Pride of ownership dictates that you will likely think your business is worth more than what other people think it is. Reality check: Your business is only worth what someone is willing to pay for it, and the only way to get a deal done is to find some common ground between the lowest possible price for which you would part with your business and the highest possible price someone else would pay.
The more your business can run without you, the more attractive it will be to a buyer. After all, when you sell, the acquirer needs to know the business will continue to thrive after you have left the building.
Tip: Take a week-long vacation and disconnect completely to see how well your business runs when you're not there. The next time try two weeks. When you can take a three-month sabbatical without your business' performance suffering, that's when you'll know you're ready to sell.
Buyers pay a higher price for businesses that can guarantee revenue into the future. The more predictable your revenue, the higher the multiple you'll get for your company. So look for ways to lock in revenue for the long term.
To avoid the project to project roller coaster of a typical tradesman, Hassle Free Homes charges a monthly fee based on an annual contract with homeowners who enjoy year long maintenance of their house.
In British Columbia, BC Wine Club sends its customers two new bottles of wine every month on a membership model, instead of peddling liquor in a retail store. The average member stays for years making it a more predictable — and valuable — business than the typical booze retailer.
If you want your business to fetch a higher price, you need multiple companies to come to the negotiating table. This is a job for a business broker or mergers and acquisition professional, not you. This intermediary doesn't necessarily have to run an auction, but he should make it clear to would-be bidders that there are a number of people interested in acquiring your company.
Tip: Let your broker play bad cop while you play good cop by quickly fielding any questions would-be buyers have about your business.
Once you have a company interested in making an offer, they will likely give you a non-binding Letter Of Intent (LOI). This will include a "no shop" clause — meaning, you must provide the potential acquirer with exclusivity while he investigates your company. Here's where the power shifts... and the price can drop. During diligence, you lose negotiating leverage.
The bottom line: Expect the offer price to drop by 10-20 percent after you sign the LOI and be pleasantly surprised if it doesn't.
Your employees' morale will likely dip to an all-time low the day you announce the sale of your company. No matter how attractive the new owner is, and how much of the sale proceeds you share with your team, most employees will turn inward and wonder about the safety of their jobs and the difficulty of working with a new parent.
Tip: Focus on communicating how the assets and resources of the new owner will help them do their jobs more easily and more effectively.
Step 7: Prepare to ride an emotional roller coaster
Get ready for a long process with many emotional highs and lows that will likely leave you drained. At the beginning, you feel good as you make improvements to your business that you know will generate value. But your mood will start to dip as you prepare the marketing materials your broker will need to sell your business: It's a lot of drudgery that takes time and sucks energy.
When those first expressions of interest roll in, you'll feel the endorphins again. It's only temporary, though. Management presentations will drag on and scheduling conflicts will delay the process (selling your business is your No. 1 priority, but it's only one of many for the potential acquirer).
Expect another high once you start to get offers and you see years of your work validated on paper. As soon as you accept a Letter of Intent (LOI), you're in for 60-90 days of tough slogging as the buyer does his due diligence. You'll have to find and explain every detail of your business from customer lists to your lease agreement, which pretty much ensures your mood will darken with each day. Come closing day, expect another big spike in mood as the satisfaction of closing the deal brings an adrenalin high unlike any other.
When you sell, you will likely have to stay on during some sort of "transition period" ("earn out" or "vendor take back"). If you're like most sellers, you'll endure this begrudgingly. Most entrepreneurs are not cut out to work for other people — it's like putting a cheetah in a cage — which is why your mood will likely plummet soon after the high of closing day wears off.
My advice: Get your creative juices flowing again and start plotting your next business idea.