Deal Momentum
Time is not your friend when selling a company. Time is the enemy in all transactions. In fact, “Time kills ALL deals” can be used to describe a variety of industries, but it is particularly relevant for small business sales.
The key to a successful business deal is to be prepared, to come out strong and to keep momentum throughout the entire process. Your company should be on the business-for sale market as soon as possible. The clock starts ticking when a buyer makes their first offer.
To generate deal momentum, business sellers should be prepared for the journey to the marketplace well before going to market. You need to organize your paperwork and identify potential roadblocks that could delay or derail the deal.
Do not let time get in the way of your success. These 13 tips to optimize your deal momentum can help you assure that your deal will close on your schedule.
13 Tips To Optimize Your Deal Momentum
1. When is the right time to sell your business? The best time to sell your business is when profits and sales have been rising each year, and there are signs that this trend will continue. The current market conditions can also influence the prices for businesses that are profitable. Selling early to take advantage of the current market conditions for small business sales may be better than waiting for the next train.
2. It is important to understand why you are selling. It is important to have a clear desire to sell. One of the first questions that a buyer will ask about your business is: “Why is the owner selling?” This question is asked to gauge the likelihood that there are skeletons in their closet.
Have a clear, legitimate answer. Ask yourself, “How would I feel about buying this business with your answer.” You want to avoid slowing down deal momentum by creating doubt or undue skepticism by the buyer because you are not clear in your response.
3. Be candid about the best and worst aspects of your business. Your business’s favorable elements should be the main focus. No company is perfect. You should be prepared to share the less desirable elements forthrightly.
Buyers don’t like surprises. Business brokers and other professionals involved in the sales process also do not like surprises. Late discovered problems can compromise your integrity and affect the price. A smoother closing is possible if there are zero issues that can be brought to the closing table. Seriously, avoid playing hide the ball when selling your business. It’s a deal-killer or can seriously erode your deal momentum.
4. Know what you’ll do after your business is sold. You might feel unsure or irritable if you don’t have a plan. You must not balk when momentum picks up. Have a plan for post-sale. You don’t want to unconsciously sabotage your business sale because you don’t know what you will do after you sell the business. Have a plan and something to look forward to doing.
5. Get a business valuation to increase deal momentum. To understand the market, get a business valuation from a trusted firm. This is a first step to determine if the sale would achieve your goals. Get realistic on pricing your business for sale. Avoid coming up with an inflated price with zero justification for it. Your business will not sell. No one buys over-inflated businesses. That will drag the process out and force you to keep price cutting. Moreover, buyers are leery of businesses that have been sitting around for too long without any sale activity. They grow suspicious as to what the seller might be hiding or that s/he is a difficult seller to work with.
6. Will your business provide the buyer a reasonable return-on-investment (ROI)? A reality that buyers and lenders is whether the business provides a reasonable ROI. Buyers will focus on return on investment, while lenders will insist that debt repayments are included in the deal. Businesses that are too expensive will not be sold and will undermine deal momentum,
7. Make sure you’re current with all taxes. This includes federal income taxes, sales taxes, unemployment taxes, and payroll taxes. Deals can be stopped by tax delinquency. Too many delinquency issues can spook buyers away who may fear having to deal with taxing authorities if you neglect to properly pay your taxes.
8. Thorough and well-documented business records. Buyers need organized records, files and policies for employees, contracts, policies and employee records. They also want training manuals and how-to guides, as well as business processes and systems that are reliable and can keep the operation going long after you’re gone. Make sure your business records are complete, organized and easy for the buyer to work with once the business transfers.
It goes a long way in a business sale when the buyer sees a well-documented, organized set or records. They are more likely to trust the seller and feel confident about the business sale. Nothing annoys buyers (and kills deals) like having to wait on a seller to get their act together by organizing their records for due diligence. All that information should be done well in advance.
9. Your business can survive without you. A business’s value is determined by its ability to sustain itself without its leader. The key to a business’ future is its key employees and staff. Many businesses cannot be sold if their owner is not involved in the daily operations. Get rid of yourself in business operations as much as possible. That makes the business much more desirable and valuable because the business can function well regardless of ownership.
10. Know your numbers. You must be able to produce accurate financial statements, tax returns, and key financial reports. These numbers must justify your list price to the buyer. Your numbers also have to make sense to the lender to finance your business sale, especially if dealing with an SBA loan.
11. Create a business sale team. Your trusted advisors are available to help you with the transaction. Meeting with your attorney or accountant will help you gather all the documents necessary for your business broker to go to market. To be able to support you effectively in the transaction, your advisors will need time to prepare. Start the process well in advance of listing your business for sale. Get all the information that you need before going to market so that you know what needs to be done and can properly anticipate the process.
12. Create a business growth plan for the buyers. Buyers look at the past in terms of business performance but they are focused on the future when they man the helm of your business. Prospective buyers will benefit from getting a growth and marketing plan from you to help them understand the opportunities and determine what they can do to make the business more successful.
13. Decide what is most important to your in the grand deal. Prepare for the tug and pull. Don’t get bogged down in minor details. Keep your eyes on the important issues. Know your priorities and what you can do. This will help you negotiate the various terms and prices. The structure of the deal can either make or break a transaction.
Contact Mission Peak Brokers to Help You Sell Your Business
We have extensive business sales experience and have closed over 324,000,000 in business sales since 2004. Contact our Business Brokers for a no-obligation business valuation to help you get your business sale process started successfully.