After you’ve spent years nurturing your startup like your own baby, you’ve decided it’s time to slow down the pace and are wondering whether there is a market for a sale. But, where do you even start?
When a business owner thinks of selling a company, the first thought that comes into their mind is the valuation.
“What will I get if I do sell it?”
Thoughts like these often lead you to unrealistic numbers because you think of the situation from your perspective. You know how hard you’ve worked, so you expect the valuation to be a big number – and you may be wrong. The harsh truth is, like any other product in the market, your business is only worth what investors are willing to pay for.
You might consider your business model valuable, but a potential purchaser might not see what you see. That is why to make sure you get the fair price for your baby – here are some of our top tips for selling a company.
1. Preparation Starts Way Earlier
So you’ve thought of selling a company.
Here’s a tip you can use in almost every decision you take in your entrepreneurial endeavors: don’t rush into the decision. As much as you’d want the process to be smooth, it takes a lot of strategic planning to get the price you’ve thought of getting.
We understand that planning in advance won’t always be possible, but when you don’t survey the market for potential purchasers carefully – you end up getting a bad selling price for your business. When you plan ahead, you can put in those extra hours to make sure the revenue stream flourishes and all of your marketing campaigns are targeted towards the relevant customers.
2. Recurring Revenue Matters!
Frequent high revenues.
Strong sales funnels.
These are the qualities a purchaser looks for when they’re considering purchasing a business. Think about it this way.
Would you buy a cellphone that charges all the way up to 100% only twice a week? Obviously not. A recurring revenue helps you build goodwill, and it becomes a lot easier for a purchaser to trust your business.
When a purchaser evaluates your business, they don’t only analyze how much your business can make. They also consider the different channels they can use to build a stream of revenue. That is why, before you sell a company, strengthen your relationship with your clients as much as you can. Give them some promotional discounts, and make sure they feel valued.
The goal, in this case, is to prove to your investor that your high revenues don’t happen once in a blue moon. A stable revenue allows them to go about the situation strategically and think about the future prospects of your business as well. Expanding a business that has minimal revenue and even smaller profits can be difficult.
3. How’s Your Management Team?
You aren’t completely prepared to sell a company if you don’t have a management team. To make sure that step 2 goes on smoothly, you won’t be able to give the selling process your undivided attention. A management team also helps the purchasers understand that the company’s revenues and success don’t completely depend on you.
Sure, you were the one who started it all, you had the idea, and you invested in making sure it reaches where it has reached today. But now, your company is solely the people under one roof. The people who are responsible for selling your services and the people who make sure every client is satisfied. If you have a team that ensures big numbers – purchasers don’t hesitate while buying your company.
4. Get Your House In Order
Always remember – for purchasers and investors – your numbers are everything. Your numbers provide insights into the company’s bank accounts and are a great way of highlighting what your company is truly worth. If you have the time, get a CFO, and improve the cash flow of your company. This will not only decrease the expenses of your business, but it will also simplify the processes of every financial transaction.
When a purchaser conducts due diligence, they will ask for financial statements that are accurate. For this, you need to make sure your accounts are in order!
5. Value Your Company
The money in your company’s reserves accounts, the assets you’ve been able to acquire (computers, tables, a building, employee cars). Get an estimate of this number from your accountant, so you know what you’re selling. Sure, your company is only worth what the investor is willing to pay – but when you have a number that is backed by logic, the bargaining process can be easier.
Just because a person is ready to buy what you’re selling does not mean you blindly agree to their deal! Try to get the best offer possible!
6. Due Diligence
When you’re selling a company, preparing yourself beforehand for the process of due diligence can help make the selling process a lot less stressful. Here’s a checklist you can use to prepare for due diligence:
- Create a team
- Get a business valuation (an appraiser can help you with this)
Compile this information:
- Tax documents and financial records
- Liability or legal problems (if any)
- Intellectual property (copyrights, innovation, patent)
- Operations (day-to-day processes)
- Customer Data (phone numbers, emails)
- Hierarchy Charts
- Human Capital information (salaries, benefits)
- Marketing Operations
With these things in order, you can expect the due diligence process to go smoothly.