It always amazes me when I meet with potential sellers whose businesses are in decline and they are surprised learn that buyers will not pay them based on their "glory days" of the past. Sometimes they're shocked to hear how little value their business may bring in the marketplace. The small business market is not ripe with turnaround experts. Buyers are mainly looking for stability, growth is a bonus.
Before we get into the meat of the article, you need to know that the best time to sell a business is when it is doing well, very well. It is far more difficult to generate any excitement when you bring a declining business to market. However; if you're faced with that predicament and must sell the business, here's what you need to know and consider:
- Can you resurrect it? If so, at what cost and how long will it take? Unless you have no choice, it may very well make sense to dedicate yourself for a year or so to bring the business back up. Doing so will clearly demonstrate to prospective buyers that the business can grow.
- Be completely honest with any prospective buyers – explain to them precisely why the business has declined no matter how difficult it may be for you.
- Spend some time to write down all of the reasons you believe contributed to the decline, what you would do differently if you could go back in time, and what can be done now to repair the damage. This will serve to be a very useful document to the buyer. While it can be a humbling experience for you, it will demonstrate that you are not looking to fool anyone. Plus, if you lay it out in a logical manner, you can improve your chances of getting a bigger purchase price.
- Prepare an action plan for the new buyer for their first three to twelve months in business.
- Consider offering a longer transition/training period to the buyer although they may actually want you around for less time, but at least offer it.
- Be willing to accept either a low purchase price or a performance laden deal. This may be in the form of an earn out, and any deal will likely involve a significant amount of seller financing unless you want to "give it away" for an all cash deal however that will be rare.
- Don't oversell the business and how wonderful it can become with "new blood". You will paint yourself into a corner because any growth will come from the new owner's hard work so why should you benefit?
- If you find a genuinely interested party, work to get a deal done somehow. Good buyers are hard to find. There are a ton of businesses for sale. If your business is not doing well, and you have an interested party, you may not come across another again.
While you may not have a choice for the timing of the sale, if you present your business honestly, demonstrate a willingness to assist, are open-minded about the deal, and still have some solid fundamentals in place for a buyer to build on, you can sell the business, and structure the deal so if they succeed, you succeed.