When presented with professional opportunities, such as launching a startup, completing an expansion, or buying a business, savvy small business entrepreneurs and successful self-employed practitioners share a unique ability to embrace the challenge and make the most of the circumstances. Why not approach your business sale with the same level of enthusiasm, finding a well-qualified buyer for your enterprise?
Why Sell Your Business?
Autonomy and freedom are primary motivators for many self-employed entrepreneurs, so it’s not surprising that owners sometimes sell their businesses and change course. Why do successful entrepreneurs choose to sell?
- In order to further other personal ambitions – Entrepreneurs have diverse interests. Their desire to participate in different types of businesses and experience diverse aspects of professional life are enough to keep active entrepreneurs in motion, buying and selling commercial interests.
- Building a business is the fun part – Entrepreneurs are innovators. Many self-starters are drawn to the early stages of business development – getting a venture off the ground. Once a business is established and marketable, some entrepreneurs have accomplished their goal and are ready to move on to another challenge, creating a business from the ground up.
- The sale’s a springboard to a related opportunity – Business insiders have a tremendous advantage, compared to outsiders attempting to break into entrepreneurism. An inside perspective provides privileged access to industry opportunities, so it isn’t unusual for successful entrepreneurs to sell a business, only to then launch a related enterprise.
- Selling makes financial sense – Business owners must manage their finances with the best possible outcomes in mind. In some cases, that means selling a business, for the sake of an owner’s overall financial outlook.
- Market forces – Despite due diligence administering to the needs of their ventures, countless factors are beyond business owners’ control. When market forces shift, for the better or worse, it can create favorable conditions for selling a business. Effective entrepreneurs know when to cut ties and embrace a sale.
- Retirement – Some aging business owners are known to linger on the job, finding it difficult to let go of the reins. At some point, however, retirement beckons and it’s time to pass operations responsibilities to a new owner.
You’ve Decided to Sell – What’s Next?
If your business is already on the blocks or a sale may be in your future, careful consideration ensures a trouble-free transaction. It’s a mistake to get ahead of yourself, counting profits from a lucrative would-be sale. Even if you have plans for the money, hasty actions can create problems that undermine a smooth transition. Despite lofty visions about the sale of your business, you won’t get very far without a buyer; attracting top candidates is a crucial step, requiring proactive attention.
Selecting the wrong buyer can cause short-term problems, interfering with your business sale. But aligning with an unqualified buyer can also spark issues that carry on into the future. What if the buyer closes the business before it’s paid for? How much do you stand to lose if the buyer backs out at the last minute? Can you afford to cover costs while you locate another eligible buyer? These are only a few of the questions to consider as you evaluate potential buyers.
Landing the Best Buyer
A recent Inc. article thoroughly explored the topic, offering sound recommendations for finding a business buyer. The author defined the best business buyers as those meeting three key criteria:
- Willing to pay the highest price
- Offers the most agreeable terms for the sale
- Serves as the best possible leader for the ongoing success of the business
Although you’re the one with a business on the market, attracting a good buyer still falls on you. Before promoting your business for sale, define the qualities you expect in a good buyer and the terms governing the sale. Things like related work experience and the precise closing date for the sale may be negotiable, but the financial terms of the sale shouldn’t be adjusted to accommodate unusual buyer requests.
The rigid financial parameters set for your business sale should define the down payment amount required to execute the sale, seller financing terms, if available, and the collateral assigned to guarantee the buyer loan. With this framework established, you can create an appealing listing and begin accepting inquiries. After it’s officially been offered for sale, take these steps to narrow your search for a qualified buyer:
Screen Interest Parties – Once prospective buyers begin expressing interest, pre-screening parties can help you weed out weak candidates, without investing too much time on non-starters. With the help of a business broker or background check, it pays to consider professional history, credit score, motives for inquiring, as well as a prospect’s payment plan, outlining how the sale will be financed.
Take a Closer Look – Candidates that pass your preliminary check deserve further diligence. The financial strength of a buyer is paramount, so a closer look at a candidate’s finances includes a formal credit check, copies of current tax returns, and bank statements showing a potential buyer of means. Interested parties unwilling to provide detailed financial information are probably not good buyers.
In addition to vetting financials, you should also look for legal judgements or any circumstances that might interfere with a buyer’s ability to operate a licensed enterprise. Asking for a list of personal and professional references is another safeguard, ensuring you settle on a credible buyer.
Understand Your Audience – According to the Inc. article, there are two types of buyers you should look for when selling your business. Strategic buyers are those primarily focused on how your business fits with their existing portfolio and professional activities. Financial buyers, on the other hand, are most concerned with profitability and stability. Either group yields good candidates, but financial motivation can change the way a buyer runs your business after the sale; employee retention issues and other inconsistencies can occur.
A large number of high quality businesses are coming to market as baby boomer owners retire and a period of prosperity supports healthy sale prices. Though it’s a competitive environment for sellers, demand remains high for good businesses. Properly positioning your concept and putting your best foot forward with potential buyers are sure ways to increase appeal and draw interest from the market. Once you have their attention, it’s up to you to vet candidates and settle on a quality buyer, capable of following through with a trouble-free transition.
Sprout Funding helps small businesses secure the money needed to stabilize and grow. Keep your funding simple, and straightforward. 866-962-4922
We are available to talk with you weekdays, from 9-5 CST
The Sprout Funding blog offers tips, reports, insights and other ideas to help small business owners learn and grow. Have a question for our team? Email us at: firstname.lastname@example.org, and tell us how we can help you.
If you are ready for the money to grow your business, let's get started!