So you have been in business for a while, you are making profits and you have some supporting systems in processes in place. The phone rings, a related business owner is on the other end of the line and asks:
"Are you interested in selling your business? What do you want for it? Lets do coffee?".
What do you do next?
Many business owners will say things like "sure - for the right price" and then stammer around thinking of a number. They may have thought about how much they need to retire already, they may even have thought about the profits and some payback method of valuation. The nerves have probably set in but often a business owner will start to think of retirement, heading off on a holiday or being able to pay off the mortgage and buy a new car.
Next they go along to the meeting and engage in the social chatter and then the potential buyer asks:
What revenue and profits has the business generated last year?
What wage do you pay yourself?
So what do you want for the business?
How you answer these questions will control the sale process. It will define whether you are just responding to questions or whether you can influence the outcome.
Often the meeting ends with a hand shake and the potential buyer says - "I will send you an email asking for some information and then we can talk price".
At this point you have lost control - and unless your business is already doing fantastic profits you will spend the rest of the negotiations fighting a downward price spiral.
You will then get an email asking for revenue trends, top 20 customers, assets list, financial reports for the past three years and other items.
If you are lucky they will offer a confidentiality agreement to sign - but very often they won't. And then you are placing the future of your business in the hands of a potential buyer and most likely a competitor.
Feel sick at this point? Does this sound familiar?
Many business owners will not have a valuation already done - but the key to getting control of the process is one of two steps:
Tell them you will send a summary of the recent valuation report along with a confidentiality agreement (that often means you gain control of the process and can dictate terms).
Tell them you will meet but you want to follow a process for assessing the strategic value of the business to the buyer so that everyone understands the benefits all parties can get from any sale.
Once you adopt a process for considering the sale, all the bluff and sales talk disappears because the potential buyer knows they will end up with a measured assessment, rather than an opinion that they can discount.
The valuation process is key to controlling the outcome - it doesn't have to be a long winded process, nor a formal valuation. But a structured process takes the emotion out of both parties and you must deal with facts and analysis.
Find out more about our valuation process and what a valuation can provide from our whitepaper: Valuation 101 - What You Should Know About Business Valuation