WHEN IT’S TIME TO SELL YOUR BUSINESS, YOU MUST THINK LIKE A BUYER.
So, you have decided to sell your business. That's Great!
But now what?
This is a common position many business owners find themselves in.
They have made the decision to sell their business. Now they must figure out how.
But rather than get too far ahead of ourselves and provide you with a To-Do List of things that need to get done to sell your business, we are going to focus on perhaps the most important thing a business owner needs to do to successfully sell their business.
Sure, a To-Do List is important, but we will cover those items a different time.
Here is the nugget you need to know about when you decide to sell your business.
It is the most important step you can take.
Ready for it?
Here it is:
To Sell Your Business, You MUST Think Like a BUYER.
Shocking, I know.
But in our experience, Thinking Like a Buyer is what many business owners fail to do when they decide to sell their business.
In fact, it may be the leading cause of why a business doesn’t sell.
You may find that surprising. But it’s true.
The Problem
The mistake many business owners make is that they fail to think like a buyer.
They fail to understand the needs of a buyer, and by doing so, put the sale of their business in jeopardy.
By only thinking about their needs as an owner selling their business, or by looking at things from their perspective only means that they are ignoring the most important person in all this.
And that is…
The Buyer.
What Does ‘Think Like a Buyer’ mean?
To think like a buyer means that as a business seller, you need to put yourself in the shoes of the buyer.
You need to look at your business from the perspective of a buyer.
You need to evaluate your business impartially.
And in fact, you need to consider your business from the partial or biased perspective of the buyer (which is easier said than done).
To successfully sell your business, you need to see things the way most buyers are likely to see them.
This doesn’t mean you have to agree with a buyer’s perspective, or that the buyer is always right.
But you do need to take a step back and see the big picture.
A business broker can help you do just that.
How Do I Think Like a Buyer?
To think like a buyer, you need to understand that a buyer has basic needs.
For a business sale to be successful, a seller must understand that a buyer has needs (a seller has needs too, but we’ll talk about those in another conversation).
And a seller can’t just understand that a business buyer has needs.
A seller and their business broker need to proactively build their sale strategy and marketing plan to meet the needs of the buyer.
The Needs of a Buyer
A Buyer has 3 Basic Needs.
They are:
1. CLARITY
A buyer needs to be able to understand your industry, your business, and most importantly, your business financials.
Details of your business need to be presented in such a way that a buyer will CLEARLY understand your business.
A lack of CLARITY leads to Confusion. And Confusion breeds Caution. Caution usually means that a buyer has become uncertain about your business.
And uncertainty means that a sale will not close.
Remember that Clarity = Certainty.
As the seller, you need to clearly present all aspects of your business.
You don’t want anything to be murky or unclear.
By providing Clarity to the buyer, you will reduce the number of questions they have, shorten the amount of time it takes to receive an offer, and strengthen the confidence the buyer has in your business.
2. REDUCE RISK
All buyers are risk adverse to varying degrees.
Even many business owners, despite having entrepreneurial qualities are risk adverse.
Putting a bunch of money up to buy a business takes some guts. So, it’s easy to understand that a buyer will be tentative to take any uncalculated risks.
The best way to reduce risk, or better said, the perception of risk that the buyer may feel is to offer the buyer Clarity as discussed above.
In practical terms, this means eliminating any red flags a buyer may find when evaluating your business.
Red flags can come in the form of declining sales figures, high employee turnover, or the loss of a large customer to name just a few.
As a business seller, you need to understand that a buyer, and the buyer’s agents will be actively looking for flaws and red flags in your business as a reason to discount your business entirely, or as a reason to request a discount on the purchase price.
Neither of which is in your best interest as the seller.
So, it’s in your best interest to reduce any real or perceived risk in your business.
This can mean working extra hard to boost your sales figures, entering into Employee Agreements with your best and most valuable employees, and getting contracts in place with customers.
A business broker can provide many other suggestions on how your business can reduce risk for a buyer.
But you get the idea…
Risk is Bad.
3. SELL the FUTURE
Most businesses are VALUED based on past performance.
But most businesses are SOLD based on the belief the buyer has of an equally bright future to look forward to.
So, its important that you position your business in a way that promotes the feeling that past earnings are going to almost guarantee future earnings.
If your business has financials that are trending upwards, Selling the Future is relatively easy to do.
Your business broker will focus on your positive and growing financial metrics when your business is marketed to buyers.
By focusing on the growth of your business’s financial performance, the buyer will have Clarity on your numbers, and will feel little RISK about buying your business.
In addition to presenting your business to the buyer as a growing business, you want to present a growing industry, increased demand for your product or services, and that unlimited opportunities for the next owner to gain even more market share exist and are accessible.
A business with falling sales figures and profits will normally not demand a strong sale price.
A business with consistent year over year earnings will generally sell for an average to slightly above average sale price.
But a business with growing top line and bottom-line revenues will sell for the highest multiples and best sale price.
When you can Sell the Future, you will not only sell your business, you will sell it for the highest price.
Selling Your Business Isn’t Just About Listing Your Business and Waiting for the Phone to Ring.
The first step for any business owner that wants to sell their business is to Think Like a Buyer.
And a buyer has three key needs.
They are the need for:
1. Clarity
2. Limited Risk
3. A Bright Future
When your business can answer the questions that a buyer will have based on these 3 key needs, you are well on your way to selling your business.
For Help Selling Your Business contact:
Phone: 604-855-2236
Web: www.businessbrokerbc.ca
I would rather use a business broker than a realtor to sell my business.