Thinking about selling your business? Tackle these 4 areas first
Whenever someone tells me they’d like to sell their business, the first place I point to is The E-Myth. Michael Gerber’s books have helped thousands of business owners see their life as an entrepreneur differently. Much of what I have to share in this post is the product of Michael’s exceptional work, coupled with my own hands-on experience with CEOs and founders. With that in mind, let’s jump in …
Typically, there are two kinds of CEOs who are interested in selling their companies. The first is a person who knew their end game was to sell. Right from the start, every decision was made with a clear end goal: to be bought by an individual or another organization. This means their company is likely better positioned because they’ve been thinking about who might like to buy their company from day one.
The second type of CEO is the seasoned entrepreneur who’s in a later stage of life and has reached a place where it feels like the right time to break away (or she feels burdened by the company and wants a new challenge). This CEO feels stuck in some way but likely has no idea how to begin preparing their company to be bought, what makes a company more appealing to a buyer, etc.
Whether you find yourself in the first or second category of persons, there are a few key things to ask yourself:
1. Does our organization have clearly identifiable processes?
It’s important for potential buyers to see that your company functions in predictable, reliable ways. If tried-and-true processes aren’t at the core of what your company does, then it will be nearly impossible to make the case to a buyer that revenue can be maintained after a sale.
2. Do we know the customer we’re serving?
When employees are engaged with your customers and passionate about serving them, this is a clear sign to potential buyers that there’s more to your organization than just processes. There’s passion, conviction and established relationships to build upon. It’s important to find a buyer who is passionate about serving that same customer.
3. What is the talent in my organization and have they been developed?
As a general rule, someone interested in buying your organization won’t be keen on signing a check if all of the knowledge and ability rests in one person (you). Make sure you have a robust management team that can function without you.
4. Is our financial house in order?
Remember that at the end of the day, buyers are buying revenue streams or more specifically, predictable levels of financial return. What direction is your revenue and profitability trending? How does your balance sheet look? In some cases, you might be better off waiting and focusing the next 12 to 18 months on strengthening revenue and trimming expenses to net a higher multiple.
Trying to sell a business is a lot like getting married: if you try to sell just because you’re desperate, you run the risk of making a big mistake. Don’t sell on the defensive. If you’re trying to maximize the return on what you’ve invested, it’s likely not the best mindset to have. There are plenty of other factors involved when selling a business, so feel free to reach out to me if you have any other questions. In the meantime, I’m interested in hearing from everyone here:
Did you immediately think of selling your company when you started it, and what do you think now?
Originally posted on LinkedIn