Hey there, and happy Friday!
Isn’t it the ultimate fantasy of (most) entrepreneurs to finally sell their business and kick back on a sun-kissed beach?
Sounds heavenly, right?
Well, it is…and it isn’t.
Today, I will guide you on my business acquisition experience.
Not only will I be lifting the veil on the ups and downs of this journey, but I’ll also share exclusive insights into the obstacles I encountered
I hope this offers you the unique opportunity to steer clear of them in your entrepreneurial journey.
Whether you’re years away from selling your business or have a contract in place, this one is for you!
Let’s dive in, shall we?
Key Takeaways
Start “selling” your business as soon as possible
Don’t go straight to a broker, reach out to your network
Know your options when selling. What can/can’t you write into the contract?
If you’d like, you can read the full story here.
Disclaimer: This can go in dozens of ways, but this is a high-level overview.
Step 1: You Decide to Sell – This could be due to various reasons, such as a desire to retire, pursue other business interests, or take advantage of a favorable market condition.
Timeline: However long it takes you to decide
Step 2: Get a Rough Valuation of Your Business – This involves a (quick) business appraisal. Typically, private businesses sell one of two ways.
Multiple of EBITDA: (Earnings Before Interest, Taxes, Depreciation and Amortization). Multiple of Sellers’ Discretionary Earnings: EBIDTA but adding back in the owner’s salary as part of the valuation.
Timeline: 1-2 weeks
Step 3: Your Buyer Signs an LOI (Letter of Intent) – An LOI is a non-binding agreement that signals the buyer’s intention to purchase your business subject to due diligence.
It outlines the basic terms and conditions of the purchase, including the purchase price, transition arrangements, and the timeline for due diligence.
Typically, when a business sells the deal structure has some (or all) of the following:
Cash upfront.Seller financing: You provide financing to the buyer. Earn out: You only get a portion of the cash based on pre-set growth metrics.
Timeline: 1-12 Weeks (depending on how long it takes to find a buyer)
Step 4: You Go into Due Diligence – This is a comprehensive examination of your business by the potential buyer.
It includes thoroughly reviewing all financial records, legal documents, client contracts, and other material aspects of your business.
Timeline: 45-60 Days
Step 5: Negotiate the Final Terms/Price – Based on the findings from the due diligence, you and the buyer may need to negotiate the final price and other terms of the sale.
This is also when you finalize the sales agreement, which legally documents all terms and conditions of the sale.
Timeline: 1-2 Weeks
Step 6: The Buyer Gets Funding – The buyer must secure the necessary funding to complete the purchase.
This could come from various sources, including their own cash reserves, bank financing, or investor capital.
Timeline: 1-90 Days
Step 7: You Close the Deal – Once the funding is secured and all terms are agreed upon, you sign the final purchase agreement, and the deal is closed.
At this point, the ownership of your business officially transfers to the buyer.
Timeline: 1 Week
The sale of my business went smoothly for a lot of different reasons, but where not here to talk about that!
I will say a quick note: The person who acquired my business was a straight shooter, negotiated fairly, and treated me equally during my transition.
It made the process much more enjoyable.
However, that might not happen to you!
Disclaimer over, let’s dive in.
Mistake 1: Not Starting Sooner
If I could go back and do it again, I would have started “selling” my business three years before actually selling it.
I would have heavily focused on profitability (instead of scaling). I (probably) could have made 20% more on the sale if I’d done that.
Lesson Learned: Start gearing up to sell your business 2-3 years from selling it.
Mistake 2: Not Reaching Out to My Network
When I sold my agency, I used a broker.
The broker takes 10% of the final guaranteed money of the sale. The FIRST person who reached out to me and was interested through the broker (that I ultimately didn’t sell to) was a mentor of mine.
Lesson Learned: Start networking with potential buyers early, and don’t use a broker until you exhaust those options.
Mistake 3: Not Charging Interest on Sellers FInancing
When I sold my agency, I only had a small amount of seller financing (which wasn’t a massive part of the sale).
However, I didn’t negotiate an interest on the note. Again, not a huge deal, but just something to mention.
Lesson Learned: Know your options when selling. I didn’t know you could add interest to seller financing.
Mistake 4: Asset Sale vs. Stock Sale
When selling a business, the sales process is often structured as either an asset or stock sale.
Asset Sale: In an asset sale, the buyer is purchasing the business’s individual assets. This type of sale does not include liabilities unless explicitly agreed upon.
Stock Sale: Conversely, a stock sale involves the buyer purchasing the owner’s shares in the company, thereby acquiring both its assets and liabilities.
Most of the time, small businesses are sold as an asset sale.
Both options aren’t bad, but a stock sale will typically be more favorable to the seller.
Lesson Learned: Know your options when selling. I didn’t fully understand the difference until we inked the initial terms.
Mistake 5: Not Being Mentally Prepared
Selling a business takes 6-8 months; let me tell you, it’s a rollercoaster.
Throughout the process, I had a mentor sign an LOI and back out, the purchase price got slashed (but then brought back to the original LOI amount), and multiple times when I thought the deal might not go through.
Lesson Learned: Be prepared for ups and downs throughout the process.
Mistake 6: Not Being 100% Out of the Day-to-Day Operations
I was almost 100% out of the day-to-day operations when I sold my business. However, I was still leading sales (because I loved it).
It would have been a bit more “turn-key,” if I wasn’t still working inside the business.
Lesson Learned: Most buyers don’t want a founder in the business at all. Get yourself 100% out before selling.
Mistake 7: Not Focusing on the Business When Selling
When I sold the business, we had (nearly) turn-key operations. However, I did take my eye off the ball a bit to do meetings and conversations with the buyer.
Lesson Learned: If the sale falls through, you still want/need a solid business to fall back on.
There was a lot of blood, sweat, and magic that went into the sale.
I’m probably missing a few things, but I hope this helps!
Connect with me on Linkedin/Twitter. If you have any questions, shoot me a DM or Tweet!
Until next week!
The post Lessons Learned From Selling My Business appeared first on Small Business Bonfire.
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