Keep Within
Many small businesses depend on families to keep a business going. Owners often plan to pass the torch to their own children upon their retirement. This makes it all the more challenging when first, second or third-generation owners find out the next generation is unable or unwilling to take the reins. This leaves many business owners left searching for a suitable buyer. Some business owners consider employee ownership, but if that proves unlikely, it is time for them to step out into the open market.
Looking Outside
When some businesses start looking for a buyer on the open market, one of the first things they may do is set up a “for sale” sign in front of the building. They may also advertise their sale on business-for-sale websites. Faced with the challenges and inexperience of selling in the open market, they may hire a business broker. The broker can help them navigate the business and commercial property. However, potential buyers may be financially unqualified, they may have no knowledge of the industry, or they may lack business savvy. Finding the right person can be tough and often takes some outside-the-box thinking.
During the search for a buyer, it’s helpful to attract a large quantity of applicants, but even the largest candidate pool does little good if quality is lacking. If an owner wishes to sell, there are steps they can take to make sure their business is profitable and desirable and to communicate those qualities to potential buyers.
What makes a business desirable? The answer to that is a business that is set up to last. This includes having systems in place, strong financial records and proven profitability over a consistent period of time, a dependable staff, and the right leadership team.
The seller can demonstrate their commitment to the longevity of the business by their contractual agreement with the new owners and their involvement during the transition period. The people running the business and supporting the business contribute significantly to the value of the business. The employees, the management, and the customers all have to feel comfortable with the change of hands and the process can take time. Some business owners, after selling their business, stay on for 6 months, a year, or even longer. Some are paid off gradually by the new owners. Some stay on as consultants for a period of time to help with the day-to-day operations. When the prior owner departs, a smooth and organic transition is then accomplished.
Suitable Buyers
Choosing a buyer is not a decision to take lightly. New owners need to be both passionate and competent. Running a business calls for a person or the right team invested in seeing the business grow.
Sellers hope that their business will flourish the way it is because it has evolved over time and they further hope that it will get better and better under a new owner. There’s a lot of possibility in a good business, it just has to be the right party taking it over. For their part, sellers look to pass on not only their existing employees, but their business model as well, to the next owners. At the same time, they may trim down on unnecessary inventory to make the business leaner and more affordable for the prospective buyers.
Planning In Advance
When it comes to selling a business, the right time to start planning is years before. It’s crucial for business owners to keep careful and consistent financial records so they can accurately prove their long-term profitability to prospective buyers. Think ahead to when you want to sell and give yourself some time, because it’s going to take time.
It is also highly recommended to work with a business broker who can help seek out buyers, screen offers, and prepare a company for transfer of ownership. They can also provide protection from the common pitfalls when selling a business. Just like choosing the right buyer, you want to choose the right broker. The right broker may be the one who you know and who has experience in your industry. Brokers come in and do an evaluation of the business — just like an appraisal of a home. As there are real estate agents to sell your home, there are business brokers to sell your business. There’s no one right way to sell a business because every business has a different personality and energy to it. A business broker can help create an individualized plan that will showcase your business.
