The day comes when a business owner decides they wish to exit the venture and do something new. However, to do so, they must sell the business at a price they are comfortable with, and many owners find this to be a challenge. They need to determine what makes the business attractive and what brings the price down before moving forward with the process. How can they maximize the value of the business when putting it on the market?
Establish Goals
Before going to sell your business, know what a great offer includes. Determine how much you would like to sell the business for and what feelings you will have when the process is complete. Next, imagine the business has sold. Research shows a person is significantly more likely to achieve their goals when they write them down. Adding feelings to the goals increases the likelihood of the goals coming to fruition. Tying feelings to the goals helps to carry you through the process even when things don’t appear to be going in the right direction.
Change Your Mindset
Individuals should never build a business simply to sell it. The exitpreneur mindset occurs when a person creates a business that someone may wish to purchase. They move from being an entrepreneur to an exitpreneur. What does this mean?
An entrepreneur focuses their time and energy on building a business to sell it for the best possible price. In contrast, an exitpreneur works to build an excellent business that someone will be excited to buy and run. The exitpreneur thinks of the perfect buyer at every stage of the business and identifies any weaknesses that need to be addressed while enhancing the strengths. This mindset allows for maximum exit value, which is what the seller desires.
Determine Discretionary Earnings
Seller’s discretionary earnings play a role in the sale. SDE refers to the financial benefit that the owner expects to receive from the business annually if they operate the business as a sole full-time proprietor. Besides the business profit, SDE considers the perks of being the owner, along with any expenses that won’t transfer to the new owner. Ensure all numbers are accurate by doing the accounting on an accrual basis. Consider addbacks, such as travel expenses that will no longer exist once they sell the business. Expert advice becomes of great help during this part of the process, as an independent party finds things the owner may overlook.
Competition
Market norms determine the value of a business. When the transaction involves only one buyer, the price typically reflects the growing rate. Generate competition to change the dynamics of the sale. The laws of supply and demand come into play, and the price goes up accordingly. Don’t court buyers individually. When multiple people show interest, a buyer puts their best offer forward so they don’t miss out. Benefit from this and get more for your hard work.
Know the Terms
Before selling a business, a person must know the terms of the sale. The heads of terms, or letter of intent, provides this information and should be carefully reviewed before either party signs. Nuances in the agreement could make or break the sale. For instance, a person must know what an earnout is and how it affects the transaction. This serves as only one question the document may answer.
Seek outside help if you are unsure of how to maximize the value of your business before selling. This guidance proves to be invaluable when the asking price is met. The owner walks away happily while the buyer sets up shop and starts on the next chapter of their life. Everyone wins in this situation.
