The Process of Selling a Business

Selling a business is complex and intense. Before you travel down this path be certain it’s the path you want to be on. There are many reasons business owners select this path, be sure you know exactly why and use the following to reinforce that rationale.

This is not a process to valuate your business. That should only be done by a certified business appraiser. However, it will let you know how a prospective buyer will view your business. It is comparable to staging your home before putting it on the market. The objective is to make your business more attractive and therefore expedite its sale and optimize the sale price. Remember the longer the business is on the market the less you are likely to get for it.

Any prospective buyer will want to look at the following aspects of your business:
Financial Results and Future Projections
Products and Services
Customers
Competitors
Marketing and Sales Process
Management and Key Employees
Assets and Liabilities
Human Resources
Business Model Bankability

Step 1 – Salability Assessment

The Salability assessment will provide you an index score for each of these categories and therefore provide you an objective view of the areas in which improvement should be made. Businesses look for a multiple of EBITDA to set a sale price. These multiples will vary depending on a number of factors including size of the company, industry sector, intellectual property, etc. and can vary widely. The benefit of fixing a problem before presenting to a prospective buyer can best be understood by the following example:

Assume a business with EBITDA of $1,000,000 and a sale multiple of 4 would normally sell for $4,000,000. A prospective buyer feels that your web site needs a complete revamping and that will cost $20,000. He will reduce your EBITDA by that amount which will cost you $80,000 in sale price (based on a 4X multiplier) where if you fix it up front the cost is simply the $20K. Knowing how an investor will view your business can have a dramatic impact on your sale price.

Step 2 – Develop a Remediation Plan

Once an assessment has been developed developing a remediation plan is a fairly easy process. It involves simply prioritizing the areas that need fixing, developing a set of action items, assigning an individual responsible for the item and a time to complete it.

Step 3 – Execute the Remediation Plan

This is clearly the most critical aspect of the process and requires a structured approach to insure its completion in the time frame assigned. A responsible individual must assume the job of keeping the plan on track.

Step 4 – Select an experienced and appropriate Sales Agent

Like selling a house after you have properly staged the home for sale the selection of the right sales agent is critical. Each has their own personality….size, industry, financial vs strategic, etc. Research this area well before selecting an agent.

 


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