Sooner or later, it will be time to sell your business. With a few exceptions (e.g. family sales), entrepreneurs want as high a price tag as possible. But what many business owners don't understand is that a high price tag depends in large part on timing. And given that market conditions, business health, and personal circumstances are constantly changing, timing a sale is no simply task.
Today’s market offers the best environment for small business sales that we’ve seen in years. As the economy has improved, more small business owners are choosing to list their companies for sale. But selling a business requires planning and preparation. You should start well in advance. Here are three tips that will help you successfully navigate the selling process regardless of your ultimate sales timing:
1. Start preparing now. A typical business sale takes 8-10 months from the date that it the company is placed on the market. Factor that timeline into your strategy to avoid a scenario in which you have to sell quickly and accept a lower selling price. Specifically, make sure that your financial records are in good order (e.g., accounts receivable documentation, tax returns and expense records), and have several years of documents ready for inspection by buyers.
2. Do your research. It’s important to know where your business falls in the marketplace. No one wants to undervalue their business and leave money on the table, but overconfidence and an inflated asking price won’t help you much, either. To determine the right asking price, first get a general sense by conducting your own research on similar businesses for sale on and sales comps. Before embarking on the sales process, however, it is a good idea to get a specific valuation from a professional appraiser or business broker. This is likely your biggest asset. You can’t afford to price it wrong.
3. Prove your business’ value. The business-for-sale marketplace is competitive, so it’s critical to invest time and effort in differentiating your company from other acquisition opportunities. Differentiation should consider historic and current operations and characteristics as well as future growth opportunities for which your business is better positioned. Business brokers can be very helpful in this regard and can leverage their expertise and knowledge of the local business-for-sale market to help you highlight key areas of differentiation from other opportunities within the same industry and/or geographic territory.
So should you sell? Like many things in business the answer is “It depends.” But even if you decide not to, it is critical to prepare for your sale well in advance so that you can stand out from the crowd in the competitive market for business buyers and maximize the ultimate selling price of your business.