After a couple of years of pandemic stress, business owners are pondering their next steps.
You might be an owner who has decided perhaps you’ve benefited from the crisis, had some great years and are ready to move on.
Maybe you’ve realized you don’t want to deal with the stress of lockdowns and crisis management but feel you’ve built something valuable.
Possibly you’re a boomer who has put in your 30 or 40 years of work and would like to spend more time with your grandchildren.
Perhaps it’s simply time to unchain yourself from a business you feel is holding you back from your next adventure in life.
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Whatever the reason, here are some things you should know about selling your business:
Businesses are harder to sell than your house
While the average time to sell a house now might be a matter of days, according to most business brokers the average time it takes to sell your business is around nine months.
When selling a business, it’s a hurry-up-and-wait scenario. Once they’ve decided to sell, sellers want to put their business on the market and move on. Unfortunately, there’s a lot of work to get a business ready to sell and then it’s a waiting game.
Buyers want to know your business is profitable
When you’re selling a house, buyers want to know if the furnace works and the roof doesn’t leak. When you’re selling a business, buyers want to know if it actually makes money.
Unfortunately, the National Federation of Independent Business in the United States says only 40 per cent of businesses are actually quite profitable. Of the other 60 per cent, roughly half are only marginally profitable, with the owners only making wages, and the other 50 per cent lose money every year.
Who wants to buy a business where you have to dump cash into it?
If you’re selling your business, you need to consider all the benefits you receive and recalculate your statements to show those benefits. Without profits, buyers have trouble justifying putting good money out for a bad business case.
You need to provide a path to a bright future
As sellers of businesses, we often forget that just as we’re tired and want to move on, the buyers are looking at your business with fresh eyes that want to be full of promise. You need to think about all the ways your business could have a brighter future and document those ideas so that buyers can see the path to prosperity.
A business without a future is no business worth buying. Just ask the past owners of Blockbuster Video when their sales were declining after the arrival of online video streaming services like Netflix.
You might not get a million dollars
Often when I ask small business owners how much their business is worth, they mention a number around $1 million. Unfortunately, most small businesses are not very valuable.
To get over $1 million for your business, you need to show that your business has sales of several million dollars a year and has paid shareholders like yourself hundreds of thousands of dollars every year for the past few years.
So how much is a business worth?
Business owners often think their business is much more valuable than it is because they’ve put their blood, sweat and tears into it and believe prospective buyers should see the value.
But buyers need to be able to pay for their investment. Blood, sweat and tears don’t keep bankers happy.
Change can be difficult for everyone, including you
There’s a saying that “a dream without a plan is just a dream.” Retirement for business owners is often just a dream as well.
I’ve worked with numerous business owners who thought they wanted to exit their business and then realized they were reliant on the cash flow the business provided. They’ve also discovered that all their friends were either staff, customers or suppliers.
They’ve found that they have few hobbies to fill their time after they sell due to their long hours in the business.
Having a plan filled with some activities, trips or tasks is necessary for business owners to happily exit.
Additionally, many business owners are rightfully worried about how their employees will do with new owners. You can bet there will be some changes in human resources practices after you’re gone. Some of these changes will be positive for your team, while others might be more difficult.
A new owner will have ideas about what they need to do to improve your business, and some might revolve around managing employees differently. This can be a difficult pill for long-standing employees to swallow, and some will feel the need to move on.
Selling a business is no easy walk in the park – there’s considerable hard work to prepare your business for a new generation of ownership.
Imagine if you wanted to sell your house and haven’t cleaned it for years. Getting a house in tip-top shape to get top dollar often takes months. Getting your business ready and in tip-top shape can take years.
Start now. Work on ensuring your business is profitable, your systems are documented, the business doesn’t rely on you for its success, and there’s a clear path to a brighter future.
If you can manage these things, you’ll be in good standing should the right buyer come along.
Dave Fuller, MBA, is an award-winning business coach and a partner in Pivotleader Inc. Think buyers should know something else? Sell Dave on a different idea! Email firstname.lastname@example.org. For interview requests, click here.
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