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How to Sell Your Business Successfully

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  • How to Sell Your Business Successfully

How to Sell Your Business Successfully

As the legend has it, one of the most renowned investment bankers was not employed as a banker before he actually became one. The famous story of the Goldman Sachs President, Sidney Weinberg proves that one need not be a banker to sell his business. From cleaning the shoes and the hats of the bank partners to helping forge some of the largest deals of all times, he made it big without any degree or study of banking.

By following the same kind of rules, many others have been able to make it big into the world of investment banking. The trend has not stopped yet and many small business owners are increasingly getting into this space. That’s because investment banking is no rocket science. It is, in fact, a discipline or an area with some rules and if you happen to follow the rules you are good to go.

And so if you are a business owner and wish to sell your business in the near or far future, you can definitely do it yourself without the help of an investment banker. All you need to do is apply some key rules to maximize your chances of a successful sale.

What does an Investment Banker Do?

Before you decide on selling your business without the help of an investment banker it is important to understand the role they play as a party involved in the entire transaction. So what does the banker do?

An investment banker’s main role includes:

  • Setting up the valuation and estimations for your business
  • Putting together a memorandum of Sales that describes the details of the strengths and the profitable prospects of your business.

Once they are done with the above, they then use their contacts in the industry to get suitable buyers keen to purchase your business. They then do the negotiations on your behalf and finally are there with you during the closing of the deal.

Fair Enough. That’s a good job done. Isn’t it? Taking care of everything with no hassles to you. But do they add value to your business?

Conclusion

So though investment bankers are the experts in taking care of all these M&A processes, there is no reason why you cannot sell your business yourself. This post explains pretty much the same.

How to Sell Your Business Successfully

Hiring an investment banker for the sale of your business means you are giving this work to someone who has deep-rooted knowledge of the process and of course the industry that you deal with. This implies, he would know, about the domain of your business already and will get you buyers working with similar domains and keen to expand rather than getting you uninterested buyers with different interests. This means a buyer from your domain will know the value of your business and that in itself means value-added.

Having said that, whether you want to hire a banker or not solely depends on whether you have all that time to do it yourself and whether you know how to handle the entire process. If you feel you are unsure of any of that, an investment banker would still be your best bet.
However, if you want to do it the DIY way, the following steps shall help.

Steps to Sell your Business Yourself

1.Valuing the Business

This is where the bankers do an impeccable job by evaluating and assessing your business correctly. When you are doing it yourself you will have to do it with the same expertise too.

When you are selling, you might be tempted to predict a humongous growth in the future, however, do not overdo the projections unless you back it up with some income guarantee such as a long term contract or an IPR or anything that truly differentiates your company from the rest.

The idea is to market your USPs better rather than talking about growth without any proof and data.

  1. Conduct Due Diligence Internally

This is something that you would need to do in order to stay prepared for sale. Once you have put up a proposal for sale and the buyer wants to conduct due diligence himself and your business fails the inspection, it may get rather embarrassing for you.

To avoid such a situation, ensure that you conduct due diligence internally and do it with an honest mindset of a buyer. Make thorough checks on all your data in the data room. This would ensure all the loopholes and the vulnerabilities are exposed on time so that you can remove them or fix them before the actual due diligence process starts. At times, when you conduct due diligence internally, you might even find that your business may not even be ready for a sale yet.

So, make sure you are prepared with your checks and balances and answers by conducting due diligence internally.

  1. Preparation of Documents

The next step is to prepare documents and to prepare them nicely. This is where bankers add value by preparing expert memorandums of sale, but you can find numerous sales memorandum samples online. Just ensure you download a good one and go through the required level of detail.

Ensure these memorandums are voiced in the third person and you refer to your business as “the business” and not “we” or “us”.

There is a complete list of documents that you will need that includes:

  • Financial statements for the last 3 years (preferably audited)
  • Tax returns
  • Seller’s other earnings and cash flow
  • A detailed list of all inventory
  • A complete list of all equipment, fixtures, and furnishings with detail of the value

Not a big deal for your accountants!! You just need to tell you, accountant, to work on getting these documents and they should be able to do it.

  1. Sourcing – Identifying the potential buyers

Once all your documents are ready, the next step is to look for a potential buyer. Look for people within your domain as generally businesses working in the same domain like to expand and take control of a similar business rather than touching something that is completely new to them.

Sit down and make a list of genuine prospective buyers. Then point out and outline why you feel someone should buy your business? Make presentations if needed or something that would prove that your business is worth it.

But make sure when you are going in for the deal you are prepared with your data and answers.

  1. Negotiations and the Closing Process

At this stage as per the norm, a buyer will always offer you a lower price than what you might have requested. They also may want to get into a payment arrangement that will be a combination of a lump sum amount that may be paid upfront, followed by some instalment payments along with the other payments based on the way your business performs after closing.

At this stage, it is always advisable to bring in your accountant so that he can do the required math and give your buyer the payment plan. If the buyer has offered future payments it would be better to conduct due diligence on them as well so that you know they are capable of making your payments.

Conclusion

So though investment bankers are the experts in taking care of all these M&A processes, there is no reason why you cannot sell your business yourself. This post explains pretty much the same.

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Disclaimer: This article is not a substitute for advice from a trained professional. By using this website, you agree that DesignFreeLogoOnline cannot and will not be held liable for any action taken as a result of using the information in this article.

2019-12-20T06:32:43+00:000 Comments

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