Leading one of Nashville’s most successful business brokerage practices, I am always asked, “how do I sell my business?” Whenever I hear that question I have to remind myself that just because I do this everyday and find these steps self evident, selling a business in Nashville (or anywhere else) is a complete mystery for those not in the business of selling businesses. So today I lift the curtain and reveal to you the FIVE STEPS you need to take to get your business sold.
1. Recognize you need help
Oh sure, what else would you expect me to say? But I can tell you story after story of disasters I’ve seen when business owners sell their businesses without the help of an experienced, honest, hard-working business broker like me. Oh wait, let me tell you my OWN story about NOT using a business broker and the mistakes I made in the process.
Frankly, when I sold my business I thought I didn’t need a broker, I was smart and had plenty of real world experience negotiating contracts and doing deals. But, when a very sophisticated executive of a publicly traded company approached me about buying my business, it wasn’t long before he had me on a short leash. Hey, I did OK, made more than I planned to make but in retrospect I know I left a lot of money on the table, and to this day I regret not having the counsel of an experienced and mature third-party advisor.
2. Clean up your financial records
With the advent of online software like Quickbooks (www.quickbooks.intuit.com), it’s inexcusable for any business owner to not have decent financial records with the flick of my keystroke. You will want to have your internally-produced financials reviewed by a CPA on a regular (monthly or quarterly) basis, and you will want your tax returns to sync with your financial records (this NOT being the case is what craters more deals than anything else).
3. Get your business running without you
While it seems counter-intuitive, you will sell your business for more if you are not core to running it. You can do this by either having a solid management team that doesn’t need your daily input, or having your business so well automated that you don’t need to be there day in/day out.
The business owner who is the key rainmaker is the business owner who will have trouble selling their business. In these situations, the business owner will have to either stay with the business for a while to transition key accounts, or even worse, the deal might have to be structured as an earnout (generally speaking, never a good idea).
4. Figure out how much money you will have after a sale
This might incentivize you to not sell (won’t have enough) or it might incentivize you to move without haste (will have more than you thought!). It’s stunning how otherwise bright business owners don’t work the math on how a deal will play out. Assuming your business sale is an asset sale (most are) then at closing you’ll have to pay off all accounts payable and any outstanding debts, you’ll have to pay brokerage, accounting and legal fees, and the buyer will usually require some percentage held back for one year to offset undisclosed liabilities.
Frankly, when you sort through all that, you might have less money at the end than you expected. Moreover, many small business transactions involve some kind of seller financing, so you’ll walk away from the closing table in those cases with even less cash than you expected. Do the math on all this before you consider selling, it might affect your thinking.
5. Articulate a plan for how the business can grow
Key words: “a plan.” Every time I talk with a business owner about selling his/her business, I hear something to the effect “all this business needs is ……….”
Can I be blunt?
When I hear that, I always want to then say “well why didn’t you just do that?”
The point being, when you want to sell your business, you shouldn’t just say it has potential, or if we just had some money, etc. That makes you and the business sound weak. On the other hand, when you say “here’s how to grow the business and here’s the kind of return that additional investment will generate” you are speaking with clarity, which gives the buyer confidence that their acquisition has tangible potential.
Selling a business in Nashville is like selling a business anywhere in the world. A deal in New York City might have more zeroes, a deal in Zimbabwe might have more moving parts, a deal in Santiago might have more professionals advisors, but the core issues will be the same as your business sale right here in Music City.
Tennessee Valley Group
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