As with most life endeavors, establishing goals will help put your business sale in the proper perspective and increase the likelihood of an outcome that you deem a success. While they can certainly be reviewed and revised along the way, setting goals early in the sales process will help guide you through each step of the transition.
While it may seem the least of your worries during an oftentimes stressful business sale process, taking the time to sit down and list your goals can have real benefits down the line.
Based on your knowledge of your business condition, your exit motivations and priorities and your preferred sale approach, the following form will help you put your sale desires into words. By completing this form you create a statement of precisely the outcome you seek to achieve through the sale of your business.
State your desired sale outcome:
To sell my business in part and remain involved with its operation
To sell my business in full and remain involved with its operation
To sell my business in full and end involvement with its operation
Indicate the timeline you seek:
Immediate (0-6 months)
Within a year
Within 1-3 years
Define your preliminary financial expectations:
Pricing: How much you can ask for your business depends on its pre-sale condition. Most small businesses sell at a multiple of 2-4 times annual earnings, also called cash flow or seller's discretionary earnings, with the multiple based on business condition and attractiveness to buyers. For now, consider the following questions to arrive at a preliminary pricing multiple for your business sale:
My business in strong condition and likely to command a high sale multiple.
I'm prepared to accept a lower pricing multiple due to the current condition of my business.
I'm willing to commit time and effort to strengthen my business condition and therefore to improve its likely pricing multiple.
I'm willing to provide a seller-financed loan for a portion of the sale price.
I require an all-cash payoff at closing.
Prospective Buyer: Have you already defined your likely buyer or are you interested in selling to any qualified buyer, whether a business or an individual?
I prefer or am obligated to sell to a partner, key employee, employee group or family member. (If so, you won't need to list or market your business for sale. Instead, you'll work with legal and financial advisors as you pursue next steps.)
I intend to pursue a sale to a targeted business such as a supplier, competitor or strategic business buyer? (If so, you won't need to list your business for sale. Instead, you'll work with legal and financial advisors as you strategically market your business to select targets.)
I seek to sell to any buyer who has the financial and managerial capability to buy my business. (If so, proceed with the following parts of this guide as you prepare to prepare, list, market, and sell your business.)
Your Personal Departure Objective:
I want to stay involved with my business in a managerial capacity after its sale.
I'm willing to remain involved over a post-sale transition period of 3-12 months.
Your Post-Sale Objective for your Business:
I prefer to sell to a buyer who plans to retain employees and therefore cause little disruption in their lives.
I'm willing to sell to a buyer with plans to merge, move or significantly alter the business.
Once you answer these questions, which may take some soul searching and careful consideration, you'll be clear about what you want from your business sale. You may end up adjusting some of your objectives along the way, but the outcome of this step puts your sale goal into words and sets your sale effort in the right direction.
In next week’s installment of “Selling Your Small Business” we’ll help you get organized with a pre-sale to-do list.
Editor’s Note: This article is the fifth piece in a series taken from BizBuySell.com’s Guide to Selling Your Small Business. The guide is a comprehensive manual to help small business owners maximize their success when the day to sell arrives. Each Wednesday, Inc.com will publish a new section of the guide outlining BizBuySell.com’s best practices, from the initial planning stages of a sale all the way through negotiations and post-sale transition.