As marketers responsible for growing the business of our clients, we often get asked when it is a good time to sell one. Every industry rides a wave and if you are a serial entrepreneur, you may want to liquidate your business assets when the going is good. But selling a business should not be a hasty process. Here is a short checklist of things you must take care of when you decide to sell your business.
Know your business valuation
How do you value your business? As a seller, you may want to look at your business with rose-tinted glasses, but a buyer is not going to fall for that. A reasonable valuation depends on several factors such as your clientele profile, the liquid assets you own, the average net profit you make each month, the growth trajectory, how much this growth depends on your availability and so on. A SaaS based business, for example, has recurring subscribers and this makes revenue projection more predictable. In other words, it is not uncommon for buyers to value it at as much as 24 months worth of revenue.
On the other hand, if you are running a restaurant business, you are in a fickle industry. Not only that, your burn rate, attrition and working capital requirements are all likely to be high. In such cases, the buyer is unlikely to go beyond 12-14 months of revenue. Understand your business model and your revenues to arrive at the right valuation for your business.
What does the buyer get?
A lot of clients who want to sell their business come to us when they have already rode the wave and the business is starting to fall. That’s not a good time to sell. A better time to sell would be when you are still riding the wave and have a few months more of growth left. This is attractive to the buyer because they know that they can recover their money sooner than projected and are hence likely to buy your business at a premium.
While at it, if your intention is to sell, do not maximize your earnings. Keep a few marketing channels unsupervised so that the buyer sees a gap in your marketing and would be likely to pay a premium.
Where to sell?
Ever wondered why tech startups from around the world list themselves on the New York Stock Exchange? It’s because they are likely to fetch a far higher valuation among American investors who are well acquainted to the tech startup world compared to a rundown stock market in a smaller country. Where you sell can determine the price you are selling it at. Find the right auction houses online or the right brokers in your industry who have a knack of finding premium investors. Getting listed here may cost you a lot more, but is well worth the premium.
Your life after the sale
What are your plans after the sale? Do you want to continue working at your business? Or, do you want to reinvest your capital gains in a new business? Some buyers are more than willing to have their sellers stay with them post-sale to help them with the transition period. There are two ways to do this – if the buyer insists on having you after the sale, you may demand a full-value sale plus a salary for yourself after the transaction. But the more common way to do this is by a cash-equity split where the buyer pays a portion of your business value in cash and offers you either equity or royalty in the new company for a certain number of years. This incentivizes you to keep working towards growing the company.