Deciding to leave your business for pastures new is a significant one. There are many reasons why people consider exiting a business – ranging from retirement or relocation to simply wanting a new challenge. In any scenario, you will want to ensure you get a fair return on the sale of your business while leaving it in capable hands and achieving everything you envisioned.
Below, we have delved into the considerations you need to make when selling your business.
Who will you sell to?
When stepping away from your business, selling it on the open market is often the best option for small businesses. These sales involve two significant categories of buyers: individual buyers, hoping to become SME owners, or larger firms, looking to purchase your business as part of an acquisition strategy.
Either buyer can be a suitable match for your business, but managing the sale process can still be overwhelming in any case. It’s recommended to have a professional business broker on your side to guide you, alongside an experienced solicitor and accountant.
If you’re selling to an individual buyer, they are likely looking to replace income or become an entrepreneur. Typically, this person will have related experience to the type of business you run, although not extensively. This is a good thing, as they will then be willing to pay for your expertise. Another reward is that the individual will most often continue operating the business in the way you started and are likely to retain key employees, helping you protect your legacy.
If you are selling to a more prominent firm, any interested party will seek to make it part of their own company or broader expansion plans. This is the best selling option for high-growth businesses with a substantial annual turnover. The larger the company, the more money they will likely spend on an acquisition – and more so than an individual buyer. They may also gain some economies of scale, thereby increasing the valuation of your business.
How soon do you want to step away?
After the sale, your business will likely change. It could be transformed into a subsidiary or division of the buying company. Acquiring companies may also ask you to stay on to manage your business, using your prior expertise – this is known as ‘earn out’, where the business must meet growth milestones for the transaction to be completed. These deals are complex, so you must have appropriate representation.
If you are selling to a smaller buyer, there may be the opportunity to stay in a hands-on role or allow a transition period between the new owners taking over. This can enable you to minimise disruption as the business changes hands and protect your legacy. However, if this matters to you, you need to discuss it with any potential buyers.
Your consideration checklist To ensure you get the most suitable buyer for your business and ensure a smooth sale, there are plenty more things to contemplate. We’ve listed them below.
- Know what you want
Determining your priorities for the sale ahead of time will enable you to fulfil your goals – including protecting staff, selling in a specific timeframe, or achieving a certain price. You might also need to discuss the sale with other stakeholders to pinpoint your key objectives.
- Identify deal breakers
When putting your business up for sale, you leave yourself open to offers from buyers. They will want to get the best price for the company, leading to tough negotiations. Understand your deal breakers, so you know what you are and aren’t willing to accept. If there are outstanding issues such as legal disputes or debts, it’s best to resolve these so they don’t become deal-breakers for the buyer.
- Organise your finances
Potential buyers will want to take a careful look at your financial records and forecasts, so it’s crucial to spend time organising these until they’re clear and complete. You should be ready to face scrutiny to prove the expected return on investment for buyers, profitability, and other financial data. Discuss this with your accountant to ensure everything is in order.
- Get a valuation
You need to know the value of your business so you can get the right price. You need an independent valuation from an expert, such as an experienced broker who can advise you on the market for businesses in your sector and location. The valuation should comprise everything from your financial records to your growth potential. It can give you a sense of what your business is worth if you sell it now, so you can decide if now is the right time and the price you can expect to receive.
- Improve business value
If you need to improve the value to get a better price for your business, there are many things you can do. This includes investing in new equipment, training staff, fortifying your supply chains, or taking other steps to increase the expected sale price.
- Market your business
Once you have optimised your business for sale, you should work with a broker to reach out to prospective buyers in the best way. An effective sales strategy will involve preparing sales information, targeting buyers, and showcasing the value of your business to them.
- Prepare the business for handover
Finding a suitable buyer occurs at the very end of the sale process. You will then need to prepare to hand over the business to the new owners. This means passing on all your knowledge and ensuring that the company runs smoothly. Having a reliable broker on your side can be a massive support at this time.
No matter your exit strategy or why you are leaving, it is vital that the sale happens smoothly and with the best possible value. The help of a trusted business broker or advisor can guide the process.