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Five Ways to Maximize Your Chances of a Successful Exit
By Quiet Light
As a business owner, a significant portion of the value you derive from your online business comes when you sell it. However, a profitable sale is far from guaranteed. Before embarking on your own selling journey, it is important to understand the key elements that underlie most successful exits.
In this article, you’ll learn about five of the most essential practices you can implement to maximize your chances of success when selling your online business, including:
- Planning ahead
- Being transparent
- Listing your business at a fair market value
- Paying close attention to a buyer’s certainty of closing, not just their offer price
- Being responsive and easy to work with
We’ll start by taking a look at a few factors that are outside of your control. However, by educating yourself and implementing the strategies discussed in this article, you give yourself the best shot at achieving favorable deal terms and a profitable exit.
Related Article: Seven Steps Every Business Exit Strategy Should Include
Factors outside Your Control when Selling Your Business
Hard work, grit, and smarts go a long way for an entrepreneur. But as much as you may not like it, you aren’t in control of all factors shaping the success or failure of your business. By being aware of how outside conditions can impact your exit, you become better positioned to navigate the unexpected.
Interest rate levels can play a large role in your exit experience. When rates are low, credit is cheap. Prospective buyers have easier access to financing, increasing overall buyer demand. As a seller, this can increase buying competition, ultimately helping you achieve a higher sale price and better deal terms.
When interest rates are low, however, the opposite is true. Credit becomes more expensive, lending slows down, and the buyer pool shrinks accordingly. Furthermore, it’s hard to predict exactly what interest rates are going to do. If they are high, waiting for them to go down may take a long time.
Interest rates aside, the overall state of the economy (and your market, more specifically), plays a large role in shaping your exit experience. If your market is booming, expect higher valuations and more interested buyers than if it is in decline.
If market conditions are poor, it may pay to wait until things improve before opting to sell your business. Of course, this requires you to have the luxury of waiting, which is far from guaranteed.
“By being aware of how outside conditions can impact your exit, you become better positioned to navigate the unexpected.”
Plan Ahead
You can’t control the weather, but if you bring the right clothes, you’ll be prepared for most storms that come your way. The same is true when it comes to business. While you can’t control global interest rates or the state of the world economy, you can put yourself in the best position possible to achieve a successful exit regardless of external conditions.
To do so, leaving yourself ample time to plan and execute an exit strategy is crucial. When planning ahead, it is important to think about several key objectives. These include:
- Cleaning up your documentation
- Driving growth
- Making sure your business is transferable
- Mitigating areas of risk
“Leaving yourself ample time to plan and execute an exit strategy is crucial.”
Clean up your documentation
Potential buyers are more likely to be interested in your business if you have clear, orderly, and professional documentation. This includes financial statements and bookkeeping records, standard operating procedures (SOPs), supplier and vendor communications, and more. Cleaning up your documentation is one of the most important things you can do to maximize the likelihood of success when selling your business.
Clear financial records make it easier for qualified buyers to determine the financial health of your business before deciding whether to make an offer. If a potential buyer does make an offer, clear documentation will make it much easier for them to verify your business during the due-diligence phase.
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If you haven’t done so already, clean up your documentation. This includes implementing professional accounting practices, establishing and writing SOPs, and organizing all other relevant documentation. By doing so, you will help to attract buyers and increase your chances of achieving a successful exit.
Drive growth
Driving growth is another important thing you can do to prepare for a successful business sale. Most prospective buyers are looking for a business that they expect to grow into the future; from their perspective, a growing company is the most surefire way to realize a healthy return on their investment.
If your business is not already growing, do what you can to create consistent growth long before you plan to sell it. This could include launching additional products, adding new sales channels, or optimizing your marketing efforts.
Remember, growth doesn’t happen overnight. A strong track record of growth can take time to establish. This is one of the many reasons any experienced business broker will recommend leaving yourself 12–24 months to prepare before putting your business on the market.
Make sure your business is transferable
A business is only valuable to a potential buyer if they can take over ownership without negatively impacting its performance. This element is known as transferability. Many businesses do not have an issue with transferability. However, there are several factors that could hamper how easy it is to transfer your business in the event you sell it.
If your business is tied to your image or personality, a new owner will have a difficult time taking over operations. In these scenarios, it is crucial to remove yourself from your business long before you plan to list it.
The more your business relies on your leadership or knowledge, the more difficult it is to transfer. Building out teams to take over operations and creating strong standard operating procedures helps to automate business processes. This makes it much easier for a new owner to step in without any hiccups.
“Any area of your business that relies on a single point of failure incurs greater risk.”
Mitigate areas of risk
All business ventures incur some level of risk. The more risk involved, the less valuable your business will be. Think about it from a buyer’s perspective: Would you prefer to purchase a business with $100,000 in yearly profit but a high risk of failure, or a business with the same profit but a much lower risk of failure? If all else is equal, the choice is pretty clear.
Risk can come from many sources. Any area of your business that relies on a single point of failure incurs greater risk. Go through your business and diversify your operations to build a more adaptable and stabler company. At the same time, pay attention to other areas of risk, including patent issues, legal challenges, or risk from competition.
By eliminating or mitigating areas of risk within your business prior to selling it, you make it much more attractive to prospective buyers. This increases competition and helps to put you in the driver’s seat.
List Your Business at a Fair Market Value
In their quest to maximize the profit of their exit, many entrepreneurs list their businesses at unjustifiably high prices. Don’t do this. While it may seem like a good way to attract high offers, it often achieves the opposite effect. Many hopeful sellers have listed their businesses too high only to hear crickets when it comes to receiving qualified offers. If they do sell, it is likely for an amount lower than their asking price.
Listing low isn’t ideal either. On the one hand, listing low can sometimes attract a lot of interested buyers and create a bidding war. On the other hand, it can also lead to a scenario where you sell your business for less than it is really worth.
Choosing your listing price is a Goldilocks scenario: Not too high, not too low. Ultimately, you should be aiming for fair market value.
“Many hopeful sellers have listed their businesses too high only to hear crickets when it comes to receiving qualified offers.”
Get an accurate business valuation
In order to get your pricing right, it is crucial to get an accurate business valuation from a qualified Advisor or professional business broker. Business brokers are individuals who specialize in selling businesses.
A good business broker will be able to guide you through the valuation process in order to arrive at a realistic assessment of the value of your business. You can then use this information to list your business at a fair market value, helping you achieve a more profitable exit.
Pay Close Attention to a Buyer’s Certainty of Closing, Not Just Their Offer Price
Many sellers get caught up in searching for the highest offer possible. Intuitively, this makes sense, but anyone who has sold a business before knows a successful exit is about more than the highest offer.
The best offer is not always the highest offer
Selling a business is a process. Often, it can take 30–90 days or more to receive and evaluate offers, strike a deal, navigate due diligence, and close. Once a deal has been made, there is plenty of time for things to go south. If the deal falls apart, it wastes your time and could potentially make it harder to attract interested buyers in the future.
For this reason, it pays to find a buyer who appears to have a high certainty of closing. You can often get a sense of this during initial negotiations over potential deal terms. Look for cues that they are serious about buying the business. Look at their previous track record and verify their source of funds. Your business Advisor can help you determine which offers are serious and which are likely to fall apart.
“Anyone who has sold a business before knows a successful exit is about more than the highest offer.”
Be Transparent
Having a good relationship with your buyer makes it much easier to navigate unexpected hiccups during the transaction process. Good relationships are built on trust. One of the best ways you can build trust is to be transparent with prospective buyers from the very beginning.
Represent the strengths and weaknesses of your business accurately
Some sellers may be tempted to emphasize the strengths of their business and hide its shortcomings when advertising their business. While highlighting strengths is important, never hide or sugarcoat your business’s weaknesses. Be transparent when representing your business’s strengths and weaknesses. Don’t make buyers dig deep to find out about your business’s dirty secrets, if it has any.
This could include information about:
- Your company’s financial data
- Legal challenges
- Supplier relationships
- Business model
- Credit report
- Tax returns
- Outstanding debt
- Intellectual property
Not only is hiding weaknesses unethical, it’s also a poor strategy. Serious buyers are going to find out about any weaknesses anyway, either before or during the due-diligence process. When they do, it could derail the transaction altogether if they feel they have been deceived. By being transparent and not glossing over your business’s weaknesses, you ensure the information is shared on your terms.
Of course, you do want to take some measures to protect key information about your company from general public knowledge. For this reason, screening buyers is important. In addition, any serious buyer who wants to learn more about your business should be required to sign a nondisclosure agreement.
Be transparent in negotiations
The same goes for negotiations. Answer tough questions directly and honestly and accurately represent both the positive and negative sides of your business. This continues to build trust and strengthen your professional relationship with the buyer.
“Be transparent when representing your business’s strengths and weaknesses.”
Be Responsive and Easy to Work With
People want to do business with those who are easy to work with. It’s often that simple. Even if you have a stellar business to sell, being difficult to work with can push away interested buyers. This reduces competition for your business and can lead to poorer deal terms and a lower sale price.
There are several things you can do to be someone that buyers want to work with. They include:
- Communicating clearly
- Asking good questions and being curious about their interests
- Being fair-minded in negotiations
- Focusing on building trust and establishing good rapport
Communicate clearly
Effective communication lies at the heart of creating a successful transaction process. From the very beginning, you will find yourself in a number of situations where the level of your communication can determine the outcome of your exit. For example, you will need to:
- Advertise your business accurately
- Evaluate offers, negotiate, and make counteroffers
- Agree on deal terms
- Navigate the due-diligence process
- Renegotiate specific parts of the deal that need further attention
- Navigate closing and finalizing the deal
- Work with the buyer during the transition and training phase
At each step of the road, poor communication could derail the deal. And even if it doesn’t derail it entirely, it could easily lead to more headaches and poorer outcomes for you.
Good communication includes many aspects. Be responsive and answer questions thoroughly. When you get an email or phone call, reply quickly with the information they asked for. Waiting days to get back to a buyer drags the process on and makes it much more difficult to work with you. The more you can help the buyer meet their needs, the more likely you are to get your needs met.
“Effective communication lies at the heart of creating a successful transaction process.”
Ask good questions and be curious about their interests
It is natural to focus on your interests and goals while selling your business. While this is clearly important, don’t do so at the exclusion of considering the buyer’s interests. Be curious about what they hope to achieve. Ask good questions to get to know them and their goals. Look at the situation from their point of view. Getting to know the buyer goes a long way in building a healthy working relationship.
Be fair-minded in negotiations
Many sellers (and many businesspeople in general) make the mistake of ruthlessly pursuing their own goals without thinking about how it might affect the buyer. Nobody wants to deal with someone who they feel would screw them over if they had the chance.
Approach all negotiations with the intent to find an outcome that meets both party’s needs. In addition to just being the right thing to do, being fair-minded in negotiations often leads to better outcomes for you as the seller.
Build trust and establish good rapport
Being transparent, communicating clearly, showing interest in the buyer, and being fair-minded in negotiations all help to build trust and establish good rapport between you and the buyer. Trust and good rapport make it much easier to navigate the entirety of the transaction process. If, or when, unexpected speed bumps do arise, the strength of your professional relationship will help you constructively navigate the difficulties. Ultimately, this increases your chances of achieving a successful exit.
Conclusion
When it comes to selling your business, there are many factors outside of your control. However, by focusing on the things you can control, you increase your chances of achieving a successful exit.
Planning ahead, listing your business at a fair market value, choosing a buyer with high closing certainty, being transparent, and being responsive and easy to work with are all things that are under your control. Focus on these things, and you put yourself in the best position to win favorable deal terms and a profitable sale.
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