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Transparency Is Critical To Selling Your Business
By Quiet Light
As a business owner, you’re undoubtedly well acquainted with the importance of honest and open communication in gaining the trust of your customers and the respect of your peers. When it comes time to sell your business, such transparency becomes more important than ever.
The market share you’ve earned, the assets you’ve invested in, and the income your business generates are major components in establishing a fair valuation of your business, but thorough and absolutely clear communication is essential to creating solid relationships with potential buyers and completing a sale that’s a home run for everyone involved.
Transparency Equals Trust
A large part of completing a successful sale lies in building a strong relationship between potential buyers and you. A buyer who feels they can trust you is more likely to finalize a deal with you for your business. Building trust during negotiations is an acquired skill, but one of the most effective ways to do so is through honest and clear communication with all parties.
While every business is different, you can encourage a transparent atmosphere of trust by anticipating and providing answers to questions potential buyers are likely to have about your business:
- Does your business have a distinct plan for—and path to—growth?
- Does your business have a single revenue stream, or multiple ones?
- How old is your business, and what are its strengths and weaknesses?
- Can you give buyers an overview of trends for your niche, and the performance of your business in particular?
- Can you provide complete revenue, tax, and other financial information for the past two to three years?
By taking the time to answer these questions as thoroughly as possible, you’ll be a step ahead in gaining the trust of interested buyers and help keep the sales process as smooth as possible.
Financial Clarity Is Key
While all the information about your business is important to would-be buyers, financials are likely to be the most important component in their decision-making process. The value of your business is largely determined by a multiple of your discretionary earnings.
These earnings—also known as Seller’s Discretionary Earnings (SDE) or Seller’s Discretionary Income (SDI)—are the pre-tax and pre-interest profits before non-cash expenses, a single owner’s benefits, one-time investments, and any unrelated income or expenses.
Calculating and sharing your SDI, along with other information such as revenue and traffic trends, with qualified buyers makes good sense from the start, as all of your financials will be detailed during due diligence. Playing it fast and loose with your numbers in the beginning will only lead to problems down the road when the client discovers you haven’t been entirely forthcoming.
Be Upfront About Challenges
Every business has positive and negative aspects. It can be tempting to gloss over some of the less desirable parts of your business and the challenges you’ve faced as its owner. Maybe you’re struggling to find entry in a certain lucrative market? Perhaps you’re struggling with vendors or trying to maintain the relevance of your product in an evolving marketplace?
Whatever challenges you’ve faced, they’re an unavoidable part of running your business, and therefore a major factor in selling it as well.
By being honest about these challenges, you’re not only continuing to build trust by being forthright, but potentially providing your buyer—whose skill set, contact list, and personal ambitions will likely differ from your own—with a “challenge” they instead perceive as a golden opportunity.
The problems that drive you batty might just boost the perceived value of your business in the eyes of the right buyer.
Honesty Remains The Best Policy
Selling your business can be a complex and sometimes time-consuming process, and there’s no single path to a successful and mutually beneficial sale. But you can help streamline the process and make the most of your sale by focusing on effective, clear, and thorough communication.