Whilst we hear a lot in the press about starting a business, it is not every day that we hear about leaving one. There are many reasons why people consider exiting a business. No matter the reason, it is always good to ensure that you meet your business goals and get a fair return on the sale.
Selling your business on the open market is the most popular option for small businesses. These sales involve two major categories of buyers:
- Individual buyers who want to become small business owners
- Larger firms interested in acquiring your business as part of this existing company (often called strategic buyers).
Either buyer can be a great opportunity for the seller but managing this process can be extremely overwhelming. Therefore, it’s highly recommended that you have a professional team on your side which should include a business broker, experienced solicitor, and accountant.
In the first case, an individual buyer is looking to buy a business to replace an income or become an entrepreneur. Typically, this will be someone with related but not direct experience in running the type of business you currently operate. This is a good thing as they will then pay for your expertise and good will. And another benefit is the individual will most often continue operating the business you started and are likely to retain key employees.
In the second case, selling your business to companies interested in acquiring your business will mean that they intend to make it part of their own company or part of their expansion plans. This is an ideal selling option for high-growth businesses that turnover £1 million a year. Large companies can spend more money than an individual and they may gain some economies of scale, thereby increasing the valuation of your business.
After the sale, your business may not look quite the same, as it can be transformed into a subsidiary or division of the buying company. Acquiring companies may also want you to stay on and to manage your business – commonly known as ‘earn out’ where the business must meet growth milestones. These deals can get very complicated, and it is very important for you to be represented.
Business Partnership share their checklist to guide those looking to sell on the open market:
- Decide what you want from the sale
Knowing your priorities for the sale will help you to achieve your goals, whether this means protecting your employees, completing the sale in a set time, or reaching a specific sales price. You may need to discuss the sale with your business partner, employees, or family to ensure you’re all on the same page.
- Identify and manage any deal breakers
Putting your business up for sale means that it will be carefully scrutinised by potential buyers. If there are any outstanding issues such as legal disputes, incomplete company records, late payments or significant debts, then it is best to resolve these before anyone looks.
- Put your finances in order
Potential buyers will also want to take a close look at your books and financial forecasts, so it’s essential to ensure these are all clear and complete. You should be ready to answer common questions such as the expected return on investment for buyers, your profit margins, and who your key suppliers and customers are. You might need to talk to your accountant or seek financial advice to ensure everything is in order.
- Get a valuation
You need to know how much your business is worth to make the right decisions about selling. It’s vital to choose an experienced broker who can perform a thorough valuation and advise you on the current market for businesses in your sector and area. The valuation will consider everything from your financial records to the reliability of your supply chains and the potential for growth. It can give you a good idea of what your business is worth if you sell it now.
- Enhance the value of your business
It can often be worthwhile investing in new equipment, providing more staff training to make the business less dependent on you, strengthening your supply chains, or taking other steps to increase the expected sale price.
- Decide how to market your business
Once your business is ready to impress, you will need to work with a broker to reach out to the right potential buyers. An effective sales strategy will involve preparing detailed sales information, targeting the right type of buyers, and convincing them of the value of your business.
- Prepare the business for handover.
Finding the right buyer will be the end of the sales process. You also need to prepare to hand over the business to them. You will need to pass on all your knowledge and ensure that the business can keep running smoothly. Whatever stage you’re at, from thinking about whether to sell to actively looking for a buyer, having a reliable broker on your side can make a huge difference.
No matter your exit strategy, it is critical to conduct the sale with the help of a trusted business broker or advisor. Simply putting out the proverbial ‘for sale’ sign can greatly affect your business’s value, driving away employees, customers, and vendors. Business brokers and advisors keep your sale confidential, offer the utmost expertise in valuing your business and ensure you get the best price possible.
Contact your nearest Business Partnership advisor now for a free, confidential discovery phone call.