Making Sure Your Business ACTUALLY Sells
From the Archives: I wrote this back in 2016(!) when I was a Partner with Murphy Business Atlantic. And it’s still useful information today.
If you look at any industry statistics, you will see that many businesses never sell (sometimes as high as 80%). Unfortunately, some businesses aren’t sellable, especially if they have negative cash flow. However, in most cases, this is simply the result of very common and avoidable mistakes. These four factors will significantly increase the probability that you will successfully sell your business.
Price it Right
Want to sell your business? Price it right. Just because you want a million dollars, does not mean your business is worth a million dollars. If the cash flow cannot support the purchase price, banks won’t finance the deal and you shouldn’t finance it either.
This includes “leaving room to negotiate”. Sellers often ask us to list their business at an inflated asking price, so that they can negotiate down to their final selling price. Unfortunately, this rarely works. The majority of prospective buyers will simply see your business as over-priced and move on to other opportunities. Price it right from the beginning, and you’ll find plenty of serious buyers.
Offer Payment Terms
Everyone wants to sell their business and walk away with a bucket full of cash. Unfortunately, all cash deals are very rare, and often result in the seller accepting a reduced price. Banks are reluctant to finance any deal with a substantial amount of goodwill. This is where you come in. By offering reasonable seller financing, you help bridge the gap between the buyer’s cash investment and the amount of financing that a bank is willing to lend.
Many sellers are reluctant to offer terms up front and would rather negotiate terms with buyers. However, many buyers are inexperienced and lack the ability to properly structure a deal. Save yourself the time and trouble and offer reasonable financing terms up front. You will attract more buyers, maximize your selling price, and significantly increase your odds of closing the deal.
Present it Properly
Buyers will look at many businesses before they make a decision to buy. To get their attention, your business needs to stand out. Highlight the opportunity and what makes your particular business unique. Don’t exaggerate or oversell it though - buyers will smell that a mile away.
Make sure you provide all of the relevant information in a clean and concise manner. Don’t make it difficult for the buyer to obtain key information, because they will simply move on. Don’t overdo it either. A buyer should be able to quickly review a package and make a decision to enter negotiations or choose pursue other opportunities.
Sell Real Estate Separately
Business buyers want to buy as much cash flow as possible, for the smallest cash investment. It’s all about Return on Investment. By including real estate in a deal, you are increasing the cash investment required without increasing the cash flow generated.
Your best bet is to sell the business and sign a lease with the buyer. Now you can keep the real estate as an income property, or sell the real estate with an attractive new lease in place. You can also give the buyer an option to purchase the real estate in the future, once they have an established track record and have paid down some of their debt.
There is no “magic pill” when selling a business. But if you do these 4 things, you will significantly increase the possibility that your business will sell when it’s placed on the market.
Disclaimer: I am (thankfully) not a lawyer, nor am I an accountant. If any of this sounds like legal/financial advice, it's not. Take everything I say with a grain of salt. But not too much - I hear it's bad for your blood pressure.
