If you are a business owner, there are some numbers that you need to understand and some that should frighten you.
80% of businesses listed don’t sell.
This means you have a very slim chance of selling your business successfully and even less so for what you think it’s worth.
Here’s another number to consider: of those that sold their businesses, 75% of business owners were in some way unhappy with the way it unfolded – meaning you have a less than a 6% chance of selling your business successfully.
Why is the Success Rate So Low?
Selling your business is one of the toughest and most gut-wrenching decisions you will ever make. Most likely you haven’t done it before, so you are at an inherent disadvantage. In your business you know everything – and you’re used to that – but when it comes to selling a business most owners know very little about the process. On top of that, there there are scores of experienced “professionals” just waiting to make a big commission on your business sale, hoping to push you through their process quickly. It’s easy to make a mistake.
What should do you do?
First Step: Build a Team of Advisors That Will Teach You Everything
If you want to sell your business for what you think it’s worth – or what you NEED it to be worth – you need to take your time to learn about the process long before you are ready to pull the trigger. This a job in itself – but the benefits can pay off, yielding more than you expected. Reach out and build a team of professionals aligned with your interests and learn from them. Interview multiple people and ask lots of questions. Chances are someone you meet has experience selling a business like yours.
Business Brokers – Get to know a few business brokers and talk to them about their own processes. Take your time to find one that’s looking out for your best interests. The best ones can really help you get the most for your business and teach you a lot along the way. A good one is worth the commission they take – they will more than earn it for you.
Your Accountant and Lawyer – Re-interview your account and and lawyer to determine what businesses they have worked with that have sold successfully. You might need to find a new accountant that can give you better financial advice and a lawyer that has experience selling businesses.
Business Coach: Consider bringing on an experienced business coach that has worked with a wide range of businesses to help you increase the value of your business. Good business coaches can make a significant impact in a short period of time, and can lead you in the right direction faster, as they typically have a network of professionals they can recommend.
Fellow Business Owners – Joining a business owner peer advisory board like TAB (The Alternative Board) can give you the perspective of others walking in your shoes.
Second Step: Understand the True Market Value of Your Business
Although the valuation of a business is far from an exact science, there are enough financial guidelines and historical precedence that can help you come up with an accurate value of your business. Most business brokers offer a valuation service, and there are some low-cost assessment tools like the Value Builder Assessment that can help you establish a baseline value. Unfortunately, the value of your business is most likely much lower than you think and is the #1 reason businesses don’t sell – business owners often have an unrealistic view of its value. Remember – that new owner needs to take out a loan and will expect a positive return on his or her investment. He needs that business to grow 40% or more to cover that loan and make what you made before you sold.
Third Step: Get Your Business Ready – and Yourself
The highest value is at the top, when you are probably not ready. The most successful sellers take 3-4 years to get their businesses ready to get a number of solid growth years on the books and take the exit at the top. By one estimate the difference in value between exiting at the top after 2-3 years of growth, and exiting after a few years in decline could be 75%, which could be the equivalent of 5 or 10 years of profits. These are the last numbers you need to remember, so start planning now.