Any owner interested in selling a small business in 2010 needs to understand that success requires adapting to dramatic changes in the marketplace.
The economic picture is dramatically different today than it was say, 20 months ago when profits were up and business loans were easy to obtain.
The hopeful seller should learn at least six important principals for selling a business in order to become an ex-owner successfully in this new decade.
1. Create a business plan: A well thought-out plan is imperative when selling a small business at a time when economists have more questions than answers and when so many buyers are troubled by uncertainty. The good plan focuses on steps needed for the company to enjoy improved earnings and profitability. A business that comes with a blueprint for the future is appealing in this marketplace.
2. Activate marketing strategies: Most business owners know they can boost sales by finding ways to do more for existing customers and by finding additional markets in which to compete. But owners also are often reluctant to engage in these actions, knowing the role of salesperson is much harder than simply carrying out the supervisory duties with which they’ve become comfortable. But to “sell” the marketing part of the business plan to prospective buyers, it’s important to demonstrate that it’s being put into action.
3. Begin the makeover: The general inquiry into whether the company is prepared to compete effectively in the current marketplace is explained by specific questions about use of the Internet and social media for marketing and customer relations management. An organization doesn’t have to be in a high-tech or media industry to benefit from these tools and methods. And most companies that don’t make the effort to establish a modernized presence for the new decade are at a disadvantage. An important move for a seller is to begin the work needed to position the business for the present.
4. Renegotiate with vendors, even employees: A lease that is about to expire, a vendor who seeks new commitments, even workers willing to change the terms of their employment to keep their jobs–these all are opportunities to renegotiate. The smart owner, noticing the economy’s negative impact on the business, doesn’t let the business absorb all of that impact, but goes back to the bargaining table with those to whom she writes checks. The leverage, of course, is the ability of a business in this economy to find better deals by working with other landowners, vendors and workers. Lowering costs can do wonders for the bottom line, which, of course, boosts the appeal of the business.
5. Be willing to help finance: Owners who were selling a small business during the lending frenzy preceding today’s tight money problems might reasonably have expected to cash out. It’s not that long ago when banks were lending and business buyers were using their substantial home equity to help secure purchase money loans. Today, the funding source has all but dried up. Sellers who want a deal and at their price, almost invariably need to help finance.
6. Become familiar with earnout methods: When the seller “knows” the business will regain former profitability as soon as the economy improves, he wants to sell for what the business was worth–what he claims it will be worth again. Meanwhile, buyers consider the company’s performance just yesterday to be ancient history. This pricing gap sometimes can be bridged with a formula that adjusts the price of the business through the mechanism of buyer’s payments, based on earnings for a specific period after close. A seller using this strategy can accept the buyer’s price with knowledge that if and when business improves the price will climb.
It’s not impossible to succeed at selling a small business in this environment, just very challenging. Chances are improved considerably for the seller who employs these six tactics.
About The Author: Peter Siegel is a SCORE Counselor specializing in consulting those selling or buying a small business. He is the Founder of BizBen.com – Businesses For Sale In California and has written three books on how to buy & sell small businesses. If you have questions about the buying or selling a business process please feel free to phone Peter Siegel at: 866-270-6278.
