Selling your business for well below market value can be tempting, especially if you have to sell due to health or some other personal matter. However, selling out for a low price means that you will most certainly forfeit profits you’ve earned and will likely need for your personal enrichment.
There are several important points for you to consider as you prepare to sell your business including:
Your business’ appeal
— Who wants your business? That depends on a number of things including your business’ profitability, management, location and competition.
For example, if your business nets a profit, then a potential buyer can already see the potential for positive cash flow once he takes over. If you run a money losing enterprise, then it will be more difficult to find a buyer except, perhaps, for someone who sees something promising such as improving market conditions.
If your business has a team of knowledgeable workers, then its management burden could be lighter than one where the owner is required to be on hand always. A business, such as a hair salon on a high trafficked road, can offer greater appeal to a buyer than one tucked away on a side street. However, if the market is saturated with hair salons, then the competition could be fierce, diminishing your business’ chances of succeeding under new ownership.
Local unemployment rate
— With many people out of work in your area, some of your customers aren’t able to patronize your business to the extent desired. What appears to be a big disadvantage can also work to your advantage: a customer may want to try his hand in managing a business, deciding that corporate America no longer has the appeal it once held. This person is already familiar with your business from a consumer perspective, you now have a chance to show him how it can become his business.
Training and mentoring
— You may want to simply sell your business and be done with it. However, a new owner could be unsure of herself and need some hand holding for several weeks or months. By making yourself available, including working closely with the new owner during a transition period, you can help assure that the business shifts into new hands smoothly.
Consider offering your direct support for a stated timeframe followed by reduced support and eventually phone consultations. Include your support as part of the business sale transaction, but charge for consultation beyond the transition period.
Hold that note
— Bank financing can be a problem for some people who are seeking to acquire a new business. Unless you absolutely need the cash immediately, you might consider providing financing to help the buyer close the deal. In this situation you’ll hold the note with a right to take the business back if the loan goes bad or the business begins to fail. Consult with your business broker and an attorney to discuss the best way to approach this option. Another option is to consider partial financing, providing a gap between what the bank will lend and what the buyer needs to close the deal. Caution: the bank will have the first lien on your business — you could lose your investment if the loan goes bad.
In the coming weeks we’ll be focusing on topics related to selling your business including preparing your financial documents, undertaking improvements to bolster your business’ physical appearance, marketing your business and more.
This series is sponsored by the Novars Group Business Brokers, with executive team members Krayton M Davis, Ray Smith and Bill Hamrock at your service.