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How to Sell Your Business for a Better Price
Planning when to sell - could be your key to profits
© David Newton
7/4/08

Selling a business is much like preparing yourself for a gala night out. You want to create a great impression and to dine with the best people in the room.

But to sell a business is more than simply picking up the phone to place an advert in your local paper, to then sit back and wait for the buyer to appear. And in some ways its more complicated than selling the family home. You'll need to understand it from the buyers viewpoint to make any sense of how to sell your business properly.

Buyers are going to ask;

• What is its profit and loss position
• Why you wanted to sell the business
• What skills are needed to run the business
• Any council rules, planning permits, restrictions etc that the business is dealing with
• The buyer also wants to know if the business has any problems with it, and what those are

Lots of things affect the sale price. And getting a good or excellent sale price depends on some external factors. Plus a few factors that are often hidden from view. That's doesn't mean those factors are sinister, just that things like "the general feel of business within an industry group" could be a below the line influence - and if you are an outsider to that industry you might not be aware of that.

What Price Do I Sell My Business?

Think of this; if you are an amateur seller and you get an approach by a professional buyer - who do you think will have the better chance of a deal? Or if you are professional seller and you get approached by an amateur buyer - who will be most likely to win a better deal?

So it stands to reason - you must groom your business to sell it at a better price.

You can work on things like:

1. Branding of your business
2. Getting your balance sheet, profits and cash flow up to scratch
3. Your website showing it brings in a huge amount of leads and business for you
4. Your key staff locked in with contracts
5. Your best clients all locked in with contracts
6. Your suppliers on written agreements
7. Any leases, plant, retail or office space on long term agreements
8. Your backroom systems, intellectual property, trademarks etc 'all tied down'

In short, you want to make your business look like it was seriously running as a business. Not as a part time hobby you were running just because you left a regular job. You know, middle managers are often the best at setting up their business like this from day one, you should learn from that example.

But even after all that, can you still get a fair price?

Who gets the better deal often revolves around "who needs the deal the most" - as in either you, or your buyer. If by buying your business your new owner gains a huge advantage (share holder favour, media attention etc) then you might get the better deal. But if you are the one who by selling desperately needs to sell to cover "getting out because you can't stand it any longer", or you need the money etc, then its least likely you'll get a deal other than enough to cover bear expenses, if that. Worse still, some people walk from their shop or businesses leaving everything lock stock and barrel. Maybe they didn't do their homework earlier enough? It can happen.

Let’s face it, a buyer is going to buy with one thing on their mind - being; "How much can I make from owning this business?"

You can't skate around it by treating your business in a trivial manner. If you need help, get some. If your business is below "industry benchmarks" fix it. The buyer will most likely know these things already especially if they're a professional buyer. And if you don't and they do, whose fault is that?

Financing a Deal

Often it’s a matter of helping the buyer over the line a little. They can come up with an all cash deal, but with a bigger price tag, that's not always realistic nor a practical thing. So you'll need to keep options open.

 Part cash part finance
 Part cash part vendor finance
 Shares swap and cash
 Cash and real estate swap
 Cash, shares and land deal (etc ….)

You get the idea?

Should I get a broker?

It’s a fair point. Most people who run a business make lousy sellers of their business. Why? Well they are “too close to the deal”. They are easily emotional about it, and think they can get a better price all by themselves. But when the chips are on the table, nearly all of them crumble - and they take what they can get, mainly because they don't know any better and the selling process isn’t as easy as they though it was.

A broker will separate you from all that emotional gut wrenching stuff and negotiate a deal you'd least be able to get for yourself. Unless you've become a professional seller over the years and I've only encountered about 5% of business owners who are truly good at this.

Planning to sell your business before you even go into business

It stands to reason that those who fair best always plan their “business exit” long before they started out in business. Their whole planning is to position “the business” itself as the commodity, not just the products or service the business deals with.

How to plan a sale:

 Decide what KPI’s (key performance indictors) and benchmarks your business needs
 Write manuals and policies, procedures and staff notes so all of the business is documented
 Work hard at putting the business through its hoops to achieve this
 Aim to put in place many systems so that the business doesn’t really need you
 Reduce risk further for the future buyer by showing the business making high profits and cash flows
 Decide in advance who your target buyer will be and what will most interest them to buy it
 Court your potential buyers well ahead of a sale date so you can get them involved
 Know your price, but also know what they are willing to pay
 Help them to buy the business with all your assistance

A business will sell at a higher price if it needs the owner less and less. It will also sell if the hours worked are low and the risk of failure is reduced. Careful planning and preparation will help you sell at a higher price. You’ll also find many books on doing all the above tasks. Its fun as if you do it right, you can do it again and make lots of money by creating and selling businesses for others to buy and run.