Here’s a piece of advice business brokers give to sellers: If selling your business for the best price possible is your goal, you will need to cultivate emotional distance. This is hard for many business owners because they’ve spent years making their business a priority and sacrificing to make and keep it profitable. Retirement is on the horizon, but most of them haven’t shifted gears yet. They think like owners, not sellers or buyers. Owners are proprietary, and they are emotionally invested in a company’s history and success. It can be challenging to shed an owner mentality, but the more important the sale price is to your future goals, the more you need to do it.
Your business may not be your “baby,” but it’s the tangible result of your hard work and creativity. So why is it important to detach yourself? Shouldn’t you be more involved with your business during this transition time?
No. Why? Because you can’t value it objectively – like a purchaser would – without some distance. Buyers don’t care about your personal history with your employees or customers, the weekends you sacrificed, or any personal money you sank into your company to keep it running any more than they care about the new computer system you installed in 2005. That’s all in the past. That’s what made you money. They only want to know how profitable the business is now and going forward. They want to know about what will make them money.
Develop a Buyer Mentality
Valuation is critical to every business sale. Buyers will determine a company’s value by factoring in both the strengths and weaknesses, specifically those that are quantifiable. Much of this will come down to raw numbers: earnings, value of assets, cash flow. The first thing to do then, when considering a sale, is to look at those raw numbers and to ask for the help of a professional business appraiser. Appraisers are paid to think like buyers, so they will give you an idea of what kind of price your business may command.
If the numbers are not what you want to hear, you can always get a second opinion. There are steps you can take to increase the value of your business before you list it. Take the time to fix any issues that your business may have that are limiting its profitability. Here again, you will want to hear from more objective people. Talk to your staff. Look at what your competition is doing. Survey your customers to see how satisfied they are. Generally speaking, these people will know your business’s weaknesses, and they will have ideas for how to either fix or mitigate them. Listen to them.
Owner dependence is one problem that will spike a sale. No one wants to buy a business that is only profitable because of the owner’s skills, knowledge, or relationships with customers. None of those things is easily transferable to a new owner. If you are too much a factor in your company’s success, you need to remove yourself from the equation slowly until it can run seamlessly without you.
You may not want to hear that your business is more valuable without you or that it’s not as profitable as it could be, but it’s better to remove the rose colored glasses before you want to sell your business. If you cannot see your business’s weaknesses, you will overvalue it, and this will throw a wrench into the sale process or even prevent a sale entirely.
If you want to be a successful seller, think like a buyer.