How do I sell my business is often asked by business owners and can be answered by using the following check-list:
1. Price it right – do NOT over value your business.
This might be an obvious point to make and just like selling a house with business sales, if the price is set too high you will probably not even get any viewings and will certainly not sell.
Valuing a business to sell is not as easy as valuing a house and the only true value is where you end up with a willing buyer and a willing seller. However, having said that you will need to have it valued and to do so you will probably use a business broker – which leads nicely onto my next advice.
If your business has been on the market for more than three months and certainly for more than six months then I would suggest that it is over valued.
2. Use a broker to sell your business
Not all business brokers know their stuff, so I would recommend getting a valuation from at least two brokers or probably three. Be careful not to use the broker with the highest price, as this might not be the correct business valuation, it might be to entice you to use their services, as a high valuation will be music to your ears.
3. Be willing to accept ‘Vendor Finance’
I see too many business owners and for that matter too many business brokers not willing to accept vendor finance as part of the sale. For example, if your business is worth say £600,000, I would suggest accepting £200,000 as vendor finance, which will give the buyer a bit more room to move with their own capital and bank finance. If they are using bank finance, then subject to the present economic situation, banks will lend upward of 60% of the purchase price. In this scenario 60% of £600,000 is £360,000, added to the vendor finance of £200,000 eaves the buyer to find £40,000, which opens the sale of your business to many more buyers. However, not all banks will see this quite in this way and may prefer the buyer to put up more than £40,000, but the idea is what I am trying to get across here.
4. Remember what you have had out of the business
When you are at the point of selling the business always remind yourself why you decided to sell it and reflect on what the business has provided you over the years, assuming you have had it for a while. Too many business owners forget that they have used the business to buy their home, to fund their life for X-years and so on; they then think it is so valuable and forget the reason they want to sell and end up with it on the market for months, if not years and then blame the agent. Blaming the agent might be valid if the valuation is wrong and where the business has been over-valued, but ultimately the final decisions rest with you.
5. Prepare your business for a sale.
Buyers of business are put off by sellers that how out of date information. Make sure you have up-to-date accounts and have your management accounts as up-to-date as possible and at your fingertips, this will serve to impress the buyer and give them confidence in the business.
6. Make yourself redundant
Leading up to the sale of your business you should look at making yourself redundant from the business. Delegate your work as much as possible so that the business will operate without you as much as possible. By doing this will open your business up to more potential buyers and in turn make it more desirable and more valuable. If necessary recruit someone to replace what you do in the business and spend time training them up before you put the business on the market.
You might be thinking that this will reduce the profits and thereby reduce the value of the business, but not necessarily. Let me explain by way of an example:
Option 1. Business X is making profits of £120,000 per annum and the business is very dependent on the owner with him working 6 days a week from 8am to 7pm each day.
Option 2. Business X employs two people to replace himself at a total cost of £50,000 to the business thereby leaving a net profit of £80,000.
The value of the business using option 1 would be a multiple of between 1 and 2 so let us say 1.5 times profit, so a value of £180,000 – but this business will be difficult to sell, as the new owner will have to consider stepping into the shoes of an over-worked vendor.
The value of the business using option 2 would be a multiple of upwards of 3 and if it were a 3-times multiple this would be £240,000 and a more attractive option to buyers/investors. So even if the cost of replacing the employees cost up to £60,000 the business value would not be affected greatly, but you would have a much more attractive sales proposition to business buyers.
In option 2 the owner could spend a few months focusing on business plans and focus on improving the business in other ways, now that his time is not taken up running the business, which in turn would make it much more profitable and in turn more valuable for sale.
7. Employ a consultant
You could opt to employ a consultant to help you get your business into a saleable condition – email me for details – info[at]in-business.org.uk. A few thousand pounds spent sorting your business out before it is put on the market could earn your tens of thousands back in the asking price and a quick sale.