6 Questions to Answer Before Selling Your Business

The sale of a business is one of the more involved and complex processes a business owner can ever experience; and, in most cases, there is little margin for error.

There can be many second chances to overcome mistakes in building a business; however, it is rare to get a second chance when selling a business. If you are ready for an exit, here are six questions you should answer before selling your business.

1. Is My Business Sellable?

Owners need to take a long look at their business through the eyes of a potential buyer and ask the question, “Would I buy this business?” Buyers look closely at a number of factors:

Profitability. Buyers are most interested in the bottom line. Is the business profitable and what is its forecast for future growth?

Solvency. Buyers would prefer to buy businesses in which its assets far exceed its liabilities. If there are liabilities, they need to know that there are enough revenues to cover the debt payments.

Market Position. Buyers like buying winners – businesses that have a strong market position based on a strong branding, product differentiation, innovation, and market share.

Employees/Management. Buyers typically evaluate the experience and skills of employees and management. Key employees can be especially important to buyers when assessing the value of the business as an ongoing concern.

Customers. In the eyes of a buyer, your business’s customer base is its most valuable asset. Buyers consider its size, diversity, retention and its growth potential. If it is too concentrated among a few big customers, it could be considered a high risk.

2. What’s My Business Worth?

Most business owners have no idea of how much their business is worth and many wait until they are ready to sell before trying to put a price on it. Those who do keep score tend to be overly optimistic in their own appraisal. A successful outcome is one in which the sale of a business yields sufficient proceeds to allow the business owner to exit with enough funds to provide a secure retirement.

It’s important to have a professional valuation appraisal done periodically to know where you stand and pinpoint what needs to be done to increase the value of the business. Ultimately, it’s not a business appraisal that sets the price; it’s what a buyer is willing to pay. So, it’s important to always view your business value through the eyes of a buyer.

3. What’s My Exit Strategy?

Essentially, your exit strategy is determined by your sale objectives. For example, if your objective is to keep your business in the family, your exit strategy is likely to look a lot different than if you were to seek top dollar from a third-party buyer. Your exit strategy becomes the blueprint for all planning decisions. While no two exit strategies are alike, they all contain the following elements:

 

By taking the time to thoroughly address each of these questions well before selling your business, you will significantly enhance your chances of a successful outcome. In essence, the carefully conceived answers to each of these questions become a step-by-step guide in developing your blueprint for success.