I’ve spoken at dozens of conferences to thousands of business owners, and they all have the same three things in common when it comes to selling their company.
Most of their wealth is tied up in their business; it’s their largest asset. The vast majority of an owner’s net worth is in their business, and data shows that 81% of owners plan to leave their company within the next ten years. But only about half have ever had their business valued. That means that although most of their wealth is in their business, they probably don’t have an accurate idea of how much it’s actually worth.
Knowing the value of your company at every stage of development is something I believe is essential for every business owner. You may need an infusion of capital at some point. You may get an unsolicited offer for your business or be forced to sell because of health or a change in your family situation. Knowledge is power in those scenarios.
Most owners are planning to fund their retirement through the sale of their business. If the number you get from a buyer doesn’t match the number you need to retire, you’ll need a few years to fix the value before you sell. If you wait to get an opinion of value at the last minute before putting it on the market, you don’t have time to make needed changes.
90% of business owners have never sold a company before. You’re an expert at installing and repairing HVAC units, but you’re an amateur at selling companies. I always tell owners that they have to practice what they preach: you wouldn’t ever recommend that a homeowner take on installing a part, no matter how small. Leave it to the experts, right? You risk a lot if you don’t follow that advice yourself.
Many of the buyers for your business are professional buyers: Private Equity firms or strategic buyers who have made dozens of acquisitions in the past. They know what they’re doing, and they know how to price and structure a deal to their advantage. Even if the price they’re offering is a great one, the devil is always in the details of the terms.
You don’t know what you don’t know, and this is why I always recommend that you bring in an experienced business broker when you’re considering a sale. They will be able to help you understand the implications the terms of your deal have for your future. You’ll only get one shot at selling your business, so if you leave money on the table or put your retirement at risk, you won’t get a second chance to negotiate. The stakes are high, so why would you take it on yourself when you can find a trusted partner to make sure you avoid costly pitfalls?
By the way, another thing your broker will try to do is to bring in more than one qualified buyer so you have the ability to compare. If you only have one offer for your company, it always looks like the right one. Two offers give you a chance to decide for yourself which is the better deal for you.
Sellers don’t understand the complexities of selling a business, and they don’t know who to ask for advice. If you’ve ever sold a home, you have an idea of how complicated a business transaction can be (multiply the details and the possibility for costly errors by about 50.) But most business owners are hesitant to ask for advice before the sale.
They’re worried that word of the sale might leak to competitors or their employees. They’re sometimes embarrassed that they don’t know what they’re doing; it’s hard to admit you’re not the expert after years of being the boss.
So, if they’re going it on their own, they wind up asking for advice and information from exactly the wrong people: the people who want to buy the business. The buyer’s interests are not aligned with yours; you need a trusted advisor who is committed to helping you get full value from your sale and negotiating terms that make sense for you.
I always say that a broker will earn his fee back easily in a higher offer and by avoiding costly mistakes. To get a complimentary and confidential opinion of what your business is worth, click here.
