Seasoned entrepreneur shares everything you need to know about selling a business.
8 min read
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I started a digital agency over 15 years ago — and selling it was not anywhere near the forefront of my brain. In fact, I was bringing in very little revenue which made the prospect of selling my company down the road even more unlikely.
However, over a decade later, my agency suddenly had over 250 employees in multiple offices around the world. We raked in millions in revenue each month. And not only was selling my company a real reality, but brokers and larger enterprise companies were seeking me out to inquire how they could purchase it autonomously, without any legwork from me.
To fast forward through the boring parts of this story, I did eventually sell my digital agency to a global company. But although we’re skipping through some of the details, selling my company taught me quite a bit about the process of organizing a company for sale, finding the right buyer, and ensuring you receive the true worth of your company – all of which I’ll share with you in this article.
Related: Know When and How to Sell Your Business
1. Always think of your company’s resale value
Selling your company is unlikely to be on your mind as you’re in the trenches, trying to grow teams, improve productivity and break even. However, you need to have your eye on the prize — and often, the ultimate goal is a high-value sale. Therefore, always think of how you can successfully sell your company — even at the very beginning of its inception. This will ensure you stay the course and keep the company operations streamlined.
One of the most important things you need to keep in mind if you plan on selling your company is that you need to have highly organized bookkeeping records that are clean as a whistle. Take the time to accurately track expenses (and categorize them correctly). After all, no reputable buyers will purchase your business unless they can fully understand your profits and losses (P&L).
The biggest mistake a new company can make is how they track expenses. It might be tempting in the hectic days of a startup, but don’t let accurate, clean bookkeeping falter. If you can maintain clean accounting records, you’ll automatically be positioned for a more successful sale — even many years down the road.
2. Train your employees to work well with or without you
It might be tempting to overextend yourself — particularly when it is in the early growth stage of your business but, it is imperative that you find dedicated and qualified team members as soon as possible. Reliable employees are necessary at the moment — they can execute tasks, handle problems, and alleviate some of your stress of workload overall. However, they are also important for improving resale value. Changes are, your company will most likely forge ahead without you after you sell. (And even if you stay on board, you probably won’t be working with your boots on the ground, and will remain in a managerial role.)
A buyer probably won’t be replacing every employee. Therefore, you need to make sure that every employee is trained well and can fulfill their responsibilities, whether or not you’re there managing them. Take the time to train employees hands-on at the beginning. Document processes, best practices, and more that each team member should follow to a T. Watch employees complete tasks, and answer any and all questions to ensure they are comfortable with their role.
Then, let them fly. If you hire qualified candidates and take the time to train them well, they will be able to collaborate with team members successfully, carry out their duties, and ensure the company operates seamlessly on a daily, weekly, monthly and yearly basis. This type of employee organization is particularly appealing to potential buyers because it will alleviate the training they will have to do after the acquisition and make any employee changes down the road easier to manage.
Related: How to Value a Business?
3. Learn how to know when you can sell your business
Once you decide that you would eventually like to sell your company, you then need to figure out when you should sell.
For instance, what market indicators should you look for? Do you need to make a certain amount of profit? Will there be specific signs pointing me in the direction of a sale, or will I be going this alone?
All of those items are important in some way or another, but to be honest, the most crucial ways you can evaluate your business are through profits and revenue. Steady growth in these areas — whether or not you’re breaking even or bringing home a positive cash flow — will signify a successful business model, products and services.
Once your company is demonstrating consistent month-over-month revenue growth, you’ll know that it’s a good time to sell. If you’re looking for a more specific item to help you know when to sell, aim for $50,000 per month. This amount — which equals $600,000 per year in revenue — generally showcases a successfully growing micro-sized business which a serious buyer would be interested in.
But remember — figures like that are highly relative and depend on the type of business and industry. For example, professional agencies need to make thousands of dollars each month in revenue. Meanwhile, small startups could see interest with less revenue, pending growth.
4. Learn how to negotiate effectively
The ability to negotiate well is imperative for business — but it is even more important for the tough conversations that come with selling a business. You’ll need to speak with brokers, enterprise businesses, and other possible buyers — and those discussions can get complicated.
For example, when I was in the process of selling my agency, many potential buyers offered a price that was way undervalued. They did this to haggle me into a lower price range. However, I knew the value of my company, and I stuck to my guns and did not take the bait. Because I logistically knew what my company was worth, I was better able to remove my emotions and negotiate firmly and effectively, bringing in a price that was worthy.
Pro Tip: Many businesses sell for anywhere from five to 10 times EBITDA (this measures the profit margins for companies). However, there are exceptions to every rule — particularly with buzzy industries and business models. An example of this would be a cloud-based CRM such as Salesforce.
Related: 10 Questions to Ask Before Selling Your Business
5. Figure out how to say goodbye to your company
The last step of preparing your company for sale is learning what your role will be after you sign on the dotted line. Regardless of whether or not you remain at the company after the sale, your role will not be the same. If this is the decision you and the new owners have come to, take the time to learn exactly what your new responsibilities will look like and reconcile the differences.
If you decide to leave the company completely after the sale — which I do recommend — you still need to learn how to say a more final goodbye to your brainchild before you head off on a new adventure. It is important to note that selling a business can be very emotional — even if it is what you truly want to do. After all, it can be difficult to turn off the special connection you might feel with the company you worked so hard to get off the ground.
If this is the case with you, I recommend reminding yourself of all the objectives you achieved, such as certain growth indicators, revenue achievements, and even the simple fact that you are selling your company. Relish in your feats, prepare yourself for a change in power, then take some time off to rest and brainstorm your next entrepreneurial idea.
Even if you’re not selling, operate like you are
All in all, the process of successfully selling a company is different for every business owner. Industries may go through ebbs and flows, business models may succeed and wane. Ultimately, the selling tactics that worked for me might not for another business — particularly depending on the type of company and the current market.
But luckily, by following the steps below, you’ll be sure to cultivate a highly-organized business that operates smoothly and efficiently.
- Track profits and losses, and keep organized books
- Train employees to work efficiently without you
- Understand when might be a good time to sell
- Learn how to negotiate well
- Learn how to say goodbye to your company
And those elements will be the key to discovering the best buyer who can take your brand to an even higher level of success.