Business owners looking to sell their businesses often make some common errors when communicating with potential buyers, which can be a significant hindrance in successfully closing a deal. If you're ready to put your business on the market, knowing what buyers want and need will help you to make the most of your business sale and attract the best offers. In these trying economic times, this knowledge is essential. Many seller difficulties result from not being sufficiently aware of the following tricks of the trade:
Get Your Business in Shape
Potential buyers want to know that your business has good characteristics, such as location, a pleasing office space, high revenue stream, strong management, loyal client base, and a growing market base. Likewise, if you can convince your potential buyer that there are few risks incurred by buying your business, you're on the right track. That said, make sure your accounting books and financial statements are in order. If you're organized enough to present them with all the required information upfront, your potential buyer will feel more secure in knowing the business is well-kept and offers great potential.
Make sure that you run your business in a steady manner well before considering a sale, without making any drastic changes that could result in revenue surprises. Nothing will make a buyer more hesitant than seeing an unexpected earnings reversal or irregular profitability that aligns with your for-sale listing date.
Knowledgeable buyers will conduct due diligence before making a business purchase, so don't hide any problems that your business has had, or currently faces. The buyer will eventually find out, I guarantee you. And when they uncover problems that you did not reveal upfront, they'll likely think you're hiding other things from them. And don't assume that you're in the clear if the sale has already been secured. If such problems are discovered after the purchase, you can be sued for fraud. So, be honest about the businesses risks and liabilities, as well as the real reason you're selling.
Don't Be Greedy
Price is usually the first factor a buyer uses to decide how interested they are in a business, much more so when access to credit is tight. If they deem the price too high, they'll typically dismiss your listing rather quickly, and focus on other businesses with more realistic prices. Buyers know negotiation is always an option, but initial price makes a big impression. Online valuation reports are a cost-effective alternative to a professional on-site valuation, and comparable businesses will give you a good idea about a suitable price point for your services and market area. BizBuySell.com has a Valuation Report that starts at $19.95, priced by number of local comparables available in our database.
If you're adamant about an all-cash sale, buyers will likely shy away. All-cash sales are very rarely to your benefit, mainly because they can put you in the position of having to pay unnecessarily high taxes for collecting all sale proceeds as income in a single year. It's in your best interest to accept a loan or deferred payments.
Establish a Business Transition Plan
Make sure the potential buyer can clearly visualize owning the business. If they think clients, day-to-day functions and even the business location prove unstable, they'll assume it's too much of a risk. Make sure that transferable agreements commit clients to the business, and non-compete agreements are recognized for key managers. It also doesn't hurt to present your business and marketing plan, were you to continue the business. While you should never promise the buyer a certain level of prospective sales or profit, presenting a plan can assure them you have the interests of the business in mind and are willing to offer your best prediction.
It is important, especially for those who own a retail business, that you have a lease that extends for a minimum of five years. If not, buyers will be hesitant to buy and financial institutions will think twice before giving out loans. A short lease signals that the business may prove unstable, so it is essential that you try to secure a transferable lease and lengthen the term, if possible.
Also, at the appropriate time, it's important to notify key management and employees that you will be selling the business. Being honest with them upfront will help to encourage them to stick around with a new owner. In turn, you can ensure the buyer that they will continue to have strong and experienced leadership on-board right from the start.
Make Sure the Buyer Qualifies
Don't wait forever to qualify a buyer. Giving out business details without doing so will sometimes make the buyer think you are too eager for the sale, and not adequately making sure the business is transferred to a competent owner. Screen and request a confidentiality agreement and financial background info as soon as possible. The only buyers who will balk at buyer-qualification requests will be the ones who aren't qualified buyers.
Communicate With Buyers Early & Often
In an age where instant gratification is widespread — in everything from e-mail to fast food — buyers expect immediate replies to their questions. In fact, 90 percent of initial sales inquiries are derived from online searches. If they can send a quick inquiry, they expect a quick response. Make sure you don't disappoint, as delaying will often kill deals, even if it's just a quick note to say: "I'll get back to you with that information next Tuesday." Postponing your response often gives buyers the impression that you're stalling to come up with a satisfactory answer to hide a business inadequacy, even though that may not be the case. They want assurance that you can answer any of their questions honestly and succinctly.
Make sure to give buyers what they need to fully assess their purchase decision. If the potential buyer becomes frustrated with you, they'll likely think it's an early indication of how they'll become frustrated with the business itself. Individuals new to buying a business often do not know how or when to buy, what the business is worth, and have fear over making a mistake. Open communication and honesty will help put them at ease. Answer any questions, and build a relationship of trust.
Realize Negotiation is Necessary
According to our database of more than 30,000 small business transactions nationwide, sale prices end up at around 80 percent of the asking price, so know that you will be expected to negotiate. While some potential buyers will give you a low-ball offer of 50 percent of the asking price, don't be alarmed. Make a counterproposal. Offering seller financing will also help to entice them into the purchase. This way, you assume some of the responsibility for the buyer's investment.
While the current economy may suggest that now isn't the right time to sell, those that prepare adequately and act carefully can still get a deal done at a good price. Preparation, communication, and flexibility are increasingly important in tough economic times.