Every business starts off as a small business looking to get bigger. It doesn’t matter whether you firm was an online business or whether it was a conventional one because the principle stays the same. That principle is your success. You want to build your company from the ground up into one of the biggest and most successful companies in the world. Then, you will have achieved something great, and you can line your pockets with cash.
But, after a while, your hunger for success might satiate as you hit more and more targets. You might look at your firm and think that it is time to sell. Although that seems extreme now, it might not do in the future. After all, every business has a price, and people will try and find that price. If you do ever find yourself in that situation, you need to know your best option. To find out if selling is your best option, just answer these simple questions.
They will tell you everything you need to know.
#1: Is It Ready To Sell?
You might be ready to sell, but the market might not be ready to buy. Before any company or individual invests huge sums of money, they need to cover every base. That means that they want to a series of consistent success to make sure your company is a viable investment. If you can’t provide them with a couple of years of figures, the odds aren’t in your favor. You can’t start putting things together a month beforehand because that isn’t enough time. You need at least three to four years to show any interested parties that there is maximum profitability.
#2: Is Their Valuation Correct?
Don’t accept the valuation as law, especially if they use their valuing team. No one wants to be cynical, but they could give you any valuation to make the purchase more profitable for their party. The best option is to hire a valuation expert of your own. Then, you can see how far off the valuations are and come to a compromise. Another good tip is to hire an independent party. Both you and the buyer should agree on a valuation expert that has no prior connections to each person. Then, you know that what they say is correct. At the least, it is the best possible recommendation you have at your disposal.
#3: How Are They Going To Value The Business?
Investors are sneaky as they will try to run tax write-offs through the company with their valuation. They will say that everything from a company car is a business expense, and should be ingested by the company. Although they are expenses to a degree, they are also a good excuse for them to lower their valuation. The fewer valuable items you have on your credit sheet, the less they will have to pay. Your job is to balance your tax write-offs so that they don’t damage the valuation. Try and get the right mix between lowering your bill and making your business more profitable.
#4: Can I Get More Money?
Jack Dorsey, Noah Glass, and Florian Weber are a good case study here. Who are they? They are the people that came up with the idea for Twitter and sold their stake for $5 million. Nowadays, the company is worth upwards of $10 billion. The key piece of information to take from this case study is that there were millions to be made from Twitter. But, the original founders saw the money signs and thought they’d seize their opportunity. Of course, $5 million is a huge sum of money, yet it is small fry next to a couple of billion. Regardless of the price, always think about the potential of the company. You don’t want to be the person that sells their shares and ends up with their pants around their ankles.
#5: When Is The Right Time To Sell?
Many people wait until their business is failing before they sell. Just like Dorsey and co, they panic and want to jump ship. The problem with this logic is that your business is not as valuable when it isn’t making as much money. Common sense dictates that it is less valuable, and you will get less for the company. Any decent entrepreneur sells up when the going is good. Have you ever heard of the phrase the house always wins? Companies, like gamblers, find their level after a while and start to plateau. Lots start to lose money as the bubble bursts, and that leaves them exposed and vulnerable. Even though it is difficult, you have to think about selling when you are at your strongest as this method will get you the best possible deal. Just make sure your company plateaus before you sell.
#6: Is The Market Right?
Markets are like the weather – they change in an instant. Take the housing market as an example. In 2006/7, housing firms were in demand. Some were demanding seven to eight figure sums such was their dominance. Fast forward a year and they were out of business. If they weren’t out of business, they lost a huge part of their value. Although a phenomenon like the housing crash was hard to spot, it raises a valid point: always analyze the market. When you look at the market, you can attempt to predict the future. The market will tell you when the time is right to sell and when the time is right to hold. The information is there for everyone to see, but you have to know how to read it if you want to win.
#7: Who Do I Need To Make The Sale?
It is important to have your team in place to get the best result. First of all, you need a broker like CGK Business Sales. Without a broker, you won’t be able to out the deal together in the first place. And, the likes of CGK are some of the best in the business. Yes, they will take a fee for their services, but it is worth it to finalize the deal. Also, you want to consider hiring a top class accountant. There is going to be a lot of numbers flying around, and you will need a math whizz to decode them. The numbers tend to hold the key to the deal. Don’t forget a lawyer as they will have to rubber stamp the deal and make it legal in the eyes of the law. They are just three important parts of your team, but there are lots more.
#8: Can The Business Thrive Without Me?
It is not unusual for businesses to rely on one or two people within their ranks. It might sound ridiculous, but it is true. Clients and investors like to do business with people they trust, and they trust people with a great track record. When that record is about to walk out of the door, they might walk out too. Obviously, that isn’t an option because you need their business to make the sale happen. What business owners tend to do is tell their clients at the last minute. That gives them less time to react and jump ship. By the time the sale goes through, they are still on the books. What happens after that is none of your concern.
#9: Should I Stay On After The Sale?
Another way to appease your clients is to tell them that you plan to stay on with the company. The investor might even demand it if they think that everyone is going to consider their options when you leave. But, don’t agree to it straight away. For one thing, you have your reasons for selling your company. And, if you wanted to carry on working there, you wouldn’t put it up for sale. If you are planning on retiring, that could eat into your plans. Also, you won’t be the boss anymore. New owners will come in and stamp their authority on your business. Can you handle seeing your business change into something new? Can you handle not being able to make the decisions? If you can’t, it isn’t a good idea to stay on afterward.
#10: Who Do I Need On My Side?
It is your business, and you are the boss. But, you can’t decide alone. Unless you are a sole trader, which is suicide, you will be at the mercy of the board. The people on the board will have to vote on whether they think the sale is a good idea or a bad one. In that case, you will need the votes to push through the deal. Hopefully, you will have plenty of allies that are willing to side with you and not the opposing voters. If you don’t, offer them an incentive that they can resist. Nothing inspires trust than a big bonus of a new promotion.
And there you have it – these are the ten questions you need to answer before you sell your business.