When you know what to expect from the sales process, you can save time and sanity -- plus get a better paycheck.
June 3, 2020 7 min read
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Business is like a game of chess: no matter how many hours you spend strategizing and winning, the game has to come to an end. But few business owners realize that there’s life beyond checkmate. They burn out on their business without realizing it and often wake up wanting to exit—only to realize exiting is a beast.
The truth is, selling your business isn’t a walk in the park. This is a process that takes months of work. Allbusiness.com reports that 28% of businesses sell in 6 months, while 31% of businesses sell within 9 months. That’s a lot of time and effort spent on a business sale, which is draining if you’re new to the process.
The good news is that when you know what to expect from the sales process, you can not only save more time and sanity, but also get a better paycheck from selling your business. Follow these three tips to know what to expect from selling your business.
Be easy to work with (i.e. be nice!)
Buyers aren’t just evaluating your business. Like a chess opponent looking for their next strategic move, buyers are looking at everything—including you. That’s why you need to play nice when you’re selling your business. I’m not saying you have to be a pushover, but you need to be amicable and easy to work with.
After all, a buyer isn’t going to be through with you after they get the keys to the kingdom. You’re going to need to train them and answer questions for a few months after the sale. They need to know that you aren’t a jerk!
Follow these quick tips to let your light shine during a business sale:
These three qualities alone won’t make your business sale bulletproof, but they will help you secure a better buyer with less hassle.
Sell the sizzle, not the steak
Honesty is critical to selling your business without a hitch, but it also comes with a ton of problems. After all, a chess master isn’t going to announce their next move; that would be stupid and it could cost the match. How can you be honest and protect your business at the same time?
I’m not saying that you have to give away the secret sauce on the first buyer phone call. But buyers are going to ask you pointed questions during these phone calls and you need to be prepared. Use these tips to decide ahead of time what’s kosher to share and what you’ll keep under wraps.
If you get on a phone call and say, “I’m not going to share my financials with you,” that’s a red flag to buyers. You might have a good reason for not disclosing that information, but the way you informed the buyer was jarring. They’re not going to trust you.
Instead, set expectations about what you’ll share, when, and why. For example, give the buyer a list of what information you can’t share right now, like a customer list. Note at what stage you’ll be able to provide that customer list, like once LOI and due diligence are complete.
This helps buyers feel more comfortable with the sale. Plus, you don’t have to divulge your secret sauce right out of the gates, protecting your brand while you look for the right buyer.
Let’s say you’re selling a SaaS business. You’ve got a great buyer, but they insist on looking at your source code. You don’t want to give that to a stranger, but you still want to push the sale through. What do you do?
Sellers have to get creative. Instead of giving away your secret sauce, ask the buyer why they want to look at your source code. Maybe they want to make sure the code is up to snuff, not to steal your IP. Find a way to give them a peek without exposing sensitive information. For example, maybe you can give the buyer a small sample of the code to show its architecture and quality, just not the entire code by itself.
If that doesn’t work, consider bringing in a third-party auditor. Pick a firm that doesn’t have skin in the game to audit your code for quality. They’ll then report the results of that audit to your buyer without revealing the proprietary nature of the information. Phew!
Focus on the right things
High multiples and price tags aren’t everything. Actually many sellers focus so much on things like multiples and sale price that they forget something important: your business’s value comes from negotiating with the buyer. You negotiate at least a half-dozen items with your buyer before the sale goes through, and you can bet that it has a huge effect on how much cash lands in your pocket.
Don’t let pie-in-the-sky daydreams of 4X multiples or $10 million pricetags skew your focus. When you’re so focused on multiples and price tags, you aren’t looking at other strategies that can save you money, like tax planning or equity deals.
Remember, the market sets the price for your business. A high multiple is fun and everything, but the market sets the multiple, not you or your broker. If you push the multiple or price tag too high, you risk being rejected by the market, and that’s not good.
Instead, focus on the right things. Look at a deal structure that minimizes taxes, look at equity deals, and even consider consulting arrangements. Sure, they’re a little off the beaten path, but they’re the key to securing a checkmate before selling your business.
Strategy means speed
If you’re gearing up to sell your business, you’re probably feeling tired and burnt out. I get it. Building a business is hard work, and selling that business can often feel difficult, too. By being a good seller, guarding your IP, and focusing on the right things, you can speed up your business sale without the road bumps. Not only will you save more time, but you’ll put more money in your pocket for future entrepreneurial adventures.