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How to Make Sure You Can Sell Your Small Business

By February 17, 2010

Built to Sell

If you're lucky enough to own a business and not have to "work for the Man," you nevertheless have this problem: Do you have an exit strategy to enable you to sell your business at some point in the future?

The vast majority of small business owners, when they're done doing whatever it is they do, lock the door behind them and walk away. The reason for this "no sale" outcome -- which some experts say is the result for 99 percent of businesses -- is often that their owners didn't build their businesses to be attractive to potential buyers.

Fortunately for every small business owner who dreams of selling one day, there is a new book that outlines exactly what you have to do to get your business into shape for an eventual successful sale. In Built To Sell: Turn Your Business into One You Can Sell (Flip Jet Media, 2010), John Warrillow explains eight important steps to whipping your business into sellable shape, how to lure buyers into a competition for your business, getting the best price when you do sell, and avoiding bad deals.

Warrillow, who sold his own small business a few years ago, makes a number of great points, including these:

  • Your business needs a "standard service offering" that can be taught to and repeated by employees, so that the owner/founder can step away from the mechanics of the business. Without this, the owner is in the center of everything all the time. If that happens, no buyer will step in. Once you have that product offer down, you need to document it in a well-thought-out manual.
  • As simple as it sounds, you need to hire salespeople. In most small businesses, the owner is the sales team. Almost by definition, such a business can't be sold. Others have to do the selling to make it attractive to a buyer. Warrillow says that, ideally, you should have at least two salespeople so they'll compete and each will achieve more.
  • Once you figure out what your company does really well and codify it into your standard service offering, you have to stop doing extraneous stuff (perhaps even the stuff that got you as far as you are already). This is hard to do because it can be risky to abandon a revenue stream. But if you're dependent on revenue that is too leveraged with one client, or not differentiated, or can't scale, then it's only a matter of time before your business implodes anyway.
  • You need to have a long-term compensation plan for important managers. A lot of owners think of stock options, but Warrillow says that's the wrong approach because it's complicated and saddles a potential buyer with all kinds of legal issues. Instead, go for bonuses that reward results and longevity in the company.

Warrillow also helps you understand the traps you can fall into once you're actively trying to sell. For example, buyers will almost always reduce their offering price after doing due diligence (that's the part of the selling process when the buyer's representatives literally camp out at your place of business and ask to see every scrap of information you've ever (or never) collected about your business: cash flows, customers, market size, management team background, litigation, tax returns, and a whole lot more. Another trap: when a buyer asks why you're selling, don't say it's because you've built the business for 15 years and now you want to cash out and go fishin'. The right answer: You want to sell to achieve some liquidity and to bring in a strategic partner who can invest in the business to help it reach its potential. And then go fishin'.

Comments
February 21, 2010 at 1:37 pm
(1) Dick Stieglitz says:

You make excellent points! One of the most expensive mistakes that business owners make is they don’t have an exit plan – they don’t run their companies with the end in mind. For most of the 22 years that I owned my company, I operated without an exit strategy. I just had a sweet dream that someday I’d sell the company and live happily ever after like I saw other business owners do. If you have your own company, there are several things you can do to make it sellable and valuable – and they will increase current profits and cash flow too! Find more about this “Expensive Mistakes When Selling a Company” (www.57mistakes.com).

March 9, 2010 at 12:04 pm
(2) Tim Tasker says:

Interesting approach about exit strategy!

Join this http://bit.ly/aCnzWC conversation on Startups.com for some complementary advices about exit strategy!

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