Are you considering selling your business? The critical thinking and emotional energy in making this decision is considerable. However, once you've decided you want to sell, you likely will have many questions you're trying to answer:
How long will it take me to find a qualified buyer?
How will I transition the business and over what period of time?
What will I include in the sale price?
What is my ideal selling price?
What is the lowest price I would accept?
And, let's be honest. Every owner is concerned about getting the highest price possible, right — it's almost always the top priority.
In this article, we'll discuss some of the strategies you can use to maximize your sale price. Before we dive into the discussion, I want to share a few principles that I deploy with all of my business owner clients:
Principle # 1: Time will always impact price.
When it comes to selling your business, timing is everything. However, much of the timing we experience in life isn't within our control. We're not talking about trying to time the market — the economy will always throw us curveballs and it's nearly impossible to plan the sale of your business based on the somewhat unpredictable nature of the market. We'll focus our efforts in the areas of timing that you can control. Mainly, the timeline you give yourself to get your business in tip-top shape, organize your financials, and assemble the data and metrics needed to court the right investors.
This principle is simple: when it comes to planning, compact timelines tend to lead to compacted prices; longer planning windows tend to lead to higher prices. There is a direct relationship between how fast you need to sell and the price you will likely secure.
For example...
A major health issue changes our path in life and forces us to re-prioritize what is important to us. This is a good example of a "must sell" scenario. While it's not fair, the impact of such an event will place more influence on price as a lever in the transaction — it's a strong motivator for every buyer and you'll likely need to leverage it to get to the Closing table faster.
Assuming this doesn't occur, it's always preferable to create a window of time to tighten up your business. But, for how long? That depends on your desired sale price and how far away your business is from being able to justify your asking price. The ideal scenario is to land on your initial sale price and work backwards to determine what you need to do to create enough value in your business to justify your sale price.
Unfortunately, few business owners do this because they've been powered by passion and emotion for so long. When they finally reach their breaking point, it tends to happen fast.
But, if you can step back and think strategically about what you want (and need) to get out of your business, and then design a plan to build a business worth your price, it can have a massive impact on your life. But, it does take some work.
Principle # 2: De-commodotize Your Business
If you haven't visited any business brokering websites, be sure to do so. (Try BizBuySell or Crexi). You will quickly notice that there are key metrics that every investor cares about:
Annual Gross Revenue
Annual Net Operating Income (NOI)
Seller Discretionary Earnings (SDE)
EBITDA (Earning Before Interest, Taxes, Depreciation, and Amortization)
Sales "multiples"
These metrics make it easy for investors to assess a business. However, it oversimplifies the thought process because it leads most investors to ignore highly valuable, but subjective areas such as:
Brand awareness
Brand reputation
Future growth opportunities
Operational improvement opportunities
Customer referral impact
Product/Service differentiation
If we allow our business to solely be judged based upon the metrics, we're allowing it to become a commodity — by definition...
A product is a commodity when all units of production are identical, regardless of who produces them.
If you own a business, you know that your business is not a commodity. However, if every business is being judged by the same metrics without more context, it becomes a commodity. And, commodities don't generally demand premium pricing.
Principle # 3: Know the Buyer's Mindset
This third principle is powerful and applies to any negotiation strategy. Selling a business is a very emotional experience — it can be difficult to separate yourself from the process and maintain objectivity — one reason it makes sense to utilize a business broker in the process.
To understand the Buyer's mindset, put yourself in his or her shoes and answer these questions:
What is unique about your business?
What would justify a sale price above and beyond an industry Sales Multiple?
What does your business do that other businesses can't do?
What are your operational advantages over competitors?
How dependent is your business on you, the Owner?
What areas is the business weak?
By thinking through each of these questions, you can address the Buyer's likely objections prior to entering active negotiations.
Principle # 4: People Buy from People They Know, Like, and Trust
Author and marketing expert, Bob Burg, said: “All things being equal, people will do business with — and refer business to — those people they know, like and trust.”
If you have decided to retain a business broker for the sale of your business, you may feel this doesn't apply. But, it does.
Whether you have a business broker or are going at it on your own, this principle holds true. In my work as a CEO and CMO (Chief Marketing Officer), the Know/Like/Trust equation has a critical impact on your prospective buyer.
For this reason, you will want to take great care in selecting a business broker who can quickly build rapport and has the ability to quickly identify the personality type of your prospective buyers. If you're selecting a business broker, be sure to call and email them to see how fast their response times are and how well they address your questions and concerns.
This isn't a list of all of the principles we use at Collaborative Commercial, but these are four principles that we place a great deal of importance on during every transaction.
To your success,
Jason Huett CEO | CMO | Business Broker
Collaborative Commercial
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