The fundamental principles of selling a business are the same as selling anything, including whatever the business sells. The best businesses have a sales system and documented processes. They also sell on value rather than hourly rates or other ‘per widget’ metrics.
But most business owners have either never sold a business or only very rarely. It comes as no surprise then that many will achieve a lower sales price than the business is potentially worth, because they start doing things differently to what has made them successful in the first place.
Paul Lange founder of “The Hedonist Entrepreneur Initiative” has bought and sold many businesses over his more than thirty year career as part of the private equity and venture capital industry. Lange says that “Higher sale prices can be achieved by selling the sizzle of the business and not just the the crunchable data; it’s not rocket science. You start the process by positioning the business in a Sale Deck, very much like a Pitch Deck when seeking investment.”
He adds, “When we invest in a business we’re always planning for the exit from the start, usually before the ink is dry on the share certificates. The majority of our exits are via a strategic sale. We rarely go IPO. Our way of building an asset we acquire toward an exit includes acquiring and assimilating one or more other businesses before we go for the ‘big sell’. When we do, we lead with the Sale Deck every time.”
Although there is no magic formula for success and maximising the sales price of a business for sale, Lange suggests there are three fundamental steps you can follow to increase your chances of a better return on your time, money and other resources invested in growing your business to the point of a sale. These are:
1. Position the business as valuable asset
Investors and high net worth people buy assets. An asset works for you and gives you a return. Whether your prospect knows it or not they want to buy an asset. They don’t want to buy a job. Buying the business from you is attached to many personal aspirations that are unique to each purchaser. An asset will help the purchaser achieve these. A job won’t.
2. Have a system for selling the business
Building a successful and scalable business requires systems. Having documented systems and processes for running the business can help achieve a better return when you come to sell and exit. Sales systems and processes focus on presenting the value of the offering and eliminating possible objections, by addressing them and closing doors on them, as you step through the process. Sales systems are always selling the next step in the process. When selling a business, you need a system to present value, close doors on objections and sell the next step.
3. Approach the sales process psychologically more than logically
Selling a business like selling anything requires describing the item for sale. However only presenting the logical and analytical facts of the business for sale is like selling based on features and benefits instead of value. When you present value in terms that the purchaser gets, you connect them with their emotions; their aspirations and all of the reasons why they want to buy a business. Selling a business won’t be achieved on emotional responses alone, but presenting the value in terms the purchaser gets and supporting it with the cold hard facts for them to consider goes further than the facts alone.
When you have a business for sale, the Sale Deck showcases the business and the value in a concise and compelling way, and sells the prospect on taking the next step. It avoids providing information that is overkill in the beginning. If a potential buyer wants more information, make sure there is just enough in the addendum information, or dataroom, you provide with the Sale Deck. The full documentation can be offered up later for full due diligence to occur.
Lange says, “When we acquire a company to roll into an existing investment, we mostly receive these large business for sale documents that describe the facts of business in great detail and provide reams of financial data for the analytically minded to paw over; and that’s it! No warm up? Just wham bam! There’s nothing wrong with having complete data available for presentation in your dataroom, but making that your opening move, with a prospect, is like spewing your life story over a partner within the first few minutes of a first date.”
He goes on to say, “A good Sale Deck will have no more than 18 slides and they have to be in a specific order. The order needs to be such that each slide builds psychologically, not logically, on the previous slide. I know that sounds weird for traditional thinking about business for sale documents, but selling is psychology. Don’t have more than 18 slides. You can have less than 18 so long as you have them in the right order. We prefer 18 when we’re selling a business; it’s just a magic number we’ve found works really well for us.”
If you’re thinking of selling your business, consider the possibility of creating a Sale Deck in addition to the traditional more complete documentation, and make it part of your system for selling your business. Use the Sale Deck as the initial touch point with potential buyers to present your business as a valuable asset. Layer the information you present in the Sale Deck and in your overall process using a psychological approach supported by logic. For more information on the how to create a compelling Sale Deck using a formula that has been tried and tested, visit www.hedonistentrepreneur.com/businessforsale