How your objectives affect selling your business
When you’re looking to sell a business, the first thing you need to consider (even before valuing your business) is your reasons for selling it in the first place. The reasons you have for selling determine what it is you want to get out of the sale – whether that’s retiring entirely or only selling off a minority stake, you need to have a clear idea of your objectives before you begin, or you’ll find your approach to the whole sale muddled. Here’s how to clarify your objectives for your sale, and how that should factor into planning as you prepare to sell your business.
What are your objectives?
Business owners prepare to sell their business for a number of reasons, often very different. Sometimes it amounts to simply going after an injection of capital – if you’re struggling to grow your business, or if you want to expand into new markets but are finding it difficult due to a lack of capital, then you may be looking to sell your business as a way to fund those expansions. In that case, you could well be looking to sell a minority stake in the company – and in that case, remember that you have to factor that into your valuation, since a discount tends to be given on sales of minority stakes. Selling to a private equity firm will appeal for these objectives – selling a minority stake to such a firm gives you the chance to keep control of your business while receiving a healthy injection of capital.
On the other hand, if you’re looking to retire from the industry, you’ll be looking to sell the whole of your business. Even if you’re retiring, it’s important to choose the moment of departure carefully – external factors play a key role in the value of a business, such as through valuation bubbles in the industry or a recession, so you’ll want to time the sale well. While unsolicited sales may be tempting at this point – you may be keen to sell once someone comes along with an offer – waiting for the perfect moment will ensure you a better price in the long run.
What buyer is right for my objectives?
If you’re looking to stay on, bear in mind the different buyers you’ll be selling to. Financial buyers will expect high profits, but will likely be less keen to intervene directly with the day to day running of your business. On the other hand, trade buyers will be more likely to merge your management and other staff, which can offer significant impositions on how you run your business, but they will probably not expect so substantial profits as financial buyers. Which you sell to is therefore determined by what kind of obligations you’re prepared to take on after the sale.
If you’re leaving altogether, who you sell to is determined mostly by who can give you the best price. Don’t rule anyone out at this stage – make sure you cast your net as widely as possible to get the best business valuation you can.
So remember that what you want to get out of a sale is one of the most crucial decisions you have to make when you’re planning a sale – so decide for yourself early on, and you’ll find that your preparations go much easier. And remember to use Pomanda’s Business Valuation Calculator to check the value of your company before you start the sales process.