run of consecutive annual profits. The best time to sell is when your revenue and profits have been growing, the economy is hot and times are good in your industry.
That’s right. Buyers want companies that have established growth and profits, and the price they’ll pay will be some multiple of annual profit. Before you spend time trying to find a buyer, focus on building a proven profit engine. Then, remove all of the following from your company. They sap value and turn away buyers:
Customer concentration: No customer should account for more than 10% of annual revenue.
Vendor concentration: If your primary vendor “went away,” would it have an effect on your business?
Owner dependence: Do you play a vital role in your business? If so, you have a problem.
Site Dependence: Does your business depend on a particular site or facility? Can the buyer be sure that he or she will continue to be able to control the site and at a predictable price?
Product or Service Concentration: Are you a one-trick pony? If you have just one product or service, your business may need to diversify before you try to sell it.
Concentration of talent: Does your business depend on one or two key people who would be difficult to replace? Buyers will shy away from businesses that could be badly hurt by the loss of a single relationship, be it an employee, representative, vendor, customer, et al.
Lack of Growth: If your business isn’t growing, you will have a hard time selling it for an attractive price.
If your business suffers from any of the above limitations, you’ll likely be disappointed by what buyers are willing to pay. You might be disappointed regardless because private companies often don’t sell for substantial premiums, but the listed limitations will substantially deflate sale price and terms.
So get the business ready. Then, when the timing is right, what next? How do you go about it?
First, understand that selling a business is a complex, time-consuming and risky endeavor. To get an honest price, you’ll need more than one buyer. Locating and working multiple buyers takes time and savvy. Even if you could handle it, you’ll risk looking desperate, greedy, flighty, or all three.
Sure, we’ve all heard about the sellers who represented themselves and “did just fine.” But I guess you’ll know if the pot of gold seems to be coming in for a landing. If it’s not, I suggest you find an experienced, educated, honest, diligent and confidential person (or firm) to make it happen – and not just anyone. You’ll want an individual or firm that is in the top five percent. If your business is small and likely will sell to an individual, hire a local business broker.
If your business can legitimately attract large corporate or investment group buyers, find a merger and acquisitions intermediary (or firm) with those kinds of connections and experience. Find one and then, once you start, get it done. The word eventually will get out on the street despite your best efforts. The best protection is to move fast and get a deal done – before your offering goes stale and the economy weakens.
Note: There are a few national “merger and acquisitions” firms that put on a great show (typically a local seminar), use all the buzzwords, and tell you they can sell you for big money if you will just pay them $20,000 to $50,000 up-front. Don’t do this! No matter what they’ve said and how pretty their fancy charts are, they’re in the up-front fee collection business – not the business-selling business. They prey on the hopes and dreams of the honest and trusting business owner (and they make a lot of money doing it).