What to Consider When Selling a Business
By: Bill McBean, author of The Facts of Business Life: What Every Successful Business Owner Knows that You Don’t
When you are selling your business as a product, the more you understand about business, your product, and your buyer, the easier it is to explain and justify the price.
For example, if you can tell a prospective buyer about future opportunities and how your employees are trained to take advantage of these opportunities, and tie it into expected future profits, you can make a compelling argument that adds value to your business.
Similarly, if you can explain to a competitor who is considering buying your business how the economies of scale will lower the overall costs of both businesses, and the profit windfall this could create, you are much more likely to get the optimal price for your company.
Leaving your Company to a Family Member
Having a good understanding of business is important if you choose to pass your company to a family member as well. Not only will it help you determine the best candidate to take over, if you pass along not only the company but also your understanding of business, you will be doing all you can to ensure his or her success.
Bear in mind, too, that when there is a successor, the “fair value” of the business can become a family issue, especially if the successor becomes the owner. Others in the family will have to be convinced that their payouts are adequate compensation for their loss of the benefits and income from the business.
In addition, the more you know about business — including issues like taxation, asset protection, and prospects for the future — the smoother the transition will be for you, your family, and the business.
Closing Down your Business
If you choose to close your business down, you must remember that your business assets have value and should accordingly be sold for as much as possible.
For example, your business’s customers can have value to some of your competitors, so knowing who these competitors are and who would pay the most for this asset is obviously important.
Similarly, if your business has been around for a while, your company’s brand name may have value. In addition, knowing accounting and the difference between book value and market or replacement value can mean more money in your pocket.
The point is that just because you’re closing down your business doesn’t mean the business assets don’t have value, and the more you know about business the easier it is to determine which of those assets have value, what that value is, and who would pay the most.
Sustaining your Company’s DNA
One of the basic facts of business is that successful businesses are invariably built on the relationship between a company and its customers. Most successful owners realize this, and when they can show prospective buyers their employees have good relationships with their customers it increases the good will or blue sky value of their companies.
If, for example, when selling your business you can give the buyer confidence that it will continue to run as it has in the past, even without you, the higher your payout is likely to be. However, if you don’t show a buyer that you understand the importance of people and processes in operating the business, it will likely be viewed as a flaw and probably result in a lower price being offered.
Similarly, if your employees are poorly trained and exhibit unprofessional attitudes, a prospective buyer is likely to pick it up quickly, and to take it into consideration in making an offer, to your detriment.
The point, of course, is that the more you know about business, and the more you make sure your people act the way they should to foster success, the more likely you are to realize the greatest amount possible from the sale of the company.
Your employees also play a critical role when succession is involved. No successor wants to lose good employees, their knowledge of how the business operates, or the relationships they have with customers.
The best way you can avoid this is to do all you can to make sure the employees do not feel threatened by the change and to make your successor understand the importance of upholding the companies DNA.
How to Exit Gracefully
It is also essential that you give your successor the room to develop his or her own relationship with the key employees as well as with the rest of the staff, and not cast too large a shadow to generate business success.
Finally, if you choose to close down your company, even though your employees will no longer have any business value to you, they will have value to the companies you used to compete against.
Helping them find new places to work, and explaining their value to one of your former competitors will not help your business, but it’s the right thing to do, and it’s a gesture your employees will always appreciate, however things work out in the future.
Excerpted with permission of the publisher, Wiley, from The Facts of Business Life: What Every Successful Business Owner Knows that You Don’t by Bill McBean. Copyright © 2012 by Bill McBean. All rights reserved. This book is available at all book sellers.
Bill McBean, author of The Facts of Business Life, spent many of his nearly forty years as a successful business owner in the automobile industry where, among many other achievements, he purchased several underperforming dealerships and turned them into a successful business enterprise with yearly sales of more than $160 million. Since selling the company to the world’s largest automotive retailer, AutoNation, McBean has been involved in several new businesses, including McBean Partners, an investment and business mentoring company, and Net Claims Now, which provides administrative services and support to the restoration industry.