For many owners, selling your business is a new experience, and there is always the fear of the unknown. Selling a business is a not only a major economic decision, but it can also be an emotional one. After all, many business owners have spent many years, and a lot of hard work building the business. When the decision to sell is made, there will inevitably be accompanying concerns. However, when faced head-on, dealing with top concerns when selling your business can usually be addressed and resolved. Here are some of the major concerns and ideas on how to deal with them.
Getting the Highest Possible Price
Every seller wants to get the highest possible price for their business – that’s a given. Here is an old, but very accurate definition:
- The Asking Price is what the seller wants.
- The Selling Price is what the seller gets.
- The Fair Market Value is the highest price the buyer is willing to pay and the lowest price the seller is willing to accept.
Today’s buyers are more educated, more sophisticated, and more demanding than ever before. They seem to be searching for a “sure thing” – yet, many are afraid to make the leap-of-faith necessary to make the final plunge. Buyers are also more numbers conscious than in prior years. Somehow they think they can buy a business and continue with business as usual.
Sellers, on the other hand, must understand that the buyer may buy with an eye to the future, but is only willing to pay for the past performance of the business. The buyers believe that the future of a business is up to them and they should reap the benefits of their efforts. The value or price, however, in their minds, is based on what the seller has done with it. Buyers will not pay for the rosy future sellers may paint, but they be motivated to purchase with a positive future outlook.
In order to obtain the highest possible price, the seller should make sure that the financial records are crystal clear, up to date, and not packed with personal expenses. Any issues, whether, financial, operational, legal, or environmental, should be addressed and resolved prior to putting the business on the market. Hidden issues have sabotaged more sales than anything else. The two biggest deal killers by far are TIME and SURPRISES!
This may seem a contradiction, but the seller must go to market initially with a fair price. Too many times, a seller’s first inclination is to start with a very high, and very unreasonable, price. They may feel that the business is really worth what they are asking and may be unwilling to accept the fact that the price is unreasonable. The thinking is that an interested buyer can always make an offer. Interested buyers will feel that the price is so high that a fair offer would not even be considered. We recommend getting a 3rd party opinion of value ahead of going to market to help get a clear picture of what price point the market has supported for similar businesses.