In the life of every entrepreneur, there comes a time when your business will not be enjoyable any longer. Growing businesses only for the purpose of selling them for profit is a way of life if you are a serial entrepreneur. To a first-timer, selling his/her business can be overwhelming no matter what the reason is. This post helps you in knowing about few points that must be considered while selling your business.
Giving a Reason for the Buyer to Buy
If you are looking to sell your equity eventually, developing the best business in the city is not always the perfect strategy. While evaluating your business, a prospective buyer observes your financial metrics as well as the customer retention and acquisition strategies. The prospective buyers do this as fixing such gaps in your system will actually help them turn your business around and make a profit. That is to say, when you are looking to sell your business, having gaps in your implementation is not a bad thing at all. Your business must be positioned as the third or second best in your industry for maximum leverage at the time of selling.
Crafting a Post-Exit Strategy
What is your role in your business’ operations and strategy after it is sold? Are you planning to serve as a mentor to the buyer? Do you intend to still own a board position and equity? From the buyer, the sales price must reflect demands like that. Additionally, you should also take other factors into consideration such as the offering equity in a parent company instead of cash into the account or in the sales agreement, the insistence on a non-compete clause. With each of these demands, there is an opportunity cost and the sales price should reflect these factors as well.
Setting the Right Valuation
For your business, arriving at the right valuation can be quite tricky. This is particularly true when profits and revenues don’t always provide the complete actual picture about a business. A WordPress that makes $5000 every month off ad revenue can demand the same valuation as SAS business that makes similar monthly profit.
Nevertheless, the assets that the business owns are entirely different. In this instance, the SAS business may possess the proprietary software that must have taken several thousands of dollars for its development. While valuing the property, this asset’s value must be accounted for. Also, a recurring income to the property is brought by SaaS model and it is much more sustainable when compared with a blog making money off ads. While arriving at the ideal selling price, it is significant to account for the value of these assets. You may need to hire a professional financier, accountant or a business broker to help you in arriving at the right valuation.
Finding the Ideal Platform to Sell
Finding the ideal platform for selling your business and setting the right valuation as equally important. For doing this, there are 2 reasons. The first one is, you must be seen among the industry insiders who have thorough knowledge on your business. The importance of your product may not be completely understood by a relative newbie to your industry or he/she may not have enough incentive to bid high. A buyer who holds significant assets in your industry can have the capacity to drive traffic to your property from these assets and hence would be ready to bid high on your property. The second reason for finding the ideal platform is because in an auction model, the quality of your peers decides your website’s sales price. Less interest among the bidders disincentivizes a buyer who is interested from bidding high.
For instance, a site such as Flippa is famous among the sellers looking to make money quickly. As a result, even a business that is modestly legitimate has the probability of enjoying good bids. In a similar way, if you are the owner of an eCommerce store, you should look at placing your site for sale on a platform such as Shopify Exchange – this actually attracts the fellow eCommerce entrepreneurs who are more likely to understand your business.
This article is written by Savaram Ravindra, who was born and raised in Hyderabad, popularly known as the ‘City of Pearls’. He is presently working as a Content Contributor at Mindmajix.com. His previous professional experience includes Programmer Analyst at Cognizant Technology Solutions. He holds a Masters degree in Nanotechnology from VIT University. He can be contacted at firstname.lastname@example.org. Connect with him also on LinkedIn and Twitter.