Learning the Basics of how to Sell your Business

A strange thing tends to happen to even the most hard-nosed businessman, when it comes to considering an offer for his business.  He tends to just let everything he knows about selling go out the window. When it comes to selling the business that you have put years of your life into, sometimes, you can become a bit self-absorbed. You can just be all about "me, me, me". That's not how you succeed in selling anything. To sell something successfully, you need to focus on fulfilling the needs of the buyer - and not on fulfilling your own needs. Let's look at what you need to know to learn how to sell your business.

The first thing you need to realize learning how to sell your business is, that this happens to be like any other sale you've made in your life. As any sales intern knows, selling is supposed to be about first determining what it is that a customer is looking for when he walks in. You need to ask the buyer of your business what he hopes to achieve buying you up. You need to know how your business will make a good act extension of theirs, what kind of returns they expect once they do acquire your business, and so on.

It can be a complex equation what determines the price of your business. But to simplify, if the value of your business is $100, and the buyer is looking for a 20% return on their investment, they're basically looking for a five-fold return on what they pay for your business (100/20=5). The fivefold return would be earnings before taxes and everything. It's the figure they call EBITDA. The more they expect your business to bring them, the less they will be willing to pay for you. Now why is that? Doesn't that sound kind of counter intuitive?

It's just that the more a business is expected to earn in a short period of time, the riskier this supposed to be. And more risk there is involved, the less a buyer is usually willing to pay. It's the way it is when you invest your money in shares. Usually, when your broker points out a high-performing small-cap fund to you, you know that since it's a small-cap fund that's performing usually well, it can't be all that solid an investment. You're taking a risk, a bet on it. And for that, you expect a lower price.

Learning how to sell your business then is all about learning to make your business look like a low risk investment for the buyer. How do you do this? Well, if you are a business that relies on just two or three important clients, if you are a business that has just one or two suppliers for everything, if you have just one or two important employees whose skills you depend on, and if you have handshake agreements to put all of these in place, you happen to be high risk business. Fix all these, and suddenly, magically, you turn lower risk and become worth a lot more.