Planning on Selling Your Business? Critical Questions to Ask Now
Planning on Selling Your Business? Critical Questions to Ask Now
A PricewaterhouseCoopers study revealed a surprising truth: many business owners fail to sell their businesses successfully because of inadequate planning. The process can be lengthy and intricate, and unfortunately, this lack of preparation often catches owners off guard at a crucial time, leading to less-than-ideal outcomes.
The key to a successful sale lies in proactive planning. Well before you even consider selling, focus on these four key questions:
What’s your motivation for selling?
The outcome of your business sale is heavily influenced by why you’re selling. Owners facing a forced sale due to financial needs are often limited in their strategy, leaving them at the mercy of the market. Conversely, those with a strategic desire to sell hold the reins. Understanding your motivation is crucial for setting realistic expectations and crafting a winning exit strategy.
What’s your exit strategy?
Imagine selling your business, only to feel shortchanged later. This happens all too often when owners lack a well-defined exit strategy.
An exit strategy isn’t just about the sale price. It’s a roadmap considering crucial factors like:
- When will the market be most receptive to your business?
- How can you maximize your company’s worth before selling?
- Will the business thrive after your departure?
- How will the sale secure your future?
By aligning your exit strategy with your personal and business goals, you lay the groundwork for a sale that benefits everyone involved. This clarity will also significantly influence your chosen sale strategy.
Is your business saleable?
Business owners wear rose-colored glasses sometimes. But to achieve a successful sale, you need to see your company through a potential buyer’s lens. Ask yourself: "Would I buy this business?" This honest assessment can help you identify areas for improvement alongside highlighting your strengths.
Think like a buyer and evaluate key factors from their perspective:
- Market position: Does your business hold a strong position in the industry?
- Financial health: Are you profitable and solvent?
- Talent pool: Do you have a skilled and reliable team?
- Management strength: Does your leadership inspire confidence?
- Customer base: Is your customer base loyal and growing?
By addressing these aspects objectively, you can turn potential weaknesses into selling points and ultimately attract a better offer.
How much is your business worth?
Many business owners struggle to pinpoint their company’s true value. Unlike a house with a set market price, a business is a complex puzzle with numerous factors influencing its worth. Unfortunately, overestimation is common, leaving owners unprepared for reality.
The good news: you don’t have to wait until you’re ready to sell to get a valuation. Just like a pre-sale home inspection, an early valuation offers valuable insights. Here’s why:
- Identify value drivers: Understanding what makes your business attractive to buyers empowers you to focus on those areas for improvement.
- Set realistic expectations: Knowing your business’s true worth prevents disappointment during negotiations.
- Timely improvements: A valuation reveals weaknesses you can address well before a sale, maximizing your ROI.
By demystifying your business’s value early on, you gain a significant advantage in the marketplace.
How does the process of selling a business work?
The sale process for your particular business will depend a lot on your motivation for selling. If you need to sell the business quickly, you may have to accept a lower price and be willing to take some shortcuts. If you want to obtain the highest possible price to achieve your sale objectives, you may have to endure a more drawn-out process. If your objective is to transfer the business internally to a family member or employee, your deal structure will differ from a sale to a third party.
If your goal is to optimize both the sale price and your opportunity for achieving specific objectives, your process should begin by identifying and engaging a highly qualified, independent business intermediary who will only represent your interests.
There is a lot at stake when selling your business and, with everything that can go wrong, it is critically important to start forming a team of trusted advisors who can help you plan for the best possible outcome.
Read other small business financial articles