“I Want to Buy Your Business For $500K Cash”. Are you waiting for an offer like this for your business? Is it realistic? Do people really sell their service businesses and can they make very much money when they do? Yes, you absolutely can sell your business for big bucks, with a lot of careful planning! Here’s what you need to know.
Determining If You Really Want to Sell
First, start with examining why you want to sell your business. Do you have another career opportunity? Are you going to retire? Do you want to start another business? Or, are you just sick of the troubles that plague many small businesses? Investigating your motives can save you a lot of wasted time and energy.
Timing is everything when selling your business and you want to be sure that you are selling for the right reasons, and at the best time to get the best price. Often people are motivated to sell because they are tired of re-occurring problems, low profitability, staff conflicts or the tedium of doing the same old thing. Like selling your house, when selling your business for top dollar you are going to need to fix all of the glaring problems before anyone is willing to take the business off of your hands. Sometimes after fixing all of the “glaring problems”, owners regain new love for their businesses and decide that selling is not for them. So, closely examine why you are interested in selling, and consider if good systems were put in place to decrease your business pains, would you still be interested in selling?
Making Your Business Attractive and Preparing Your Business For Sale
So, you have decided to sell, what’s next? I suggest you make a selling plan that maps out how you will make your business look as attractive as possible. It took me two years to prepare my business for sale because I wanted top dollar. Buyers are willing to pay a good price for a business that they can walk in and begin making money with on day one.
There are many things that you will need to do, but here are a few suggestions to get started:
1. Make sure all of your financial statements are accurate and up to date.
2. Rectify any legal issues, and be sure that you are operating above-board on all levels.
3. Get a computer system, and make sure all of your client, scheduling and service information is loaded in.
4. If possible, replace any sub-contracting staff with employees. New owners want to know that the “recipe” making you successful will also make them successful. Because of the restrictions over work controls for contractors, potential buyers may be weary.
5. Get your employee turnover and employee management system under control. Potential buyers are going to have burning questions about how you handle the tricky employee issues. And, in addition to quieting your prospects’ concerns, you want a stable staffing situation while you go through the critical months during a sale. One ill-placed employee coupe during a sale could be a deal breaker.
6. Document all of the systems that run your business. What’s your client acquisition system, recruiting plan, employee management approach, training system, and all of the hundreds of details that you store in your head about how to run your business?
7. Clean up your marketing. Your image and brand are a big part of what you are selling, and the stronger the image, the more attractive the offer. Also, update your written marketing plan to include all of your marketing methods, key competitors, marketing strategy, etc.
8. Become an absentee owner. If a buyer can see that the business can be ran without you, then they know that they can do the same.
9. Check your profitability. New owners will want to see at least two years of consistent sales and profitability. They are going to need to see that they can make a good salary plus whatever payment they would need to make to a bank loan or contract sale to you.
10. Keep your sale plans confidential, especially from your staff. Eventually you will need to let your staff in on the secret, but until a solid deal is in place, you don’t want staff members to leave for fear of a big change.
Setting Your Price
There are many methods for determining the price of your business. Your best bet is to see if you can gather information on comparable business sales. This can be tricky, but you can research books, business brokers or business valuing companies for calculation methods for your industry business. Check several sources to get an accurate idea of valuing similar businesses in your area, because ultimately the sale is determined by what the market will bear. If you cannot find any statistics that exactly represent your business, then look for a similar service, or small business numbers in a comparable area. Be careful of people trying to tell you that you are only selling a “client list”, because if you’re business is really “turn key” ready, then the value should be much higher than a “client list” sale.
Also, when setting the price, do your research, and try to keep emotion out of it. Unfortunately, blood, sweat and tears don’t count for anything. If your research shows that the sales range is $100,000 a year too low too bring in a good value, then you are better off taking a year to get the sales up to snuff, instead of asking for an unrealistic price.
Putting Your Business on the Market
When it comes time to put your business on the market, choose your broker wisely. Look for someone who has experience selling a business like yours and understands the value in your industry. Find out how they plan to market the business, how many businesses they have sold, and how long has it taken him/her to sell them. With a broker comes commissions and contracts, both which should be reviewed carefully. Commissions can be anywhere form 5% – 20% of the sale price with hefty minimums. If you get a good broker, this could be well worth it, but check them out carefully.
Many brokers provide all of the forms and contracts required to keep you from needing an attorney during the sale, but you may want to have your attorney check out the contract before you sign it. It’s not unusual for the contract to require a commission regardless of whether or not the buyer comes from their efforts or not or whether or not they did any marketing at all. Remember that before you sign, everything is negotiable.
Enjoying Your Life
Ok, you’ve done it. Now what? Well, it’s likely that your sale will include 3-6 weeks of training for the new owner, and possibly some consulting over the first year. But, once that’s finished you can get on with enjoying your life and moving onto your next endeavor. Good luck, and let me know how it goes.
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