Jeff is the Lead Broker at Fusion Business Brokers. Jeff has owned and operated many businesses over his 30+ year career as an entrepreneur.
While the small-business world hasn’t completely recovered economically from the fallout caused by the pandemic, BizBuySell’s recent 2021 insights report should provide some optimism for small-business owners.
After a slow start to 2021, small-business transactions came raging back at a 28% clip in the fourth quarter, bringing totals to within 11% of pre-pandemic 2019 numbers. And the volume of transactions wasn’t the only area that saw improvements. The median sale price of small businesses surged by 16% as a result of low interest rates and an “intense demand” for strong-performing businesses.
The reasons for the bounceback in transactions range from burnout to opportunity for financial gain. Owners have been battling the pandemic’s fallout for roughly two years now, with many deciding it’s time to sell. The top reasons for exiting continue to be general burnout and retirement. In fact, 43% of respondents specifically cited “pandemic fatigue” as a “moderately to extremely motivating” factor in pushing consideration to sell. With many businesses seeing a direct decline in sales, experiencing staffing shortages and facing supply shortages, the attraction to exit is understandable.
All this leads to the notion that if you’re experiencing similar feelings—opportunity, burnout, etc.—you don’t have to feel like you’re selling low on your business anymore if now feels like the right time for an exit. But if this is your first time going through this process, you’re probably not 100% certain of even where to start. As a business broker, I’ve seen that many owners can benefit from working with a broker early in the process to handle things like pricing/valuation, marketing and negotiations. However, that doesn’t mean there aren’t steps you can take on your own to prepare for selling your business. Here are three pitfalls to avoid:
Overlooking The Importance Of Confidentiality
From my perspective, there are three groups you don’t want to know your company is for sale: your employees, customers and competitors. But honestly, there’s really never a point where you want the general public to know the company is for sale, no matter who you are.
When people hear that a business is for sale or looking for a buyer, I’ve found the vast majority of folks will assume that it’s for negative reasons. More plainly, to many people, a business for sale often equates to a struggling business. And, I’ve found that competitors tend to be more than happy to sing that story from the rooftops to anyone who will listen. As a result, your business could see a downtick in revenue while you’re in the process of finding a buyer, and your overall valuation could be negatively impacted. Not to mention, if creditors find out your business is for sale, they could call any outstanding loans you have.
Instead of simply going out and talking to people about selling your business, do your homework and market research, and look at previous sales of similar businesses. This is something you can start on your own. From there, you can consider working with a broker who can help you shop your business to qualified buyers without giving away the actual identity of the seller. (Full disclosure: I provide these types of services, as do others.)
Failing To Get Your Financials In Order
Tax returns, profit and loss statements, payroll, profitability—these are all things you’re going to have to clean up and get in order before anyone can properly evaluate your business. Remember, you want to be able to make an honest assessment of what your business is worth. You shouldn’t be setting out to get the highest valuation possible.
That might sound counter-intuitive, but if that number is overpriced, your business could sit on the market and go unsold for a long period of time. The economy fluctuates, valuations shift and you could end up getting a less-than-stellar price for what you built.
Getting your books and finances clean and accurate from the jump will allow you to get the most realistic valuation possible and set you up to actually sell the business, rather than battle an overpriced estimation of its value.
Waiting For The Perfect Opportunity
When’s the right time to explore selling a company? I would argue that there’s never a bad time to do so. You’ll never know what the right moment is unless you know what the possibilities are. When the economy, purchasing power and product/market demand for your widget are all in alignment, that might be a wise time to sell. However, most potential sellers only look into getting a valuation when there are other mitigating circumstances at play—such as finances, family, health or burnout—that cause them to consider selling. It often has little to do with the business owners knowing that the market is right and more to do with their personal lives.
Consider getting a valuation of your business. Even if you’re just curious and have no intention to sell, I believe it’s always good to be aware of where your business stands and what the possibilities are. Perhaps then, you can decide when, or if, there’s a time to sell that’s right for you.
At the end of the day, selling your business should be explored when the timing is right, when it makes sense for your personal goals, and when it can result in generating enough value for you to achieve those goals. There’s no harm in finding out what the possibilities are.