Selling your business - are you ahead of the play or lagging behind?

I like my sporting analogies.

Aside from being competitive and mad-keen on sports, I find that the sporting analogies help put what can be complex situations into simple-to-understand terms.

So a question I have for every business owner is:

Are you ahead of the play, on the ball or lagging when it comes to being prepared to sell your business?

Every business owner will sell their business to a buyer at some point. How much are you in control of this process? Do you know what you need to do to prepare for a sale, have clear value expectations, and understand what challenges you will face?

First, some definitions for you:

If you know what your value expectations and timelines are, have done all of your homework and preparations, and are proactively managing the process (and/or have someone assisting you with this), then you are ahead of the play. Your value expectations might be ambitious, but you have a clear strategy and have given yourself enough time to have a chance to deliver on those. Everyone in your team knows what the plan is. You are choosing what game to play and are dictating the rules, so you are more likely to win (getting a strategic price for your business).

If you are on the ball – you know what you want and can proactively respond if the right opportunity comes along. i.e. someone asks whether you want to sell your business for the right price. You are playing the game – you might not win as much as someone who is ahead of the game but could have the opportunity to do well (getting a good, fair price for your business).

If you haven’t invested the time to get an understanding of what you are after (including your co-owners, if any); are unclear of business value, and what you need to do to get the right price, then you are lagging behind. Often you are not quite sure what game is being played and might be frustrated by the rules that someone else (e.g. the potential purchaser) appears to be setting. Your colleagues in the market might be doing deals, but for some reason, you could be missing out. This could result in the purchase price being much lower than your expectations and/or you might not sell your business at all. It’s just all too hard. A common refrain of these owners is ‘well, I may as well just wind up my business.

Each business owner has control over what approach they choose to take and the investment they subsequently make.

In my experience, the above comes down to two major challenges for any business owner when selling their business.

The first is understanding the market and to whom they can sell their business. It’s often hard to see into the mind of a potential purchaser, to know what they want and what they are after. So, it can be difficult for owners to understand what has attracted a potential buyer to their business. Likewise, it can be complicated to understand why a potential buyer won’t buy a business.

The second challenge businesses face is not fully knowing or understanding the preparations that must be done before a sale. Businesses may not know how to make themselves appealing, or even worse, their attempts to make themselves attractive to potential buyers might reduce the number of people who want to buy the business.

And, somewhat critically, these two challenges are inherently tied to business value and the terms of sale.

Despite how daunting these challenges may seem, they can be overcome.

Here are two examples of how you can do that.

You can better understand the market and the people who want to buy your business by seeing things from a potential purchaser’s perspective. The way you can do this is to look at how other businesses and investors view your business rather than focus on the items in your business that you view as positive. This could be done in an informal way or, as I have done with clients previously, run a staged, formal process where you actively engage with a selection of potential buyers to get an indication of what the market is like. Whether you subsequently proceed to a full sale is up to you, and the process is done in a sensitive way so no unnecessary risks are taken.

When you understand how your business is perceived, you will have a much better idea of who would be interested in buying your business, why they would be interested and who you could sell to. And, of course, you will better understand the value and what you can do about it.

The second way you can overcome these challenges and make your business attractive to buyers is by creating a solid managerial team. Rather than try to shoulder everything on your own, you should create and build a management team. This management team will help you plan, and they will help you develop your business into something that is appealing to a variety of potential buyers. With their help, your business will be in a position that makes it attractive to potential buyers, and it will be easy to transfer ownership once the sale is complete.

Although selling your business initially seems overwhelming, it does not have to be complicated. All you need to do is get in control of the process, think outside of the box, invest some time and, most importantly, get ahead of the play.