Preparing to sell your business is both exciting and nerve-wracking. The good news is that by following established best practices, you’ll have a much better chance of selling your business to the right buyer for the right price. Below, we’ll discuss 6 of the best tips to follow when you’re getting ready to sell your business.
1. Know the worth of your business
Like any other valuable asset—your house, your car—it’s very important to have a rough idea of how much your company is worth, well before you put it on the market. Do your research to find recent comparable sales (“comps”) for businesses of the same size and industry.
If you don’t have the time or knowledge to perform a business valuation yourself, reach out to a qualified third party, such as an accounting firm or an investment bank. Having a solid valuation in hand will give you a ballpark number for the sale, and a baseline for evaluating the offers from potential buyers.
2. Understand your position in the market
Getting a business valuation is a crucial first step, but it’s no guarantee that you’ll actually receive the quoted amount in reality. A number of interrelated factors will affect the final selling price of your company: the macroeconomic business climate, recent deals in your industry, the activities and valuations of your competitors, and much more.
Before you move on to the next stage, make sure that now is a good time for you to be selling your business. Unless you have a compelling reason to sell in the short term, you may be better off waiting until your prospects improve.
3. Get a good team in place
If you’re sure that now is the time to sell, the next step is to assemble a solid team of third-party consultants. This team may include:
Lawyers who specialize in mergers and acquisitions
Accountants who can advise you on your personal and corporate tax situation
Business brokers or investment bankers who can serve as an intermediary throughout the selling process
4. Work to enhance the business value before the sale
While it’s tempting to take your foot off the gas pedal a little as you prepare for the sale, this is exactly what you shouldn’t be doing. If your business performance noticeably declines before all the documents are signed, this will give prospective buyers all the excuse they need to make a lowball offer.
Instead, you should be working to enhance the business value before putting it on the market. This may include raising profits, increasing sales, lowering expenses, streamlining your workflows, and expanding your customer base.
5. Identify target buyers
Selling your business is much more likely to be successful if you know who your target buyers are. There are generally two types of M&A buyers: financial and strategic.
Financial buyers treat the purchase as an investment, looking at the potential returns they can achieve. Once they have achieved an acceptable return on investment, they will likely look to sell the company themselves, or take it public with an IPO. Financial buyers usually use debt to finance the purchase, and are most interested in seeing a history of solid growth and strong financial statements.
Strategic buyers look for purchases that will fit into their own long-term business strategy. For example, strategic buyers may be looking to expand vertically (to different parts of the supply chain) or horizontally (to new products or industries). Strategic buyers are typically larger and willing to pay more for the purchase, since they can immediately take advantage of economies of scale.
6. Use a virtual data room
A virtual data room (VDR) is a secure online repository for sharing confidential and sensitive files with a third party. This makes a VDR invaluable when selling your business, especially during the due diligence process.
VDRs come with a variety of useful features, including:
Advanced search capabilities to help you quickly find the right file
Document watermarks to help avoid information leaks
Strong encryption to protect data both in transit and at rest
User access restrictions to ensure that only authorized individuals can view, edit, download, or share certain files
Audit logs to help you gauge interest from potential buyers
When you’re ready to start setting up a virtual data room in preparation for an upcoming sale or another business transaction, click here to start your full-feature free trial of SecureDocs.