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SELLING A BUSINESS

Selling Your Business? Don't Fool Yourself

Sometimes your wants, needs and motivations are in conflict when you're selling your business. Setting priorities will help you focus on what's most important.
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Everyone has their own motivations for selling a business. But which of those issues are most important and which can be sacrificed? Asking yourself a few simple questions can help you prioritize your motivations and find the best route for selling your business. These steps will guide you through the process:

Step 1. State your sale motivations.

The following chart lists the desired outcomes of most small business owners entering the sale process. Using a 1-10 rating, indicate how important each objective is to you.

Low priority  High priority Your Sale Objectives

1 2 3 4 5 6 7 8 9 10 Immediate sale
1 2 3 4 5 6 7 8 9 10 Immediate departure (vs. 3-12 month post-sale involvement in business transition)
1 2 3 4 5 6 7 8 9 10 High sale price
1 2 3 4 5 6 7 8 9 10 All-cash payoff at closing (no seller-financing)
1 2 3 4 5 6 7 8 9 10 Post-sale involvement with your business
1 2 3 4 5 6 7 8 9 10 Post-sale priorities, such as little or no disruption to clients or staff
1 2 3 4 5 6 7 8 9 10 Pre-sale preparation followed by future sale

Step 2. Resolve conflicts between your motivations.

Once you have a good sense of what you want to achieve from a sale, you'll need to prioritize your motivations. For instance, if you want a quick sale and a high selling price but your business isn't in top shape for a sale, you'll have to concede on either timing or price.

The following chart describes how various sale objectives conflict with one another.

Motivation

Conflicting Motivations

Why?

Immediate sale

High price

Unless business is in strong condition, an immediate sale likely requires a discounted price.

All-cash payoff

Cash payoffs usually require buyers to seek third-party loans, which are rare and slow the sale process.

Immediate departure (vs. 3-12 month post-sale involvement in business transition)

High price

Unless business is in strong condition and easy to transition, rapid departure raises buyer doubts and leads to lower selling prices.

All-cash payoff

Sellers seeking rapid departure and all-cash payoff create buyer doubt by telegraphing high desire to sell and/or low confidence in the future of the business.

High price

All-cash payoff

Sales involving seller financing typically close at considerably higher prices than those requiring payoff at closing.

Immediate departure

Sellers' desire for immediate departure signals high sale desire, prompting price negotiation.

Post-sale involvement and priorities

Post-sale requirements narrow buyer pool and decrease ability to receive highest price.

All-cash payoff at closing (No seller financing)

Immediate sale

Cash payoffs usually require buyers to seek third-party loans, which are difficult to obtain and slow the sale process.

High price

Sales involving seller financing typically close at considerably higher prices than those requiring payoff at closing.

Immediate departure

Sellers seeking rapid departure and full payoff at closing telegraph high desire to sell and/or low confidence in the future of the business, lowering business attractiveness to buyers.

Post-sale involvement with your business

High price

Seller's request for ongoing involvement narrows buyer pool and triggers price negotiation.

Post-sale priorities, such as little or no disruption to clients or staff

High price

Desire to keep business in current location and configuration reduces the option of merger or consolidation, narrows the buyer pool, and affects pricing.

Pre-sale preparation followed by future sale

No conflicts

With a mid- to long-term timeframe seller can improve business condition and plan an offering that addresses objectives without conflicting priorities.

 Step 3. Finalize your motivation priorities

Reviewing the motivations you indicated in Step 1 and the potential conflicts indicated in Step 2, prioritize your expectations. This will prepare you to select the best route for your business exit and sale offering.

So what do you want?

Realizing that you can't have it all, which one of the following objectives is your highest priority in a sale?

Your Top Sale Priority

  • An immediate departure
  • The highest price possible
  • All-cash payoff at closing
  • Post-sale involvement with your business
  • Post sale priorities such as little or no disruption to clients or staff
  • Pre-sale preparation followed by future sale

Prioritizing your wants and needs in your business sale will help you determine the optimal process for exiting your business and help you meet your most important sale criteria.

In next week’s installment of “Selling Your Small Business” we’ll examine the various routes that can be taken to achieve a successful small business sale.

Editor’s Note: This article is the third 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.

Last updated: Mar 28, 2012

MIKE HANDELSMAN | BizBuySell.com

Mike Handelsman is group general manager for BizBuySell.com and BizQuest.com, the Internet's largest and most heavily trafficked business-for-sale marketplaces.




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