When you’re trying to sell your business, the last thing you want is to waste time dealing with buyers who aren’t qualified and are unlikely to actually make a purchase. After all, you will not want to reveal details about your business to someone who may be looking to take advantage of the situation. Let’s take a closer look at how you can weed out legitimate buyers from those who are just kicking the can down the road.

Legitimate buyers will ask the right questions. They will have a keen interest in your industry and are seeking to gain more information. They will also be likely to ask intelligent probing questions about your customer base and the strengths and weaknesses of your business.

The best buyers will also ask logistical questions about your inventory and cash flow. It goes without saying they will want to know details about profits that are generated. Real buyers will also be concerned about wages and salaries. Their goal will be to ensure that your employees are taken care of and will be unlikely to quit. 

Another area that you can expect serious buyers to ask about is capital expenditures. They will evaluate any equipment and machines involved in the business. They will also likely inquire about inventory that is unusable due to the fact that it is outdated or problematic. After all, if they are truly planning to buy the business, they would inherit any headaches. 

A good rule of thumb is to imagine yourself in the shoes of the prospective buyer. What kinds of questions would you ask? If you find that a buyer is only asking the bare minimum of questions that only scratch the surface, odds are that they are not really interested. You can expect the legitimate buyer to ask about everything from environmental concerns to details about your competitors. 

The best way to evaluate buyers is to turn to the experts. Your Business Broker or M&A Advisor will have years of experience in talking to buyers and will have a leg up on evaluating who is worth your time and energy. 

Further, you would likely be overwhelmed with the process of handling buyer inquiries while you are still trying to effectively run and manage your business. A good brokerage professional will handle your incoming inquiries and only notify you of buyers who are suitable, qualified candidates. They will ensure that the highest standards of confidentiality are held along the way. 

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Many business owners are emotionally attached to their businesses, and it is easy to understand why. Typically, business owners invest not only a considerable amount of time and money into their business, but a good bit of themselves as well. Owning and operating a business often becomes part of one’s identity. However, the fact is that no one will work forever, as retirement eventually comes for almost every business owner. With this in mind, it is important to prepare for selling your business well in advance.

Brokerage professionals can take your knowledge regarding your business, and use it to help you frame your business in the best possible light. Your expertise in your business can also help a broker find ways to improve your business so that it is more attractive to potential buyers. With all of this in mind, let’s turn our attention to the key steps you should take when preparing to sell your business and transition into retirement.

Select Your Second-in-Command 

Any savvy buyer will want to know that the business is well supported by a capable team. Buyers rightfully worry about having a smooth transition period, and nothing helps dispel those fears like having a proven and capable second-in-command standing by. When selecting this important individual, it is important that you pick someone that understands how your business works and is a proven asset to its operation.

Automate, Automate and Automate

Buyers can be intimidated by taking control of a business. Having a proven second-in-command ready to assist is one smart step. Automating as much as possible is yet another prudent move. In short, you want your prospective new buyer to feel more confident about buying and operating your business.

Make a “Smooth Transition” List

As the seller, you have the critically important job of removing buyers’ fears. When you boost their confidence that they can successfully run your business, you increase the odds that your sale will go smoothly. Making a smooth transition list, which includes all the steps that you can take to improve the odds of a buyer being successful, is a smart investment of your time and effort. 

A good transition list will include information about how to work with key customers, employees and vendors. You want to ensure that your customers, employees, and vendors understand that a sale will take place, but also understand that the process will be smooth and trouble-free. Whether large or small, take any steps that you can to show buyers that the transition will be well-received.

The average business owner has, in fact, never sold a business before, and is unprepared for this very complex process. Since the process of buying or selling a business is a very complicated one, they should strongly consider working with an experienced Business Broker or M&A Advisor who can help guide them through the process. Brokerage professionals are experts at buying and selling businesses. They understand what both buyers and sellers want and need. As a result, they can help you take the necessary steps to get your business ready to be sold.

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There is a considerable difference between determining the value of a privately-held company and a publicly-held company. Topping the list of considerable differences is the fact that privately-held companies do not have audited financial statements. Let’s look at how the owners of privately held companies should proceed in establishing a reasonable price for their company.

An audited financial statement is a costly endeavor. In order to avoid the cost, many companies simply don’t go public. Of course, it should be noted that publicly held companies, as the name indicates, reveal much more about their finances than their privately held counterparts do. Privately held companies are often seen as being more mysterious whereas publicly held companies are considered more “open.”

Business owners looking to sell their business will, of course, want to address the fact that their company lacks the public information associated with publicly held companies. Providing prospective buyers with as much verified information about your business as possible is one of the fastest and easiest ways to overcome buyers’ concerns. A smart move for any business owner is to work closely with their accountant to go over the numbers and create an easy-to-understand presentation for prospective buyers. This should serve to allay many of their concerns. 

Working with your accountant is only the first step in providing prospective buyers with the information they need to feel comfortable. The second step is to work with an outside appraiser or other expert who can determine the value of your business. After that, you’ll want to decide on what your market price will be, as well as your “wish price,” or the price that you would ideally want. Third, you must know your “rock bottom” lowest price. You, as the owner, need to have this information as it will greatly facilitate and streamline all negotiations. 

When buyers are reviewing materials and working to determine what price they are willing to pay, they will look at a wide range of factors including: 

• Product diversity 
• The size of your customer base 
• Potential competitors in the area 
• Competitors on the horizon 
• Potential disruptions to your business, such as supplier problems
• The stability of your earnings 
• The stability of the market 
• Need for capital 

Different buyers may place differing levels of emphasis on certain areas, but you can be certain that the aforementioned areas will be examined with care. The process is undoubtedly rather complex. This complexity underscores the need for professional assistance.

Ultimately, the market will determine the sale price of your business. For business owners, the first and most important step is to work closely with professionals such as accountants, appraisers, Business Brokers and M&A Advisors to establish the price of your privately held business. You can count on brokerage professionals to properly organize the facts and numbers that support that price.

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What kinds of insights about selling a business might come from experts at private equity firms?  This article includes advice for sellers from industry veteran Lamar Stanley.  Stanley is a Director at Gen Cap America, which is a lower middle market private equity firm in Nashville, Tennessee.  Since 1988, Gen Cap America (GCA) has made 60+ investments across seven committed private equity funds. 

Before joining GCA, Stanley was with the Nashville based private-equity strategy group, Diversified Trust Company.  Stanley holds a B.A. degree from The University of the South and an M.B.A. from The University of Chicago. 

Understanding Small Business

Over the decades, Stanley has amassed a considerable amount of knowledge and expertise.  He points out that it is easy for people to lose sight of the fact that many so-called “overnight successes” are actually the result of ten or twenty years of hard, thankless work.  It is through these years of laser-like focus that entrepreneurs are able to bootstrap their business.  Additionally, these business owners need to not only have a vision, but also the insight to bring on great people to help build their business.

The Benefit of a Deal Attorney

Stanley feels that working with a deal attorney can make a tremendous amount of difference, as it can increase the chances of a successful transaction taking place.  Deal attorneys understand the deal process, which can make all the difference when it comes to streamlining the process. 

“Deal fatigue” can derail what would otherwise be a good deal.  This term applies to how deals can sometimes drag on for months.  Working with an experienced deal attorney can help expedite the entire deal process.  In turn, it can help to avoid the dangers typically associated with deal fatigue.

Preparing in Advance for a Sale

Stanley believes that it is critical for a business owner to think about selling as soon as possible.  Ideally, a business owner should be thinking about selling when they start their business.  He realizes that most business owners can’t hope to prepare for selling as soon as they create the business.  But the point is clear, the sooner they begin the process the better.  Business brokers and M&A advisors can best serve business owners by helping them understand that they shouldn’t wait until a month or week before they are ready to sell their business to get their respective houses in order. 

There are so many important factors involved in getting a business ready to sell.  They range from customer concentration and diversifying suppliers to preparing financial statements and working capital estimates well in advance. 

In particular, Stanley points to the danger of business owners having to deal with preparing their business for sale while continuing to operate the business during the sales period.  What must be avoided is for business owners to essentially have two jobs at the same time, as this increases the odds of deals falling apart from deal fatigue.  The sooner a business broker is involved in the process, the better.

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There are many reasons why small companies are put up for sale.  Some of the more common reasons can actually have little to do with the company’s general performance.  For example, many small business owners discover that they need to sell for health reasons or personal concerns, such as divorce or partnership issues.  While a business downturn or fear of a larger competitor looming on the horizon might prompt many business owners to sell, economic drivers are not the only issue.  Owners may want and need to sell, but often it isn’t always that simple.

Many business owners are looking to retire, but are unpleasantly surprised to learn that they simply can’t afford to do so.  Still yet, many business owners don’t truly want to retire or sell, but instead they just want more freedom in their lives.  The day-to-day responsibilities of owning and operating a small business can take their toll.  Many business owners are looking to make a change and would love to be free of this burden.  This class of owner has already “checked out” mentally, and this can have profound negative consequences for their businesses.

When an owner wants out but discovers that he or she simply can’t afford to sell or retire, it will come as no surprise that there is usually an accompanying drop off in enthusiasm.  Ultimately, the vast majority of owners will start to lose focus.  Often, we find that they stop investing the capital necessary to continue the growth of the business, which can trigger other events, such as the loss of key staff members and/or customers.  Losing a top customer to a major competitor can further accelerate the downward spiral.  The failure of the business to maintain its footing and competitive advantage can lead to a more aggressive posture by existing competitors or even encourage a new competitor to move into the market.

In time, the owner may come face-to-face with the harsh realization that they have no choice but to sell if they are to salvage any of the business’s value.  The best way for a business owner to safeguard against this situation is to sell when his or her business is doing well, as this helps to ensure an optimal price. 

Working with a business broker, even years before one is interested in selling, is one of the single smartest moves any business owner can make.  The time to think about selling your business is now, as no small business owner knows what life or the market will bring.

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The simple fact is that most of us want to control our own fate.  This fact is especially true for entrepreneurs and business owners.  However, the truth of the matter is that for most business owners, their fate isn’t completely in their own hands.  For example, a variety of forces can prevent businesses from establishing their own prices. 

Knowing whether or not your company has pricing power is essential and can influence a range of decisions that you may make.  Let’s take a closer look at what steps you can take to control your own pricing.

What is Pricing Power?

This economic term describes the effect of a change in a product price on the demanded quantity of said product.  Your company’s pricing power is linked to the demand for your products or services.  If you have a high level of pricing power, you can raise your prices over time and maintain your customers. 

Who Has the Greatest Pricing Power? 

It is no great secret that the Amazons, Apples, Wal-Marts and auto manufacturers of the world exercise a tremendous amount of power.  Part of this considerable, and seemingly ever growing, power resides in the fact that the size of these companies now rivals and even surpasses many nation states.  This grand level of power is unique in human history in many ways.  Along with it comes the ability to exercise an almost god-like authority over suppliers. 

Today, these ultra-powerful companies commonly dictate to vendors what prices they are willing to pay, and the quasi-monopolistic nature of these companies often leaves vendors with no choice to comply.  In short, these 900-pound gorillas are telling companies both large and small exactly how much they will pay for a given number of bananas. 

Step 1 – Providing a Branded Product or Service

If you discover that your company doesn’t have pricing power, there are steps you can take.  One step is to produce a branded product or service.  In this way, you are able to offer something of greater value than your competitors.  Through having a branded product or service, it is possible to create a higher perceived value in the minds of not just the Amazons of the world, but in the minds of consumers as well.

Step 2 – Innovating 

Another path towards achieving pricing power is through innovation.  A great example of leading the way in innovation is Apple.  While few companies have Apple’s almost ethereal resources, that is not to say that you cannot find ways to innovate within your own sphere or industry.  Small innovations can often have an outsized impact and help a business stand out from a crowded playing field.  Innovation that leads to patent production is an excellent way to gain a degree of pricing power.

Step 3 – Offering Exceptional Service

A third option for achieving a degree of pricing power is to provide what could be called “mind-blowing” service.  By providing service that is truly a cut above what the competitors can match, your company is positioned to achieve pricing power.  Providing your customers with something they simply can’t get elsewhere is a key way to setting a price that is more in line with what you desire.

There are many marketplace variables that your business can’t control.  The trick is to evaluate your business, your business’s potential and the concrete and practical steps you can take starting today to achieve pricing power. 

Copyright: Business Brokerage Press, Inc.

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John Warrilow is the founder of The Value Builder System and accomplished author.  While not a business broker himself, Warrilow has gathered considerable knowledge and expertise on the industry.  His previous book Built to Sell was listed as one of the best business books of 2011.  In this article, we will explore some of the key points in Warrilow’s latest book, which is entitled The Art of Selling Your Business: Winning Strategies and Secret Hacks for Exiting on Top.  This book was released on January 12th, 2021 and is proving to be invaluable for business owners. 

Selling When the Time is Right

One key focal point of the book is that business owners should skip trying to find the perfect “magical time” to sell their business.  Additionally, Warrilow notes, “I make the strong recommendation in the book that the best time to sell your company is not during some mysterious macroeconomic environment.  It is when someone is willing to buy it and you get an offer.  And that is because at that point, you’re in the position of strength.”

The DIY Approach 

This book reinforces the fact that business owners truly need to work with an intermediary if they are to achieve optimal results.  Warrilow even includes his six reasons for why every business owner should hire a business broker or M&A advisor.

Many business owners think that they can simply handle selling their business on their own.  But the simple fact is that business owners usually have no experience in selling a business.  Add this to the fact that selling their business is likely to be the most important financial decision the business owner ever makes, and it quickly becomes clear that business owners are doing themselves a considerable disservice when they opt to handle everything on their own.  

A Business Broker vs. a Lawyer

As Warrilow points out, oftentimes business owners think that rather than working with a business broker or M&A advisor, they can turn to a trusted lawyer who has served them in the past.  But this thinking is flawed when it comes to successfully selling a business.  As Warrilow states, “a lawyer, almost by default, is going to be very conservative as everything exposes a lawyer to risk.  And that is why using a traditional attorney is almost always a mistake.” 

If you are planning to sell your business now or in the future, a book like Warrilow’s The Art of Selling Your Business: Winning Strategies and Secret Hacks for Exiting on Top can serve as a uniquely valuable tool in your toolbox.

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