Top tips and a thorough step-by-step guide on how to successfully sell your business, with advice on everything you need to know from preparation, valuations and negotiations, to the end sale itself.
Starting and growing your own business requires commitment, dedication and a lot of sleepless nights.
Selling your business is no different, and it requires the owner to take careful steps and formulate a strategy for the sale to be a success.
Traditionally, selling your business without consulting an expert first is seen as a misstep, resulting in an undesirable deal.
Although this attitude has been proven to be true, the advancement of technology, data intelligence and transparency means that business owners have a greater chance of successfully selling their business by themselves, one that is low cost and seamless.
For the business owner, there are several vital steps to follow and adhere to in order to achieve this.
Prepare to Secure a Sale
Preparation is key in any business venture, but it is a crucial step when selling your business. Preparing properly before going to market will significantly increase your chances of securing a deal, as well as bagging a decent price.
If you go to market too early, reasons not to buy may increase, and there is the potential risk of the deal collapsing down the line.
Here are some ways that you can properly prepare for your sale:
- Prepare up to date accounts for your potential buyer, and consider selling at, or soon after, the end of the year.
- Do your due diligence; organise your documents from leases, to contracts, to legal papers.
- Settle employee disputes and any litigation cases that may be active.
- Push as much of your cash flow to the bottom line of your business. You can do this by reducing personal expenses).
- Increase your management’s responsibilities, and gradually reduce their dependence on you.
- Liaise with advisers to ensure you get the best deal/tax structure, and make sure you are prepared to claim entrepreneur’s relief.
- Take time to spruce up the physical appearance of your business to make it more visually appealing.
Don’t become distracted by pre-sale business valuations
Often, business owners can lose focus by directing their energy on pre-sale valuations, especially for smaller businesses. Make sure you know the market value, and don’t let pre-sale business valuations distort your price expectations. Being well prepared with smart marketing means you cement the value of your business.
Create a profile on your business
Tease potential buyers with a succinct, one-page, mini advert, for the market that provides information about your business. This can be circulated to buyers and advertisers to get your sale known.
For this document, you should include:
- What you and your business does
- Where do you operate
- Your differences compared to your competitors, i.e. location, customers, contracts.
- Your potential for growth
- The reason you are selling
- Your business’ financial information, i.e. turnover, GP, EBITDA
- Your contact details. We recommend creating an anonymous email address to keep your identity unknown in the initial stages.
Use the right marketing channels
In sales, the law of averages states that, the more times you perform an action, the more likely a positive, or the desired outcome will emerge. This applies when selling your business, so make yourself known to as many buyers as possible and eventually, the right buyer for you will come along.
Here are some channels that you should consider:
- Do research online, i.e. google “how to sell my business / where to sell a business.”
- Speak to people you already know, like competitors, your customers or your suppliers.
- Do market research to figure out who is buying, or who is commentating in your industry.
- Do some prospecting – research potential buyers and send them your business profile directly.
- Search through social media platforms like LinkedIn, Twitter, Facebook and Google+.
- Advertise through local publications or via business networks.
- Invest in Google Ads and make your sale known.
Keeping confidentiality
Confidentiality is important when selling your business, so organise an NDA (Non-Disclosure Agreement) to be sent to buyers and request they sign it before providing private, detailed information. If your buyer is genuine then they won’t refuse.
Qualify your potential buyers
In the initial stages of conversing with possible buyers, provide them with your business sales profile and a copy of your NDA. This is also a good opportunity to qualify your buyers to ensure that neither of you are wasting one another’s time.
Here are some questions you can ask:
- Why do they want to buy your business?
- Where are they based?
- How long have they been looking to buy?
- What are their current circumstances?
- Do they have any experience in your sector?
- Do they have the funding to commit to a purchase?
Send these questions in an email or organise a phone call. Focus your efforts on genuine buyers and forge a good understanding and connection with your prospects. Deals are more likely to occur in this setting.
Write a memorandum
A Memorandum is simply a written message in a business. Some buyers will ask for detailed information of your business that can be included in this type of summary. It is essentially a more detailed overview than your business profile.
Providing a mini strategy document for your buyers will garner intrigue, especially if you include personal insight into how you would navigate buying the business. This will be a valuable sales tool that is unexpected.
Communicate openly with prospective buyers
It can be easy to get frustrated in the process of selling your business, so patience from both the seller and buyer is necessary. Common issues that may arise include:
- Sellers inflexibility on price and terms of the sale (this is often affected by the pre-sale valuation)
- Sellers fail to prepare for market vulnerability of their business and/or bottom line, resulting in the buyer’s risking cancellation.
- Prepare for negotiations and to close the sale
Getting an offer is positive news but it doesn’t automatically mean the sale is guaranteed on your terms.
Keep in mind the following questions when you reach this stage of the sale to prevent irrational decisions:
- What is a good deal and/or price?
- Is the price being offered acceptable? By this stage you will have a better idea of the market value of your business and may know what price is best.
- Is this the only buyer interested or are there others?
- If there is more than one can you switch your selling process to an auction?
- Will saying no to this buyer delay the selling process, or will another potential buyer emerge? Is the time it’ll take to find another buyer worth it?
If the sale doesn’t meet your expectations, is a negotiation a viable option? Try and be as flexible as possible despite how hard it may feel to do so. Try to understand their offer and attempt to bridge the gap between their wants and your needs.
Prepare a ‘Heads of Terms’ document
Once negotiations have been agreed, the buyer must confirm their decision in a ‘Heads of Terms’ document, which outlines the points of the sale. Although not legally binding, it provides clarity on the terms of the sale, what has been agreed upon and the deal template.
Be prepared for redrafts to occur until both parties are in full agreement. This is also the time to ask questions and straighten out any issues or misunderstandings that may be underlying.
The buyer’s due diligence
As you get further and further into the selling process, the buyer will start doing their due diligence on your business, which could lead to backing out of deals or attempting to barter the price down.
Make sure your prepare for this at the start of the selling process and decrease the chances of problems emerging at this stage. Crucially, ensure issues relating to leasehold properties is sorted and your landlord consents to the sale.
Protect yourself and your business
For large sales, like selling your business, make sure you spend the time and money on a good solicitor to guide you through the process. This will protect you and your business if anything were to go awry.
On board a solicitor and consider the following when hiring:
- Do they have evidence of deal experience?
- Request access to their schedule during the due diligence and completion phase of the process and ensure they are not overworked or have holiday plans. Delays at this stage can impact deals and potentially stop them altogether, so make certain that your solicitor is available.
How long does it take to sell a business?
How long does it take to sell a business? Well, how long is a bit of string?
The selling process can vary drastically and depends entirely on individual circumstances. There are numerous variables that can impact the timeframe of selling, therefore there is not a conclusive answer to that question.
The market, the sector and seller expectations can play a vital role in influencing how quickly a sale can occur.
Luck also plays a role. One business may go to market at the same time a financial director from a different company has received the go ahead with an acquisition strategy, resulting in a quick deal.
On the other hand, a business could go to market at the wrong time with no interested buyers.
How long does it take to sell a small business?
Business owners should be prepared for a 9-12 month timeframe, from signing up to sell to signing away their business. If preparations are needed before the selling process begins, it could take extra weeks, or even months.
Mid to large businesses take longer
For businesses this size, the selling process can take between 12-18 months, if not longer if you need to prepare beforehand.
Also, the process is not easy, and as a business owner you can never assume you have the sale, particularly when the buyer does their due diligence. It can be a complicated process, which is exacerbated by expectations and competing agendas of the different parties.
To avoid this, undertake upfront due diligence before going to market and have this prepared for buyers to consult.
To minimise delays, the seller should confirm that the buyer is in a position to pay for the business and has the funding to do so. Get some proof, as negotiating with someone without budget is a waste of time and delays the sale further.
Don’t feel the pressure to sell as soon as the first person comes along. Take the time and don’t rush into agreeing terms. Maintain your control, and only sell if it is absolutely in yours, and your business’, best interests to do so.
Selling a business is hard
Do not underestimate the complexity of selling a business. Although this guide lays out a simple process, the reality of selling is long, time-consuming and stressful – so be prepared.