Lessons I Made From Selling My Business
It’s easy to make mistakes as a first time business seller. I certainly have, I may have sold my software company for a huge six-figure sum in 2016, but back in 2008 I stupidly sold my very first web design company for a measlie £4000. Despite the business having previously made more than that within a month, I clung onto the buyer’s final offer in a desperate attempt to salvage a lost sale. So what led me to severely undersell my company? Fear. My company had a very tough month, and there was talk of web design companies going out of business because of self-service web design such as Wix and Weebly. With a lack of sales that month, I decided it was best to get out whilst I could and sell the business to anyone who saw value in it.
Finding a potential buyer proved to be a difficult task, I had no idea where to advertise for a sale, so I just placed it on the first marketplace that came up on a Google search. It took a few weeks to get someone interested, I finally did and we started negotiating. The first offer was £10,000 and I stupidly jumped at the offer. I believe the buyer sensed my desperacy because he later hit back with a much lower offer and a lack of interest in the company. He caught onto my fear and used that to bring me down in price and it worked. He mentioned how web design was a slowly dying business due to self-service HTML5 web design. That he could take it or leave it. So I jumped at his amended offer, and I sold my business including all clientele to him for the small four-figure sum.
It took a few months to realise my mistake when I had heard through the grapevine that the new business owner was doing extremely well. That even with the clientele I had built, he had made triple his money back in just two months. I felt like an absolute fool, how could I let my company go for such a low price when it still had potential to make that in a month? But that’s the harsh reality of business. If you have no idea what you are doing, you could be crushed at a devastating loss. Business is not to be taken lightly, and lessons must be learned if you want to succeed in selling it at a profit.
That’s what I did. I learnt from the experience and it prevented me from making the most common mistakes that first time sellers make. Last year, I sold my software company that had been slowly struggling for growth. Despite the company losing value, I managed to sell the company for a generous six-figure sum. The lessons below helped me break away from being a clueless first-time seller and set me on a path to master the business sale process.
Are You Selling Out Of Fear?
Why are you selling? This is the question you must ask yourself. You need to fully understand why you want to sell your business. The biggest mistake I ever made was selling my business based on fear. When new competitors come onto the market and rival companies go bust due to it, you may start to wonder if its time to get out. It’s not always the case, even if your profit has decreased. It may be temporary and it could be better to ride it out to see if it picks back up. You don’t want to sell your business based on fear. Even if your business has been slowly fighting for survival, any emotional attachment to your business will end up in you severely undervaluing your company and its assets.
Another reason may be that you have received an offer from a potential buyer. This could be because the buyer has seen how well your business is doing on the market and sees greater potential for its future. Whether the offer is attractive, you need to ask yourself if its the right time to get out of the business and if there is possibility for more growth.
Or it could just be that you just want to retire from the business and you have personal reasons for selling. In this case, you have already weighed in on whether its the right time to sell.
External Valuation Is Important
Some business owners are emotionally attached to the value of their business, and it may be a cause for concern because in reality your business may not match the same figure you have in your head. This is why external valuation is extremely important. What you have earned in the past may be a great indicator to what the future may hold for a buyer, but it certainly isn’t as simple as: Value = Earnings after tax x price earnings ratio.
Free valuation calculators like http://exitadviser.com/calculate-business-value.aspx can give you a great rough number but it doesn’t paint the full picture. It may be that your value lies within your customers or suppliers. My first web design company was more valuable than the final sale price due to the clientele that I had collected over the years.
The best way to get an external valuation is to research rival business owners that have experience in your industry. Has any rival companies sold in the last five years? If so, how much did the business sell for? This could help bring you closer to the true value of your business. It might also be that your business has no competition and that can be one of your biggest selling points.
Know Your Marketplace
Knowing how much your business is worth means nothing if you have no avenue to sell to it in the first place. A great way to know where to sell your business is to research where other businesses in your industry have been sold. Most of the time, companies get cold approached by buyers, so it could prove a difficult task in knowing where the best place to advertise your business for sale.
There are many online marketplaces to advertise your business. You can even advertise via Facebook and pinpoint buyers through it. But the two I recommend are:
Bizdaq — If you are a small or medium business owner, one of the best places to advertise your business to potential buyers is mybizdaq.com which is completely safe and free to use. In 2016, I sold my software company on Bizdaq for a generous five figure sum and the sale process with the buyer was an absolute breeze.
BizQuest — One of the heavyweights in business marketplaces and owned by the Wall Street Journal. I have personally sold a tech company on here and all I had to pay was a membership fee of $49.95 for the first month. If you are selling one business, a month membership is probably all you will most likely need to garner a lot of interest from the abundance of buyers on there.
Be Selective With Your Buyer
Just because your business has interest from an buyer, it doesn’t mean that you should jump at the offer. Take a step back, and assess the situation. Are they offering you a price close to your valuation? If not, they may be low-balling you in an attempt to maximise profit. If they aren’t willing to negotiate on price, they may not see much value in your business and that could prove bad for the long term sale process. Negotiations tend to break down if they could just ‘take it or leave it’, and this usually ends up in having to deal with a fickle buyer.
Sometimes it is best to be patient, wait for a better offer because one could always just be around the corner. Even if you have been offered a decent price for your business, it may pay just to wait it out for a few days and see if another buyer offers you an even greater price.
The Future Of Your Business
Although it may have been the history of your business that has led to its growth, it is the future that will determine if your business is worth investing in. A buyer will always be interested in your past success, but they will always forecast to see how well your business could do five years from now. They are always looking towards future growth, to ensure that they can guarantee a return on their investment and what kind of profit is expected to be made.
When advertising your business, highlight your long term survival plan. What future does it have? A simple five year forecast in profit could help attract potential buyers to invest in your business. Another way is to advertise what current market research is saying about your industry and its future. If the research points to rapid growth for long term profit, buyers will be willing to invest more money and offer you a better price.
Seek Advisers and Legal Advice
You cannot walk blindly into a deal and expect it to go smoothly. When it comes to the sale process and signing legal documents, buyers are aware of all of the tactics to ensure that they have the best outcome. Even if the buyer has offered you a price that you cannot refuse, the small print could be potentially damaging to you. This is why it is always best to run all contracts and negotiations through an lawyer. They will ensure that you know every step of the sale process and prevent you from making any mistakes that could end up costing you thousands. Use this tool to find yourself a a decent lawyer
A lawyer may also not be enough. You might need specific advice that only someone experienced in business sales could provide. Especially if it is your first time selling a business, they could guide you through the entire process and ensure that you are getting the absolute best deal. You can find nearby advisers here