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Why the Best Time to Sell Your Business Is When You Least Expect It

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Entrepreneur

Many small business owners wonder how they can expand while keeping the quality of their work high. Regardless of the type of company you have — whether it’s service-based or product-based — you need to follow a few fundamental steps.

It’s possible to start a company without these things but not to grow it effectively without them.

1. Establish a clear company structure: A well-defined structure is essential for growing a company effectively. Outline and document each team member’s different titles and responsibilities.

As a business owner, you might wear many hats — marketing, sales, quality assurance, customer service — but as your company grows, it’s important to hire people for specific roles and hold them accountable for their tasks. The job ad should clearly define what each person is in charge of.

2. Document business processes: Michael Gerber, the author of “The E-Myth,” a must-read for business owners looking to grow, states that one common issue in all small businesses is inconsistency and difficulty scaling.

Imagine owning a small bakery and wanting to expand. You’ll need a process for bringing in new employees and documented best practices. Without these, opening more locations could lead to uneven quality and service. Outline each step in detail: when employees should arrive? What’s the first thing they do in the morning? Where are the ingredients stored? A business should function like a well-oiled machine. Adopting structured procedures helps maintain consistency across all locations.

3. Train your employees: Creating a business is like crafting art; having people work together smoothly is truly artistic. You need motivated individuals with specific skills, but you also need a reliable, repeatable infrastructure.

Without proper onboarding and training, even if you list out best practices, the quality of work will vary, especially if you open multiple locations.

Review the best practices with new hires, then let them observe you before they start doing the tasks themselves. Watch them closely at first to ensure they follow the steps correctly. Once you’re confident they can do the job, let them work independently.

Related: Are You Guilty of Poor Onboarding? The Consequences Are Worse Than You Think.

Preparing your business for sale

1. Step aside: If you plan to sell a company, it must function without you. A real company has interchangeable parts and doesn’t rely on its founder. When purchasing a business, your potential buyer is going to look for order, structure, and scalability.

2. Prepare to spend time and money: If you want to sell your business to finally rest and get your return on your investment, I have some bad news for you. Selling a business is very costly and resource-intensive. Understand that not every deal will go through. This is part of the process, so don’t be disheartened if it happens.

3. Clean up your record: Financial records should be clear, and third-party verified profit and loss statements should be accessible. Keep detailed records of all costs, including salaries and expenses, organized and easy to follow.

Consistent growth over several years is more impressive than sporadic success. Buyers might offer you multiple times your profit, and a company with strong growth potential can command a significantly higher price. For instance, tech companies with steady user growth can command higher multiples compared to other businesses like restaurants, which might attract lower offers unless they have valuable assets like equipment or prime locations.

Put yourself in the buyer’s shoes. What would you look for? Be ready to discuss your plans for growth. If your sales are flat or declining, show that you have strategies in place to grow the business.

Related: 5 Crucial Mistakes to Avoid for a Successful Business Sale

4. Find potential buyers: If your business is growing, like Digital Silk, you might get inquiries weekly from interested buyers. Do not waste hours on conversations immediately. Start with a short, simple message — 3 or 4 lines that describe your company, mention that you’re preparing for a sale, and highlight any growth metrics. For instance, you might say, “We’ve grown by 20% annually for the past three years and are looking for a suitable acquirer. Let’s schedule a call to discuss further.”

Hire brokers who can market your company to potential buyers, such as private equity firms or bigger companies within your industry. You could also consider hiring someone who knows the key players in your field. Brokers can ask for a significant fee, sometimes more than expected, leading to frustration as they didn’t share in the hard work and dedication put into building the company. However, hiring a broker can yield better results than doing it alone. Alternatively, hiring a consultant with a small bonus upon sale can be cost-effective.

It’s crucial to consider who pays for third-party audits and legal fees, and it’s possible to negotiate these with the purchasing company.

How to negotiate and close the deal

Be transparent. When buyers show interest, they’ll often ask for specific details. It’s common to feel uneasy sharing this information, especially with a competitor, so have a Non-Disclosure Agreement (NDA) for them to sign before sharing sensitive data.

Be aware that due diligence is a thorough and prolonged process. Buyers will take their time to scrutinize every aspect, so prepare yourself and remain patient.

Buyers will often want to talk to leadership and key staff members. They’ll also look at your client base to see their satisfaction levels. Expect them to audit your financials and ask about your growth strategies. They want to ensure they make a safe investment and that the company runs stably after the sale. Keeping everything organized and ready for inquiries can help simplify the entire process and boost the chances of a successful transaction.

Take care of your employees. Most business owners are empathetic and truly want to avoid putting their staff in challenging situations. Generally, when a company changes hands, staff do not want to leave simply because of the sale. The acquiring firm typically makes significant announcements, creating excitement with promises of improvements. They’ll highlight how the acquisition will lead to better connections and advancements for the company and its employees. At times, they may offer small incentives to retain key leaders, but more frequently, discussions center around how joining a larger entity promises a brighter future for everyone involved. Usually, the buying company wishes to retain staff, believing they will perform better in a more stable setting.

In my approach, I like to set clear goals, indicating to the team that they will receive shares upon the sale. It’s vital to encourage motivation and uphold transparency. When the prospect of selling arises, word will inevitably spread, making honesty essential.

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