In all honesty, there’s nothing simple about selling a business, whether it’s a family company, an SME, startup, or big enterprise. The road to a successful sale is often rocky, with plenty of detours and wrong turns along the way. There might be a missing bridge or two. But every journey begins with a first step — and with that in mind, here are five steps on how to sell a business:
1. Figure out who you’re going to sell your business to.
If you’ve ever watched your friends immediately tune out when you try to explain what you do for a living, you may have accepted the fact that your business is not for everyone. And that’s okay. Across the entire business world, there may only be a handful of potential buyers for your particular business. It’s just a matter of finding them.
Think about the landscape where your business operates and understand where someone else in your industry could benefit from combining their operations and yours. Then, learn who has a track record of buying companies like yours. This list is your starting point.
2. Figure out what your business earns in the eyes of a buyer
For small to midsized businesses, sometimes one year’s financial results aren’t necessarily like all the others. Maybe you were trying to minimize taxes rather than maximize profit. Maybe your business just happened to purchase a fancy new car this year that you’re currently the sole driver of. Or maybe you’re making financial decisions for your business that aren’t profit driven, but reflect other values, such as employee relations or social impact.
Buyers understand that life is usually not steady from one year to the next. All they’re trying to find is the steadiest possible view of your business’s financials, minus all the noise and weird stuff. Buyers will look at your run rate earnings, assuming that you’re maximizing profits and are using generally accepted accounting principles (GAAP).
3. Qualify potential buyers’ interest
Think of this step as the business-world equivalent of a “Do you like me? Check yes or no” note passed to a grade-school crush. You’re never going to know unless you ask, but because you don’t want the world to know your business is for sale, you have to be discreet about it.
There are two relatively easy ways to ask:
- Reaching out directly, one business owner to another. Say something general and noncommittal, like “I’d like to talk to you about how we might do business together.”
- Get somebody to call on your behalf and vet who’s interested enough to engage in a confidential discussion. (Just to be clear, we at Oaklyn Consulting are that somebody.)
However this step is handled, it’s usually a quick conversation. Most people aren’t interested, at least not right away. But a small percentage might be willing to talk further.
4. Negotiate a deal with the best buyer
After you have a short list of serious prospective buyers, you’ll begin a parallel negotiation process with all of them, which can be a recipe for confusion if you don’t have your head on straight. That’s because as you answer the individual buyers’ questions, you may be sharing important information with some but not others, which can affect how high their offer is.
If you don’t give people enough information to formulate a meaningful offer, or keep track of what information you’ve shared with whom, you’re going to end up with bids that are more in the realm of fantasy than reality. And any fantasy on the buyer’s part will ultimately fall apart when it’s time to sign the legal documents.
5. Implement the deal through legal contracts
Once you’ve settled on your deal terms, you’ll need a lawyer to help put them into effect legally. The lawyer’s job isn’t to tell the client what the business terms should be or whether they’re fair or not. Their job is to write up a contract that will transfer the ownership of your business in a legally valid way, with money moving from one bank account to another and a binding set of processes for any disputes that arise.
To put it another way, lawyers are responsible for building a sturdy box, and businesspeople are responsible for what goes in that box. So take that responsibility seriously.
How to sell a business (and not a dream)
If both buyer and seller been responsible throughout the process, your deal probably will make it across the finish line. But if one of you has been less than candid, or sloppy in some way, your deal has a good chance of falling apart.
As you begin the process of selling a business, consider these five steps as a basic roadmap. But every journey needs a good navigator—and that’s our basic role at Oaklyn Consulting. If you’re wondering how to sell a business, we can be your guide through the process. It may not be exactly simple, but we can at least make it simpler.