We are currently experiencing a brisk market for business sales. In fact, private equity activity was at an all-time high in the first half of 2021, according to reports from the FT. The first 6 months of this year saw $500 billion of deals.
But selling a business is not easy, and there are countless potential pitfalls. It’s a tricky process, and it needs to be approached with intelligence, caution, and planning.
In this article, we look at the six fundamental steps to selling your business successfully and effectively.
1. Take the decision to sell
Firstly, you need to make the conscious decision to sell. You need to be emotionally invested, and come to the considered conclusion that now is the right and appropriate time to sell your business.
The sales process is emotionally draining, costly, and time-consuming. It is not something that can be carried out in a half-hearted fashion. You need to commit fully. You need to understand why you are selling and what you hope to get out of it, according to HBR.
If your business is co-owned, perhaps by you and a founder, it is essential to sit around the table to come to a considered conclusion together – and commit to it.
2. Find an appropriate buyer
Secondly, the key to an effective sales process is to find the right buyer. There are countless different types of buyers: private equity companies, your employees, trade buyers, suppliers, and, even, high-net-worth individuals.
Why are you selling the business? To secure the highest offer, or to leave the business in safe and secure hands for the future? This will determine the type of buyer that you are looking for. They must be aligned with your mission and purpose through the sale.
Usually, the best buyers are those who are already aware of your business, and do not need to be sold on your business and its value proposition: your suppliers, for example. This might give them the opportunity to expand into another allied vertical.
Write down all the potential buyers for your business, and ask yourself – one by one – whether you would be comfortable selling to them. This will be your hit list.
3. Communicate clearly and openly
Communication is absolutely critical to an effective and smooth sales process. On one hand, you might need to market your business to generate potential buyer interest. This might mean, for example, announcing in the trade press that you are looking to sell the business.
On the other hand, communication and PR are key to controlling risks. If it leaks out that you are considering selling your business, it might make important stakeholders worry that you are strapped for cash – or, even, that the business is facing difficulty.
In fact, more than 4 in 10 people said they would think a business was in difficulty if it was put up for sale, according to recent research. Being open and honest at the start of the process will eliminate this risk, and give you the opportunity to control the narrative around the sale of the business.
4. Find the right legal advice
This is not the time to skimp. Of course, it is important to work with lawyers to prepare the relevant paperwork and protect you through the process. They will make sure that you are not accidentally signing something that puts an obligation on you that you did not first expect.
However, more importantly, lawyers will have been through the business sale process a number of times. As well as providing functional and logistical support, they will be able to hold your hand through the sale of the business, make you feel comfortable, and ensure that you sidestep any potential common pitfalls.
It can be genuinely comforting to have a veteran hand alongside you during the process; it is usually worth the investment to alleviate your anxiety rather than anything else.
5. Stick to your red lines, but do not ask for too much
As sales processes run on, it can be easy to start thinking that you just want to get it over with. Often, you might have had 6 meetings with one potential buyer over the course of 3 months. You might start to feel that you cannot let them go as a potential buyer – even when they asked for a discount at the very last moment.
Stay firm, and do not succumb to the so-called sunken cost fallacy, where you feel you are obligated to continue down one track because you have already devoted a lot of time to it.
Equally, it is important not to go into the sales process with unrealistic and improbable expectations about the sale value. Get an independent assessment of the value of the company, so that you understand what it is truly worth.
6. Do not be rushed into a final decision
Finally, do not rush into a final decision. A sales process might end up taking a year or even longer. If you have decided to sell the business, you might feel a compulsion to just get it off your hands.
You want to move on to your next business. You want to retire. Or you just want to head on that wonderful celebratory beach holiday. This sense of restlessness can lead to short-sighted and ill-considered choices that you will, eventually, regret at the later date.
The market is ripe for selling your business at the moment. The market has never been so busy, but that is not a reason to jump headlong into a sale process without thinking things through carefully. These six steps will help you navigate the difficult process effectively.