Thinking about selling your business? If so, it’s important to know whether now is the right time to sell. For many business owners, waiting until the economy improves and preparing to sell instead, is a better option.

Selling a business is an important and often emotional process, with the possibility for high stress, high-stakes financial consequences and an overwhelming number of factors to consider. Every business seller, though, has one goal in mind: getting the best price. Although deals get done all the time, in today’s economy of declining market conditions and credit crunch, it may be best for some owners to temporarily halt the search for a prospective buyer.

Especially if you’re in an industry that has been hit hard by the down economy, it may be wise to instead redirect your focus on preparing your business for sale. You’ll likely get a better return on your business growth and equity at a later time. For example, some entrepreneurs look to capitalize on tough times by trying to buy businesses for less than they are worth.
 
I recently attended the International Business Brokers Association (IBBA) Fall 2008 Conference in Louisville, Kentucky, and while there, business brokers were saying the same thing. Sellers who don’t have to sell now (during the low point in the market) should instead spend their time preparing to sell. This way, they will maximize their ability to get a good price for their business when the market improves, hopefully in the next 6-18 months.

Your business will find a buyer only when the buyer feels like it’s a good time to buy. With the current economy, buyers are encouraged because many eager sellers are willing to negotiate the asking price down. But it’s essential to make sure that the willing buyer is the right fit for your company. In this economy, business owners must decide whether or not they are willing to take a much lower price for their business. Additionally, today’s challenging credit market means that only buyers who can pay cash, or who are highly qualified for financing, have the resources to buy. Waiting until the credit markets clear could mean a larger pool of potential buyers for your business, which often means a higher sale price.

This is not to say that all business owners cannot command good prices today, however. Although there is a smaller supply of businesses for sale, strong businesses can still get top-dollar offers. They stand out from the crowd of dire sellers more than they do in a better, robust market.

So how do you know if you’re a business owner who shouldn’t sell now? In general, it’s best to sell when business is good. Even better, sell after years of steady revenue and profit growth. Especially in today’s economy, buyers will not be eager to resurrect a company that used to be thriving.

When You Shouldn’t Sell

Business is Bad- If your sales are declining, or erratic in nature, buyers will either 1) be turned away, or 2) have greater leverage over you to negotiate a lower asking price because the purchase is more risky. 

Transferability is Not Feasible- When selling, you must consider the transferability of business
contracts, processes, customers and workforce. If you can’t ensure the potential buyer
that the lease, employees and loyal clients will all not disappear along with you, it’s not the right
time to sell. 

How to Prepare to Sell

Preparing to sell means building upon your strengths and fixing weaknesses so that you can secure the best possible purchase price for your business. Above all, make the transaction process easy for the buyer. This means being honest about your motives, expectations and business difficulties. Identify common buyer desires and concerns, while maintaining an open-minded attitude. This will ultimately put potential buyers more at ease with the critical purchasing decision. If they know you’re willing to negotiate with them, they’ll also be willing to negotiate around some of the less appealing aspects of your business. Good sales strategy is 90% listening to what others want and need. 

It turns out that many of the essential business practices you’ve used to grow your business are also essential to selling your company, so it is crucial not to ignore the items below when preparing to sell:

Organize Your Books

This often involves many aspects, including outlining the financial history and outlook for your business; improving the bottom line; overcoming any financial problems and preparing financial records for review by prospective buyers. Make sure to outline all of your assets (both tangible and intangible), lease conditions, and debts both owed by and to you.  If you haven’t been diligent about keeping the books in a condition that will be easy for a buyer to understand, start doing that now. 
 
Train Capable Employees

Business buyers want to know that they will have support from an existing workforce that is very familiar with the business, its primary needs and existing customers. The employees you leave behind will ultimately help you sell the business. If possible, find an appropriate time to make sure all customers and employees know of the impending sale; but be careful about relaying the information too soon. The last thing you want is a lack of motivation or loyalty because they know you will be leaving. Maintain the relationships to ensure their transition will be as smooth as the new owner’s.  

Remove Your Partialities

Don’t put a new owner in the position of having to deal with a customer who expects special treatment or another with whom you have a verbal contract. It’s also important to examine contracts with suppliers to ensure the terms will not expire or need to be revisited when the new owner takes over. Eliminate any outstanding contracts that are needless or might worry a new buyer. 

Build Your Existing Customer Base & Credibility

Potential buyers won’t be interested in a business that lacks a loyal client base or forces them to recover from damaging press. Happy customers are your best advertising. Conversely, one extremely unhappy customer will likely make ten other individuals turn against you. Combat criticism by being honest and communicative with clients. One of the cheapest ways to get some loyal followers is by word of mouth. Besides one-on-one interaction, extend yourself online; correspond with customers via online social networks like Twitter to answer questions and talk about new business initiatives or products. It will show that your business is ahead of the curve in recognizing the importance of the digital channel.     

Enhance Your Facilities

Like the old saying, first impression means everything. When preparing to sell, take the time to boost the curb appeal of your business. Make sure the inside reflects the same amount of care, as surroundings can influence a buyer’s decision. If they can’t see themselves operating in the company’s current facilities, they probably won’t make an offer. Take the time to paint where needed, fix that old awning or sign, and clean up. 

Build Your Brand…Offline and Online

Businesses with well-known names, strong marketing and a well-executed online presence will ensure a buyer that your business is staying current with the market trends. With today’s economy, online initiatives are becoming increasingly important, as 90% of initial buyer interest in some business categories stems from the Internet. How well your web site functions, the quality of content and the appearance will all give a buyer as much a first impression of your business as the brick-and-mortar exterior. Make sure your web platform has simple navigation so the new owner can update it accordingly. If you’re purely a brick-and-mortar business, there are still things you can do to build your brand. Speak at the local chamber of commerce, and continue to explore new avenues of advertising.

Create a Procedure Manual

This should outline your business processes that help the business function on a day-to-day basis, including capabilities, contracts, relationships, systems and product, pricing and distribution strategies. Don’t forget to mention all competitors, their strengths and weaknesses (as well as your own), and any potential for growth. This will show the would-be buyer that you are well organized and have their best interests in mind, knowing full well that they want to hear all the details of the business. Imagine how appealing it would be to a potential buyer if your business comes with a well-prepared and thorough instruction manual. 

Establish a Quality Sales Force for Selling Your Business

It is wise to look into obtaining an experienced business broker, lawyer, and/or accountant to help you sell your company.  While the latter is not always necessary, as a for-sale-by-owner listing is always an option, it’s key to make sure your business is accurately valued and represented. BizBuySell.com has the largest directory in the U.S. for finding a business broker and knowing what to ask:

http://www.bizbuysell.com/business-brokers/

Lawyers and accountants can help value the business (or you can alternately generate a valuation report online or use a third-party valuation service). They can also prepare a confidentiality agreement so potential buyers cannot reveal what they uncover through the due diligence process.

Nobody knows for sure when the economy will turn around, but there’s no doubt that unprepared business sellers will face harrowing challenges when trying to sell in the current market. The key is to step back and look at your business to gain a realistic view of whether or not it is strong enough to hold its own in a difficult market. If not, you’ll avoid much stress by waiting it out and getting the business prepared for a smoother and more profitable sale in the future.

Check back tomorrow for Part 2 of 7: The Facts about Selling Your Business Independently

About the Author
Mike Handelsman is General Manager for BizBuySell, the Internet’s largest business for sale marketplace. Since 1995, BizBuySell has offered tools that make it easy for business owners and brokers to sell a business, and potential buyers to find the business of their dreams. BizBuySell lists over 50,000 businesses - spanning 80 countries - for sale at any time, with over 4,500 added or updated each month. BizBuySell also has one of the largest databases of sale comparables for recently sold businesses and one of the industry’s leading franchise directories. Please visit www.bizbuysell.com.