How to Go About Selling a Small Business
Prepare for Sale
There may be various reasons why you want to sell your business. You may be incurring heavy losses, you may not be able to attract potential customers, competition might have cannibalized on your sales, you may have developed interest for any other niche products or business line, you may be in need of cash upfront to met an emergency or invest in a more lucrative offer, or the business may be on course to die a natural death owing to obsolesce of technology or product
Regardless of the reason for selling a small business, the first step is to prepare. This requires:
- Taking an inventory of the stocks and assets of the business, and calculating the net liabilities.
- Quantifying any goodwill the business holds, such as brand visibility, regular customers, and other factors.
- Estimating a value for the business, which is the sum of the top two points.
- Preparing a sales pitch that highlights the above points.
Scout for Buyers
The most important step in selling your business is scouting for buyers. Spread the word around, and if necessary, advertise. As a first step, look around for buyers from within the business’ internal environment, such as an employee, supplier, the accountant, or someone else. Such buyers can run the business well as they are already aware of the products/services, the markets, suppliers and customers.
If no buyers come, approach competitors in the same industry. Competitors benefit from such purchases by increasing their market share, and improving their financials. At times, the low turnover and the inevitability of such support services may make the business inviable. A competitor taking over the business can eliminate the support service, and add the turnover to the parent concern, and thereby leverage the benefits of economies of scale. At times, approaching someone totally new may be a good idea, as such people may pay a premium to buy their way into the industry, and to avoid having to start from the scratch and face risks.
Scouting for buyers requires the fine art of spreading the word by all means possible to attract sufficient quality buyers, but also identifying good buyers from bad, and engaging such good buyers one-by-one without cutting off anyone until a deal is struck.
Negotiate
The adage “In life you don’t get what you deserve. You get what you negotiate” holds true when selling a small business. Very often, the price obtained for the business will have nothing to do with the actual value of the business, but would rather depend on your negotiation skills, how desperately you want to sell or the buyer wants to buy, and the availability of other buyers or sellers willing to sell or buy similar businesses. The best negotiation strategy is win-win, which entails considering the potential buyer as a partner, and trying to conclude a deal by which you get a fair price, and the buyer has the potential to unlock value from the business, and thereby gain from the investment.
Buyers always look for what they can gain from the deal, and as such, you need to explain in clear cut terms what the business is all about, and how the buyer can gain. Negotiations for selling is always a drawn out process. Allow serious buyers to inspect accounting books, and verify claims made. At the conclusion of successful negotiations, the buyer and seller enter into a contract. The actual sale itself may be a long drawn out process, with the seller gradually easing the buyer into the operations, and changing the legal ownership on receipt of the price.
Very often, the profits of a business remain locked in its inherent value. Adopting the right approach to selling allows unlocking such hidden values, and to make handsome gains out of the entire venture, even if day to day operations pose a loss.
Reference
Source: author’s experience
Image Credit: freedigitalphotos.net/Ambro
