ENTREPRENEURS
When my husband, Chris, and I sold our retail espresso business in 2006 we had the wind at our backs. It was pre-recession. Valuations were high and the business-for-sale marketplace was hot.
Regardless, it was a tough year of our lives. We had to continue running the business while keeping a sale quiet, find the right advisors, endure lengthy negotiations, respond to a mountain of due diligence requests. By the time we finally made it to the closing table we were too exhausted to even think about celebrating.
Ask anyone who has sold their business and they will tell you that the process is enlightening, to say the least. Like many business brokers and M&A advisors, it was our own experience as selling owners that prompted Chris and I to go into the business of selling businesses. Since 2006 we’ve seen the market for business sales fluctuate, and — like many small-business owners — count surviving the Great Recession as one of our proudest achievements. In the past decade our firm has grown from serving clients in a tri-state area (Arkansas, Missouri and Oklahoma) to working with business owners from all over the country.
Statistically speaking, the odds of starting a successful business appear better than the odds of selling one. New business ventures have about a 50/50 chance of being around after five years. While it’s notoriously difficult to get data about private business sales, according to Tom West — author of The Business Reference Guide — only 25% of businesses will ever sell. That number goes down to 20% for businesses with annual sales less than $500,000 and up to 33% for business with sales between $2.5 million to $10 million.
After selling my own business and helping dozens of other business owners sell, I’ve noticed a number of hurdles that get in the way of getting out. I’ll be blogging about many of them here, as well as issues that impact the sellability and value of any small business. My hope is that this blog will get you thinking about what makes your most valuable (and illiquid) asset sellable, what it takes to successfully sell it, and what you can expect at each stage of the process.
Let’s start with three ways to make selling your business easier that many owners ignore:
1. Understand How Buyers Buy
It’s tempting to file this topic under the category of NMP: not my problem. If someone gives you what you want, you’ll sell. If not, you won’t. Right? (See dismal statistics, above.)
The inability — or sometimes flat out refusal — to understand a buyer’s point of view is one of the underlying factors behind the disappointment and frustration frequently associated with selling a business. Most of us accept that a family of four both wants and needs certain attributes in a home in order to pay the market price. A similar tenet holds true when you’re selling a business: Your business will need certain attributes in order to appeal to buyers and command an acceptable purchase price.
The first step in understanding a buyer’s point of view is to get a clear understanding of how buyers will value your business. To add a layer of complexity, different buyers will value your business in different ways. Work with an M&A professional early in the process to understand what types of buyers might be interested in your business, how they approach valuation, and how they typically structure a purchase.
2. Start the Process at Least Two Years in Advance
Chris Mercer — valuation expert and author of Unlocking Private Company Wealth — says that many of us think of business ownership as being an either/or proposition: I either own my business, or I don’t. The success of your business exit, however, will depend largely on what you do in between those two states.
There can be a variety of answers to the question of how long you’ll need to plan for the sale of your business. In general, figure that it will take about a year to do basic housekeeping, information gathering and assemble a team of professionals. Earmark another 12 months from the time you engage an M&A advisor to the day the deal closes.
Keep in mind that it can take up to ten years to fully execute some exit strategies, including a third-party sale. Regardless of how long it takes, know that there is a direct correlation between the time you take to plan your exit and its level of success.
3. Be Emotionally Prepared
If there’s a least favorite topic associated with selling a business, this may be it. Advisors in particular are more than happy to gloss over emotional readiness, as most of us are more comfortable in the orderly world of spreadsheets and linear thinking. Alas, the process of selling a business is not so neat and tidy.
In order to successfully sell a business, both the business and the owner need to be ready for a sale. In the case of the owner, this means you should be both financially and emotionally prepared for the day when you no longer own your business. When it comes to being emotionally prepared to sell your business, you’ll need to be ready for the stress of the sale process itself, the sense of loss that comes with letting go, and the uncertainty of what life will be like after you no longer own your business.
Expect that you’ll be experiencing some strong emotions before, during and after the sale of your business. Just don’t let them derail an otherwise sound business — and life — decision.
While the obstacles associated with starting a business are common knowledge, many owners underestimate just how difficult it will be to sell. Addressing these three areas will go a long way towards helping you beat those elusive odds of success.
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For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com or my personal website at www.BuySellFLbiz.com.
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