A successful business broker and author reveals the six things you must do before you try to sell.
Looking to sell your business? You're looking at stiff odds. According to Michelle Seiler-Tucker, a business broker and founder of New Orleans-based Capital Business Solutions, 60 percent of business owners who try to sell their businesses can't get a deal done.
Seiler-Tucker has owned and operated eight successful businesses and has also sold hundreds of franchises and businesses. She claims to close nearly 98 percent of all offers she writes, and says on average she obtains a 20 to 40 percent higher selling price for her clients.
Seiler-Tucker says the biggest mistake that most sellers make is that they do not plan their exit strategy from Day One.
"Unfortunately many business owners wait until a catastrophic event has occurred in order to sell their business and when that usually happens the business is typically trending downward and it's not making as much money as it once was," she says. "The best time to sell a business is when your business is doing well."
Get your books in order.
Before attempting to sell a business for maximum value Seiler-Tucker evaluates and fixes it. A big part of that work involves scouring through records.
"Most business owners live out of their business in order to decrease their tax liability so many [of them] are running all kinds of personal expenses and non-recurring expenses through their business, such as travel, meals, entertainment, repairs, etc., and this is really true discretional earnings so we have to dig deep, go through all the books and records and add those personal and non-recurring expenses back to the bottom line," she says.
She says it's crucial to know your numbers, and not just tax returns, balance sheets, profit and loss statements. You also need track everything you're doing in sales and marketing such as if your ads are paying off as well as how many leads you need to get a customer and how much those leads cost you.
Before selling, work your way up the five-rung branding ladder.
According to Seiler-Tucker 95 percent of business owners live in "brand absence" and don't understand the five levels of branding:
Brand absence--consumers either aren't familiar with your company, or only use it because it's convenient due to location.
Brand awareness--consumers are familiar with your brand.
Brand preference--consumers prefer your company's products and services over others.
Brand insistence--consumers are so loyal to your brand they refuse to use your competitors' products and services.
Brand advocacy--consumers are fans who recommend your products and services to others.
"When you can get to that level where people are referring you instead of you selling yourself money will come to you in droves," she says.
But how to do it? In addition to straight up marketing she recommends "creating good experiences" for customers as well as community service.
Know what makes a business valuable.
In order for your company to look attractive to a buyer, you need multiple sources of income, a healthy customer base, and a solid management team in place.
One thing buyers don't like? A business with only a few customers.
"If they lose any of those customers they are going to be out of business, and buyers are not going to buy those types of businesses. So every buyer looks at how well branded that company is and if that company has any intellectual property in place. They look to see if the company has any contracts in place that are perhaps transferrable," she says.
And if you are your company's only employee you don't have much to sell.
"You really have to work on not only building your brand and your brand loyalty but also you've got to work on what you are best at and hire people in areas that you are not so good at... people smarter than you," she says. "[Buyers] look to make sure that that company has employees and a management team in place because they don't want to buy a job," she says.
Keep it quiet.
The best way to ruin a business is to tell people you're selling it because employees, customers, vendors, and landlords worry they won't like something about a new owner. In fact, the only people who are happy to hear that a business is selling are your competitors who will shout from the rooftops that you're "going out of business," not "selling" your business.
"Selling businesses is very different than selling houses. Many people think it's similar, but it's two different animals. The real estate model is the more people you tell, the more houses you sell. In our industry, the more people you tell, the more businesses you kill. They end up going out of business," she says.
Hire a good business broker.
If you can't tell anyone you're selling, how are you supposed to do it?
Seiler-Tucker says she has a database of over 5,000 qualified buyers looking to buy businesses all over the United States and she makes any buyer she works with sign a non-disclosure agreement so if the deal goes south her client's business isn't at stake.
But you need to be careful. In fact, she says many business brokers have about the same rate of success as business owners do in selling their own companies. The key, she says, is finding a business broker with a proven track record. To do that, she suggests asking any potential broker these questions:
What businesses have you sold and in what industries?
Do you have a database of buyers?
What are those buyers looking for?
Do you own the firm?
If you don't own the firm, who decides how much money is spent on marketing my business for sale?
What is your closing ratio?
On average how much more can you sell my business for?
How many listings do you have now?
Do you have any testimonials you can give?
"If they can't give you any testimonials you need to run," she says.
As for what you can expect to pay a broker, Seiler-Tucker says most small businesses selling for under a few million dollars shouldn't have to pay any upfront fees but will have to fork over a cut of the selling price--usually between 10 and 12 percent.
CHRISTINA DESMARAIS is an Inc.com contributor who writes about the tech start-up community, covering innovative ideas, news, and trends. Have a tip? Email her at christinadesmarais (at) live (dot) com. @salubriousdish