How to sell a business: A comprehensive guide

27 June 2024

Many business owners dream of selling their business one day. It is a significant milestone that requires careful planning and execution. Whether you want to retire, pursue other opportunities, or cash in on your hard work, understanding what is involved in selling a business is crucial. This article covers key aspects of how to sell a business, from preparing it for sale to identifying potential buyers and avoiding common pitfalls.

Selling a business

What does it mean to be sale ready?

Being “sale ready” means your business is in optimal condition for sale, making it attractive to potential buyers. Like when you sell a house, nobody wants an over-grown garden, arrears on rates and utilities or cracks in the wall.  A sale-ready business means that you have the “option” to sell and achieve a fair price, rather than being forced to sell, sell at a suboptimal price or even shut-down the business. Such a business has organized financial records, streamlined operations and low owner dependency, a clear value proposition, and a solid customer base. It means that it is a business that someone else wants to buy and ensures a smooth business sale process for the new owner.

Key considerations in getting a business sale ready

There are a number of factors to consider, and we’ll address some of the key ones:

  1. Low owner dependency: A buyer will usually want to by a business that “operates itself” and has a low dependency on the current owners. A simple question we ask is “can you as an owner take a 3-week holiday without access to your mobile phone?”.
  2. Business valuation: Understanding the business valuation is key. Whilst many owners dream of achieving a “ridiculous” offer from a strategic buyer, the reality is that this is the exception rather than the norm. Unrealistic expectations can deter prospective buyer and reduce the chances of a deal. bizval provides affordable services for business owners to independently, quickly, accurately and affordably get an understanding of the value of their business.
  3. Accurate record keeping: Ensure that your financial statements are accurate and up to date. This includes balance sheets, income statements, and cash flow statements. Clean financial records instill a sense confidence in potential buyers and is one of the key criteria when a buyer conducts due diligence.
  4. Customer base: A loyal and diverse customer base is attractive to buyers. Ensure that customer relationships are strong and well-documented.
  5. Operational efficiency: Streamline operations to maximize profitability. Identify and address any inefficiencies or bottlenecks in your processes.
  6. Legal aspects of selling a business: Ensure that your business complies with all relevant laws and regulations. This includes licenses, permits, contracts, and employee agreements.
  7. Emotional readiness: This is a huge issue. One needs to be emotionally ready to walk away from something that you have spent years and even a lifetime building.

This is by no means everything that one needs to consider, but a summary of the key points.

How long does it take to get sale ready

The timeline for getting a business sale ready can vary widely depending on the complexity and current state of the business. On average, it can take anywhere from 18 months to two years to get the business ready for sale. This period includes time for financial and operational improvements, legal preparations, succession planning. The actual sale process can take a further 6-18 months after this and involves finding buyers for your business, conducting due diligence and closing of the deal.

Concept of working on versus in the business

As we mentioned before, it is critical that the business is not dependent on the owner.

Working in the business: This involves day-to-day operational tasks such as managing employees, handling customer inquiries, and overseeing production.

Working on the business: This involves strategic planning, improving processes, and preparing the business for future growth or sale.

To maximize the value of your business, it’s essential to shift your focus from working in the business to working on the business. This strategic perspective helps you create a self-sustaining operation that can thrive without your constant involvement, making it more attractive to buyers. This is where working with a coach or independent advisors can assist as they help identify blind spots and apply their experience of working with many businesses and owners who have been through a similar process.

Identifying potential buyers

This is a key part in the process. There are many different types of potential buyers.

  1. Strategic buyers: These are companies or individuals in the same industry looking to expand their market share, capabilities, or geographical reach.
  2. Financial buyers: These include private equity firms and individual investors looking for profitable businesses to generate returns.
  3. Internal buyers: This could be current employees or management team members interested in taking over the business.
  4. Competitors: Sometimes, competitors may be interested in acquiring your business to eliminate competition or gain new customers.

Identifying the right buyer is crucial for ensuring a smooth sale and favourable terms. A thorough understanding of your industry and market will help you pinpoint the most suitable potential buyers.

There are other considerations that are also important to think about when identifying potential buyers and important to consider their values and ethos and whether they are an investor or operator. It can also be useful to write down a list of “who you are not prepared to sell to” as this can frame and guide your considerations.

Hiring independent advisors can significantly enhance the business sale process. These professionals provide expertise and objectivity, ensuring that your interests are protected and the transaction is handled efficiently.

  1. Business brokers: They help find potential buyers, market your business, and negotiate terms.
  2. Accountants: They ensure your financial records are accurate and assist with financial planning for the business sale.
  3. Legal advisors: They handle legal aspects of selling a business, including contracts, compliance, and due diligence.
  4. Valuation experts: They provide an objective assessment of your business’s worth, ensuring you set a realistic and competitive asking price.
  5. Coaches and exit planners: These are professional who can assist in getting your business sale ready.

Common mistakes that business owners make

  1. Overvaluation: Setting an unrealistic asking price can deter potential buyers and prolong the sale process.
  2. Poor financial records: Inaccurate or disorganized financial records can raise red flags for buyers and complicate due diligence.
  3. Lack of preparation: Failing to prepare your business for sale can lead to last-minute issues and a lower sale price.
  4. Emotional attachment: Letting emotions influence decisions can result in unfavourable terms or missed opportunities.
  5. Neglecting the Business: Focusing solely on the sale process and neglecting day-to-day operations can harm your business’s performance and value.

How bizval can assist:

bizval offers a comprehensive suite of services to assist business owners in the business sale process. Their expertise includes:

Business valuation: Providing accurate and objective valuations to help you set the right asking price. From a quick complimentary indicative express valuation to the easy to use and affordable live valuation platform through to the concierge valuation which includes 2-3 hours of consulting included.

Exit readiness: bizval’s proprietary exit readiness bootcamp includes a concierge valuation and helps owners conduct a gap analysis and exit plan. We also work with partners such as coaches and fractional CFO provides to assist with implementation of such plans.

Case Study: Successful business sale

Background: Mary Smith, the owner of a successful small manufacturing business, had been contemplating retirement and exploring options for selling her business. Despite the business’s profitability and steady growth, Mary was uncertain about the complexities of the business sale process, including how to value her business accurately, prepare it for sale, and find potential buyers.

Challenge: Mary faced several challenges: ensuring her financial records were in order, optimizing operational efficiency, and addressing the legal aspects of selling a business. She also needed to find and negotiate with the right buyers without letting the sale process negatively impact the business’s daily operations.

Solution: Mary enlisted the help of bizval to assist with valuing her business and preparing it for sale. bizval conducted a business valuation and exit readiness assessment and assisted and connected her with an independent coach and advisors to prepare her for the sale process.

Process:

  1. Business valuation: bizval conducted a thorough valuation of Mary’s business, ensuring an accurate and competitive asking price.
  2. Exit bootcamp: The team conducted an exit assessment to help Mary understand the key areas that needed to be addressed.
  3. Helped identify the correct independent professional: bizval helped Mary understand which professional advisors she needed to help her get the business sale ready and take her through a sale process.

Result: It took 18 months to get sale ready and a further 12 months to successfully sell her business at a favourable price. The seamless transition allowed her to retire with peace of mind, knowing her business was in capable hands.

Conclusion: Mary’s partnership with bizval was instrumental in navigating the complexities of selling a business, from valuation to exit readiness.

Summary and conclusion

Selling a business is a multifaceted process that requires careful planning and execution. Ensuring your business is sale-ready, understanding key considerations, and identifying potential buyers are critical steps in achieving a successful sale. Independent advisors can provide valuable expertise and support, helping you avoid common mistakes and maximize your business’s value.

By partnering with experts like bizval, you can navigate the complexities of the business sale process with confidence and achieve the best possible outcome. Whether you’re planning to sell soon or in the future, taking proactive steps now will set you on the path to a successful business sale.

In conclusion, selling a business is a significant undertaking that requires strategic planning, thorough preparation, and expert guidance. By focusing on the key aspects outlined in this article, you can position your business for a successful sale and transition to the next chapter of your professional journey.

Written by Graham Stephen, CEO and Founder of bizval

Frequently asked questions

1. How long does it typically take to sell my business once it’s sale ready?

The timeline for selling a business can vary widely depending on the complexity and current state of the business. On average, it can take anywhere from six months to two years. This period includes time for financial and operational improvements, legal preparations, and finding buyers for your business. The overall market conditions and the specific industry can also impact the duration.

2. What are the key steps in the business sale process?

The key steps in the business sale process include:

  1. Business valuation: Determining the accurate value of your business.
  2. Preparing a business for sale: Ensuring financial records are in order, operations are streamlined, and legal compliance is met.
  3. Marketing a business for sale: Developing strategies to attract potential buyers.
  4. Finding buyers for your business: Identifying and reaching out to potential buyers, including strategic, financial, and internal buyers.
  5. Negotiating the sale of a business: Handling offers and negotiating terms with potential buyers.
  6. Due diligence process: Allowing the buyer to review and verify all aspects of your business.
  7. Closing the sale of a business: Finalizing the transaction and ensuring a smooth post-sale transition.

3. Why is it important to hire independent advisors during the business sale process?

Hiring independent advisors is crucial because they bring expertise and objectivity to the sale process. Business brokers can help find and negotiate with buyers, accountants ensure accurate financial records and assist with financial planning, legal advisors handle contracts and compliance issues, and valuation experts provide an objective assessment of your business’s worth. Their combined knowledge and experience can significantly enhance the likelihood of a successful sale and ensure your interests are protected throughout the process.

4. What are common mistakes business owners make when selling their business?

Common mistakes include:

  1. Overvaluation: Setting an unrealistic asking price can deter potential buyers.
  2. Poor financial records: Inaccurate or disorganized financial records can raise red flags for buyers.
  3. Lack of preparation: Failing to prepare the business for sale can lead to last-minute issues and a lower sale price.
  4. Emotional attachment: Letting emotions influence decisions can result in unfavourable terms or missed opportunities.
  5. Neglecting the business: Focusing solely on the sale process and neglecting day-to-day operations can harm the business’s performance and value.

5. How can bizval assist in the business sale process?

bizval offers a comprehensive suite of services to assist business owners in the business sale process. Their expertise includes:

Business valuation: Providing accurate and objective valuations to help you set the right asking price. From a quick a complimentary indicative express valuation to the easy to use and affordable live valuation platform through to the concierge valuation which includes 2-3 hours of consulting included.

Exit readiness: bizval’s proprietary exit readiness bootcamp includes a concierge valuation and helps owners conduct a gap analysis and exit plan.  We also work with partners such as coaches and fractional CFO provides to assist with implementation of such plans.