Selling any business is a unique experience for most owners, so it is essential to learn how to sell successfully and create an effective succession plan. It is never too early to plan out your succession plan to assure you remain an active participant in the sale of your business. Throughout this article, you will learn 10 important steps to take to help you understand and begin the process of selling your business.
- Prepare Your Business for Sale
Your first step should be to create a Non-Disclosure Agreement (NDA) with a trusted legal advisor in order to protect your business information when sharing with potential buyers. Additionally, be sure to prepare important business financials, which include but are not limited to: three full years of reconciled and potentially audited financial statements (cash flow statements, balance sheets, income statements), bank records, business records, tax returns, and current year-to-date financials. All these records will bring financial certainty and a way to assess business value to potential buyers.
- Mitigate Risks
Create a plan to showcase you and your business as professional and well-organized so prospective buyers view it as a strong, low-risk investment. Risk mitigation/reduction begins with good records, but continues with the following:
- Low owner dependency
- Many alternate relationships with suppliers/vendors/employees to leverage
- Vertical diversification
- Showcased market level potential revenue and growth
- Documentation of prior company goals/milestones (especially moves to become more profitable)
- Sharing next year’s business plan if you don’t sell
- Having customer contracts
- Determine Your Business Value
In order to determine a fair price, look for outside help. Professional appraisers, such as a CPA or a business appraiser, can provide great help in finding your business’s value. Industry experts can also give much-needed knowledge, such as former franchise owners, business brokers, or bankers. It is essential to question your business’s worth well ahead of selling and to plan an exit strategy and value goal from day one. In order to consistently understand your business’s value and worth, you should know your EBITDA as banks/contributors focus on it heavily. To learn more about what EBITDA is and how to calculate it for your business, read this article on U.S. News. Additionally, you should evaluate your business by looking at past trends to estimate your company’s future growth, estimating how long can you maintain current customer revenue, and learning your market value of debt and equity because the buyer will inherit it.
- Who Will Buy Your Business?
Types of buyers can be split into three tiers based on price (>$10M, $3-10M, <$3M) which will determine the type of business they are looking for. Additionally, there exist three types of buyers:
- Strategic buyer (someone looking to see how your business fits into their company’s long-term plan)
- Financial/investment buyer (someone interested in your company’s profitability and stability for an investment opportunity)
- Internal buyer (family member or employee with plans for and knowledge of your business)
Regardless of the type of buyer, it is important to ensure that all prospective buyers have the necessary certifications, licenses, and/or credentials for your business.
- How Can You Begin Your Search for Qualified Buyers?
It’s essential to create a thorough marketing plan to find buyers that fit you and your business’s needs. Firstly, consider the scope of your marketing and its impact on your employees/customers. In order to not alarm any employees or customers with your move to sell before an offer is even in, make sure to keep a marketing approach that is not aggressive or shares too much of your financial information.
During the first three-to-four months, focus on marketing your business well and finding valid potential buyers. When first listing your business, create a one-page teaser and then ask truly interested parties to sign an NDA for more information. This will ensure that your privacy stays intact and that all your employees, customers, and clients will not be able to see your detailed financial statements.
- How Do You Know if a Buyer Is a Qualified Buyer?
In order to properly screen buyers and achieve Franchisor approval, you’ll need to request the following information:
- Financial statements
- Permission to run credit/background checks
- Ownership group structure
- Available funds to invest
- Financing sources
- Past judgements/bankruptcies
- Meet new franchise qualification
- Business knowledge/skills/experience to grow the company
In the end, taking care of your business means taking care of your employees, clients, and customers, so choose a buyer you can trust.
- Should You Use a Broker to Market Your Business for Sale?
To find a buyer, you can use a business broker (which includes a broker fee) who can help maintain confidentiality, negotiate, and vet buyers.
One option is to use the Authority Brands Business Brokerage Service in which the Business Resales Manager provides a limited service listing agreement with a non-exclusive agreement to help sell your business. The owner remains part of the sales process, but we help with proactive sales and marketing efforts. The broker fee is only earned if we provide the buyer through our efforts.
When choosing a broker, decide whether to enter into an exclusive or non-exclusive agreement. Also, evaluate a broker with the following questions:
- Do you provide a valuation to the business?
- Have you sold my type of business in the past?
- Have you sold businesses in my geographic area?
- What communication methods do you use for updating owners?
- What marketing methods will you use for my business?
- Is the fee negotiable?
- What is the exit clause if the broker can’t find a buyer or if the broker is not effectively marketing your business?
- Create & Implement Your Perfect Marketing Plan
When implementing the best marketing plan for your business, constantly check that it fits your buyer audience and that you are not spending beyond your budget. To ensure that your efforts are placed where the target prospect checks most, look over the following options to decide where to advertise the sale:
- Social media (LinkedIn, Facebook, Craigslist)
- Digital ads
- Local industry print/journals
- Chamber of Commerce
- Business networking events
- Authority Brands Franchise Development Department
- Internal stakeholders/employees
- Franchise owners within your brand
- Other Authority Brands franchise owners not in your service line
- Negotiate on a Win/Win Price
A prospective buyer may walk away due to leverage, timing, information, communication, and emotion. Additionally, an owner may not sell for their asking price because of overvalued expectations, declining revenue and profitability, lack of effective marketing, and urgency to sell. When deciding on a price, make sure to understand the financing behind the business sale, which can vary from owner financing, cash purchase, and bank financing.
- Conduct the Franchise Resale Process
During the resale, the new owner must be approved by the Franchisor. The transfer process includes many detailed steps, as well as a transfer fee.
It’s clear that selling a business is a complicated process for any owner, which is where Authority Brands comes in. All Authority Brands owners are assured constant support and help as entrepreneurs. We help owners with 100% of their business ownership, from beginning to exit to everything in between! Interested in making the move to become an Authority Brands franchise owner? Visit our website today to learn about our brands and contact us about your options as an entrepreneur!