January 25, 2024
Discover the different methods that may be available to you when making decisions about exiting your business and attracting potential buyers.
Originally Published Feb. 16, 2017
While it may seem that there are many, many challenges in starting a business, there can be even more during the exit process. When the time comes for you to leave, you may discover a harsh reality: There may not be buyers lined up at the door, and the buyers that are available may not see the value in your business that you feel is obvious.
So how can you avoid this? The simple answer is to think ahead.
There are two main approaches to leaving your business. The first is known as locking the door behind you. This can be especially effective if the business isn’t going very well or if you have known that you are going to be leaving and you have slowly let your customers find other vendors (hopefully providing some reward for you). The downside to this is that other than the money you have earned from your business over the years, you have nothing to show for your work. No nest-egg, or in the vernacular of the regular employee, no pension. So unless you’re independently wealthy, you probably want to consider the second option.
Here, you’ll want to plan ahead in order to create and show the value of the business to your potential buyers. The steps for this option will probably seem vaguely familiar, as they are similar to the steps you would take to find your target market for your business’ customers. For example, if you sell custom frames, when you started your business you most likely found out not only who buys custom frames, but who else is selling custom frames, and what will make your custom frames and your company unique and worthy of customers.
This is the same process you will use as you work out how to sell your business. Yes, your products will be a major factor, but your business as a whole will also be examined. Keep in mind, too, that you are selling your business and the theory is that your goal is for you to leave your business. Bragging to potential buyers about how the business was and is built around your skills and expertise may not give them the warms and fuzzies that they can succeed without you.
If so, it may be difficult for the new buyer to come in and keep sales up to your level. If it is your skills that the business is relying on, and you leave, then the new buyer will feel that they are going to be left with nothing. Instead, create sales processes and tools that can be replicated by others. Prove it by hiring a salesperson and allowing them to be successful.
Again, having you as a key resource for delivery is not a good sign. Your business should be able to stand alone without you—that’s what you are selling! Create processes and tools that can be replicated by others. While your “secret sauce” may be the reason you’re successful, it can’t be so secret that only you can make or deliver it.
This may or may not be a big issue, but if someone can replicate your product easily, there will have to be value elsewhere in your business. Otherwise, potential buyers can either start from scratch themselves or they may be concerned about competition. Understand your business’ value, not only in your products but in other areas of your business. Also, understand any barriers to entry for potential competitors, and if they’re not there, try to create them.
When a prospective buyer is looking at your business, they’re hoping for a business they can walk into and operate with minimal input. It’s kind of like buying a house; the houses that sell for a decent price have been upgraded and everything works. If it’s a fixer-upper, the buyer expects the price to be lower.
This can be challenging, as changes in your industry are somewhat outside of your control. Your option is to decide when would be the best time to sell. Of course, years ago may have been the best time, but the future is your only option. Approach the sale of your business as a true businessperson. Create and display as much value in the business (not in yourself) as possible to show prospective buyers that they can make money even after paying the purchase price—that’s what they’re looking for!
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