These pro tips about evaluating salability, creating your deal team, and more are a vital read for anyone planning an amazing exit!

Whether selling your business today, in ten years, or sticking with your business until you die, there is enormous benefit in knowing how to make it the kind of business that would make potential buyers salivate and leave you with multiple attractive offers to consider.

Once you start contemplating selling your business, a slew of questions will run through your mind. The first several are:

  • Can I sell?
  • Should I sell?
  • Who would buy my business?
  • How much money could I sell for?
  • What is the process for selling my business?
  • What can I do now to prepare to sell later?
  • What comes next after I sell?

    If you are not ready or interested in selling now, you can use this guidance from Coran Woodmass at The FBA Broker to make your business more profitable and enjoyable to run, too.

    Can I Sell My Business?

    There are three factors that will help you get a feel for your business’ sellability. They include the type of business, how long it has been around, and your annual net profit.

    What Type of Business Do You Have?

    In terms of physical products, there is retail arbitrage (wholesale), private label, and your own brand. Each type has its pros and cons, both for you as you run it and for prospective buyers. The operative term here is how defensible your business is. Think of a castle here – the more defensible, the less likely you are to see competitors swim your moat and take the place over. Unique or proprietary product-based brands are the most defensible because it would be a whole lot harder for a competitor to knock you off and out. Wholesale’s the least defensible, because your only asset is your inventory, and anyone with the means could duplicate what you’ve got.

    How Long Should You Wait to Sell?

    Some entrepreneurs have the misguided notion that selling their business is a quick and easy process, like flipping a domain name. Quick build, quick exit, rinse, and repeat. Nothing could be further from the truth.

    Value is in the eye of the beholder, so you have to build something of value before you can sell. Businesses with at least three years of growth get the most money. If you opened a business this month and tried to sell it next month, your prospective buyers are more likely to decide that they could do it themselves. Why pay good money for a business they could recreate more economically in such a short amount of time?

    What Is Your Annual Net Profit?

    The value of anything is the price someone is willing to pay. To value your business, you need to put yourself in your prospective buyer’s shoes. They want a good ROI. That is why we look at net profit. Essentially, that means taking your total revenue minus the cost of sales and operational costs. You and your accounting team should be on top of these numbers.

    PRO TIP

    Diversification is enormously important, too. Think multiple products, multiple sales channels, and multiple traffic sources. Spreading your eggs among many baskets helps ensure you do not lose everything if something cataclysmic happens to one product, channel, or traffic source. A straightforward way to accomplish all three is to build your own audience.

    Should I Sell?

    There are many different reasons you might want to sell. Whether you broadcast your reasoning to others or just keep your own counsel, now is the time to be brutally honest with yourself.

    • Have you lost interest because you have something more exciting going on?
    • Does running your business feel like a chore?
    • Are you feeling scared because all your chips are on the table and it feels like you could lose it all?
    • Do you crave the ego stroke that would come from having that big payday?
    • Are you worried that your whole business might be on the verge of collapse?

      Not only is it important to get clear about your motivation, but you also need to get clear on what you would do if your business either does not sell at all – or does not sell in the time frame you might anticipate. By the way, Coran says that unless yours is a five-star business with all cylinders firing, it is not inconceivable for it to take 200 days for a seven-figure sale to close.

      Just for reference, here is his breakdown of how many days a business might be on the market before it sells:

      • $100,000 – $500,000 — 118 days
      • $500,000 – $1 million — 151 days
      • $1 million – $2 million — 128 days
      • $2 million – $5 million — 146 days
      • >$5 million — 170 days

        Selling your business is not the instantly inflatable golden parachute you might hope it would be. So, it would be wise to plan for both outcomes: selling it and keeping it. Coran says that back in 2018, the buyer market was keen on buying businesses in the $1 million to $4 million range. Cash was flowing freely. Good deal structures were the norm. Now that the market has consolidated, the market has shifted a bit. There is more competition for sellers. You might find 70 competing listings for businesses of a similar size to yours. It is easy for buyers to get contracts.

        PRO TIP:

        Whatever you do, do not decide to sell and then coast until you cash out. The market changes from month to month. Your business is a living, breathing organism, constantly subject to change. You never know its true value until you get an offer that closes – and every deal is very different.

        Who Would Buy My Business?

        If you imagine your prospective buyer as a highly-paid executive who is looking for a fun side project that will be extremely lucrative and yield a solid return on their cash, you might be right on target. At least, that is an apt description of one type of buyer, known as the Financial Buyer.

        But that is not the entirety of the buyer universe. There are three types:

        The Financial Buyer

        This group is made up of wealthy individuals and groups with institutional capital or private equity. They might be hunting for a deal they could fund with money from investors or even their golf buddies. The allure of buying might be seeing better returns than they could get by leaving their cash in the bank. If you sell physical products, then your buyer may or may not know anything about running an inventory-based business, much less one that focuses on Amazon as a sales channel. They might even offer an above-market multiple. An example of this buyer type is a company called 101 Commerce, which acquired a brand through Coran’s firm. They made a solid offer quickly and the deal structure gave the seller the vast majority of cash at close.

        The Value Investor

        This investor is looking for a great deal. Think of house flippers looking for an undervalued property with good bones. From the start, they imagine what a fresh coat of paint and some landscaping could do to improve the property’s value. The Value Investor’s goal is to turn the business around and sell it for even more than they paid someday. Just like in the real estate market, these buyers get most excited by opportunities to buy undervalued ugly ducklings that they hope will transform into glorious swans. Coran says his group has not yet closed a deal with a value-based investor yet, mostly because they tend to make lowball offers.

        The Strategic Buyer

        This one might offer more than a Financial Buyer, but their motives for buying are more centered around eliminating you as a competitor, bringing your business in-house as a supplier or customer, or otherwise integrating your company into theirs. If you dream of walking away with a big check in your pocket and turning your days of working hard into a distant memory, this buyer might be exactly what you seek. Or, you might need to stay in the business for a transition period. It all depends on the deal you negotiate. On “The Amazing Seller” podcast, you can hear how Coran helped a client sell the Amazon business he started with $6,000 and grew to $182K in profit. The buyers found this business attractive because they own another brand in a closely-related niche.

        Obviously, there are pros and cons to each buyer type. There are fewer Strategics in the market than there are Financials. Ideally, you want to attract several potential buyers spanning the whole spectrum, but you could have a big win with any type.

        Understanding what each type of buyer is looking for and how they foresee the deal playing out is essential to getting the outcome you want. Remember, as flattering as getting an exorbitant offer is, the details make the difference. It is impossible to overstate the importance of a buyer’s ability to close the deal. Do not just look at the sticker price; look at how and when you get paid, your risk of not getting paid, and what will be expected of you after the deal is done.

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