“I sold my business” is a magical phrase for micropreneurs. It conjures up of pictures of wealth, leisure and exciting new challenges. For many micropreneurs, it’s the goal from day one.
“Selling might not be everyone’s objective when they’re starting out, but it should be” says Ned Minor. Mr. Minor is a transaction attorney in Denver, and the author of “Deciding to Sell Your Business: The Key to Wealth and Freedom.”
It seems that, eventually, every business owner leaves their business. It is left either sitting down at the deal table or feet first on a stretcher.
The idea of working until your last breath is not uppermost when you start on the roller coaster ride known as “micropreneurship.” If you aren’t already planning a more graceful exit, you may come out on the short end of the stick.
When starting a business you’re usually so busy with the details involved that selling out is the furthest thing from your mind. But the day you start building needs to be the day you should start designing your exit.
Many micropreneurs are serial business builders. The fact is that they sell one business to immediately begin another. In fact, many micropreneurs enjoy building up a new business more than the profitable success it becomes.
What does a saleable business look like?
For one, it’s saleable if it’s “scalable” says Minor.
There are small-and-steady businesses sold every day, but the big bucks come looking for a business that has huge growth potential. Every buyer thinks that he/she is smarter than the seller, that they can double or triple the present business it is doing. A business will fetch the best price only when buyers believe they can take advantage of significant future growth potential.
Selling a company’s future
What does this mean? It means proving previous growth and validating your future growth strategy. You need to start with 2 years of audited financials backing up historical growth. Then, be prepared to explain your business strategy and how it fits into the overall market. The opportunities for growth could be through acquisitions, or product development, or even through increased demand.
There are two types. There are those who are “financial buyers.” These people will typically pay a lower price. Why? Because they have a fire-sale mentality.
Then there is the “strategic buyer.” You need to find this type out there. Paint them a picture as vivid as possible. Show them a great customer relationship, a great piece of intellectual property, an advantage in time to market, or a key employee. Show the strategic buyer how one plus one equals four or even five.
Why settle for just one buyer when you could have two?
Having another buyer in the wings could be a vital strategy in the sale process. Having strong, visible alternatives makes any buyer sit up and take notice. It adds some tension to the deal. Each side wants the other to think that they’re about to walk away; it’s the tension that gets the deal closed.
Who are the best buyers?
They are large, large companies with broad, strategic agendas and cash to spare. Selling to a public company also has other advantages and tangible benefits. Many transactions leave the seller with a fistful of stock, or worse, a long-term payout. A publicly traded acquirer makes an eventual cash payout more assured. Be sure to make your business sale more than a sale of your personal network and capabilities. Make it look like it’s worth the asking price, especially if you’re planning to leave after the sale.
The sale of a business is complex. If you’ve been in business for 10 years, then it has 10 years of potential liabilities, lawsuits, and bad accounting. Buyers want to know exactly where the business stands, so extreme due diligence and complete disclosure on your part is essential. Sometimes what is requested during negotiations is mind-boggling. You should hire some outside help to put it all together.
Getting the deal closed takes the talents of several people, and here’s a list of who you’re likely to meet on your way to closing.
On the Buyer’s Side:
- CEO: The chief executive needs a vision of how the new company will fit into the existing organization.
- CFO: This is the detail person, and a professional skeptic. In the long-term view, he/she will take the heat if reality doesn’t live up to expectations.
- CPA: The buyer’s CPA (or accounting firm) will validate the seller’s numbers. Don’t be surprised if the CPA doesn’t argue for a lower purchase price based on historical profits. These are the “bean counters” of the deal.
On The Seller’s Side:
- Investment Banker: He/she is a professional “quarterback” keeping both teams moving toward the goal. He keeps one eye on the sale price, and the other on the strategic best interests of the business owner.
- Transaction Attorney: He’s the referee – there to make sure no one gets hurt. The transaction attorney’s focus is the sale contract, but he/she can also handle communication with the buyer.
- CPA: The seller’s CPA should be advising the seller on the personal tax consequences of the deal, and how to handle the after-tax proceeds.
Did you think it was going to be easier to sell it than to start it, didn’t you?
Remember, no deal is a sure thing until the fat lady sings! The process can be the most harrowing, and the most rewarding experience in the life of a micropreneur. Take it slowly, planning strategy and guidance. Each step of the process can add value to the company, and get you closer to the finish line.
Lilia Lee is the owner and founder of Simplify and Manage. She is an expert on business process development and process improvement with 20 years experience in the field, working at major corporations. Prior to this experience, she was the Controller & CIO of a marine insurance company. She has a B.Sc. in Accounting from Hunter College of CUNY and a J.D. from NY Law School. She is a certified coach from Coach Training Alliance.
Simplify and Manage is a company dedicated to helping business owners simplify, to get things done. We use our system to plan, implement, take appropriate action, evaluate any process, project or money-making idea. And then, we manage the ongoing operations of the business.