When it comes to making an exit from your established, profitable business, there are quite a few different strategies you can use.
To help you narrow down those strategies and get a better idea how to move forward with the process, the strategies can be summed up in two different categories:
- Finding an investor and selling the business by yourself.
- Working with a third-party advisor to sell the business.
Finding qualified buyers that are ready to consider buying your business is closely related to marketing your business, and getting it to the point where it’s at today. You can apply those same marketing strategies to attract the right type of people that may currently be interested in acquiring the business either as an investment, or to merge into their own business. Throughout the years, I have spoken with a large number of both buyers, and sellers, and have dissected the strategies they’ve used to find out what’s most preferred. Some people have only ever bought and sold businesses in private deals, while others have only ever bought and sold while relying on third-party services and advisors. It’s actually pretty common that people will attempt to sell their business by themselves, only to reach out to a third-party or broker after their attempts have proven unsuccessful.
That’s why I’ve put together this guide to help you understand some of the questions that I get from both buyers and sellers whenever they’re looking to sell their internet business and cash out big.
How To Sell Your Business Yourself
This question comes up more often than most. Look at any forum, blog, or podcast, and you’ll find someone asking how they can sell their business by themselves. It’s easy to understand why, too. Entrepreneurs are self-starters. They like to get things done by themselves so they can move onto the next task or project. They want to be able to sell their business without outside assistance.
For those entrepreneurs, the three most common strategies for selling a business are:
- Privately listing it for sale.
- Selling the business to a competitor.
- Selling the business to one of their employees.
How To Privately Sell Your Business
Most people think this is going to be the easiest route to take when they’re trying to sell a business.
All you have to do is put together some information about your business, create a listing on a marketplace, and the investors will start pouring in, throwing offers to buy. Right?
Unfortunately, this is rarely how the situation plays out.
If you do want to take on the sale of your business by yourself, a good place to list it publicly is on Flippa. Their marketplace is used by both brokers and private sellers. It can be hard to stand out in a sea of other businesses that are currently being sold, though.
Sure, you can get all of the listing upgrades they offer, but these upgrades don’t always equal large numbers of inquiries and offers. I’ve ran the numbers to help you understand what the average listings look like on BizBuySell. Listings on their marketplace will typically receive 15 to 20 inquiries.
Then, you have to figure in the amount of duplicate inquiries and the people that are kicking tires, just trying to get more information. There’s also a large number of people who aren’t qualified to buy. This quickly dwindles down the number of legitimate offers. To give you some perspective, most reputable brokers can receive anywhere from 100 to 200 inquiries on businesses they’re selling, and the inquiries are often far more qualified than what you’ll find on public marketplaces.
So why do people use Flippa, then? For many people, especially those high volume sellers, having 15 to 20 inquiries on every listing quickly adds up, and they can hold onto the businesses longer while they’re waiting on a qualified buyer. If you regularly buy and sell businesses, public marketplaces can work out. However, if you sell privately and want to get the business sold as quickly as possible, the marketplaces aren’t very useful. Public marketplaces also have fees associated with them, like success fees and listing fees. Then, they do not provide much in the way of marketing, other than putting your listing on a page with a bunch of other listings. You have to do all the work yourself.
Assuming you can’t find a buyer on a public marketplace, how else can you find a buyer, while selling the business as privately as possible? In short, if you don’t have a large network you can reach out to, you sell it through patience, energy, and a bit of frustration.
This is what leads us to a, sometimes, better solution for getting the business sold and still keeping the sale as private as possible.
How To Sell Your Business To A Competitor
To understand this strategy, take a look at some other businesses that have been sold.
Facebook bought Instagram for $1 billion.
While your business may not be worth $1 billion, or even be on Facebook’s radar, your own competitors may be interested in making an offer to acquire your business. You can reach out to them to let them know about your interest in selling, and may be able to work out a deal in some cases.
However, for the most part, whenever your competitors are going to be interested in buying your business, they will reach out to you. That means they’re not always going to be open to considering your offer when you contact them first. However, if they contact you first, and you can negotiate the deal in your favor, it could be incredibly lucrative for you. For the most part, whenever you’re reaching out to a competitor, you are putting the ball in their court. That means it can be harder for you to negotiate a higher asking price than you would get if they reach out to you and make the offer first.
Regardless how the offer is made, selling to your competitor is a great strategy because they already understand how profitable your industry can be, and will see the value in merging your business into theirs, or using your business to tackle a portion of the market they’re not already in. Be prepared, though, when you’re opening a deal with your competitors. They can back out at any time, and you’re going to have to give them a substantial amount of information about your business that can make it easy for them to swallow your business without actually acquiring it.
Competitors are always going to be open to learning how you’re able to compete with them, and what they can do to improve their own business. You’ll need to play your cards close to your chest if you choose to go this route.
How To Sell Your Business To An Employee
If you’re looking for someone to take over your business that knows it inside and out, understands your goals and dreams for the business, and can take it to the point you wanted to, you may not need to look any further than inside of your own ranks.
If you currently have employees or managers, they may be in a position to purchase the business and carry on your role long after you’ve gone. While this is a great strategy in some cases, there are some caveats you’ll need to understand before you start talking to your employees about buying the business from you. In most cases, you are going to have to finance the deal. You’ll likely want to accept between 10% to 25% of the value of the business up front and then collect a portion of the profits over a set period of time, until they have finalized the deal. That means you’re going to need to make sure that the employees you’re considering are actually capable of running the business without driving it into the ground.
If they can’t keep the business floating, you’ll likely have to recall the deal and end up in the same position you wanted to get out of when you first decided to sell. If you’re thinking about this as the route you want to take, you may want to step back and think about how important upfront cash really is to you. Instead of completely selling the business, you could consider promoting an employee into a senior position, and allowing them to continue running the business while you step away. In this situation, you still own the business, and collect the lion’s share of the profits, but can focus your own energy on other parts of your life or a new project.
How To Get Paid After Selling Your Business
If you’ve found a buyer on your own, and you have agreed to terms that you both find attractive, you’ll want to get a Letter of Intent from them. Then, you’ll need to begin the due diligence process, get your purchase agreement, and begin the escrow and transfer process. While this may seem simple, and fairly straightforward, it can actually be an incredibly frustrating process and one that takes a good deal of time. This is where having a broker on your side can save you a significant amount of time, and keep you from getting nearly as frustrated as you would by moving forward on your own.Most brokers understand the due diligence process and know how to quickly move through the negotiations to get the deal closed.
They understand what is, and what isn’t considered acceptable, and can approach the process with confidence that most first-time sellers simply won’t have. They know how to ask the right questions to keep the deal moving forward, and keep your own best interests at the forefront of the conversation. Negotiating the contract will require you to speak to an attorney that understands internet businesses. Most attorneys will attempt to work out a mutual deal between you and the buyer, while neglecting your own best interests at the same time. Brokers typically have attorneys that they’ll work with who know the deals inside and out, and can ensure that there aren’t any hidden clauses inside of the contract, or any terms that may not be favorable for you.
Closing the deal is actually one of the easiest steps. Once your buyer has performed due diligence, and you have a contract in place that you both agree on, the rest of the process comes down to setting up escrow and beginning the transfer.
When A Broker Should Step In
9 times out of 10, working with a broker is always going to give you the best chances for finding a buyer, and getting offers that were higher than what you could receive on your own. Even though brokers do charge a fee based on the final sale price of the business, the price that they’re able to get for businesses typically far outweighs the fee that they charge. A good broker can build a win/win situation for both parties, and you get to remove yourself from the most frustrating parts of getting the business sold.
While there are definitely situations you can get the business sold by yourself, and are actually encouraged to if you think it’s possible, using a broker’s services comes with quite a few different benefits:
- Brokers get you more inquiries, and offers. A broker that has years’ worth of experience has a network that’s large, making it easy to get your business in front of people that are ready to buy. They’ll invest in marketing your business for you.
- You get to have a single point of contact. You don’t have to deal with multiple different offers from people that probably aren’t qualified or actually ready to buy.
- Last minute changes are minimized. If the worst case does happen, and the buyer wants to implement multiple changes, your broker can quickly find a new buyer.
- Brokers work through cash-only deals. There’s no waiting around for deals to be financed, or for them to offer stocks in a public company in exchange for your business.
- Brokers make deals happen faster. There’s no waiting around for 12 months, or more, to get the deal done. Most brokers can close a deal in less than 3 months.
- You don’t have to worry about financing deals with your employees.
- Brokers understand the due diligence and negotiation processes. This means you don’t have to develop the same knowledge, and can pass the process off to someone that knows what they’re doing.
- Brokers ensure the deals are structured fairly and can be moved to completion, unlike attorneys that can kill deals where they stand.
- Brokers offer the guidance and support you need. Most brokers became brokers because they were entrepreneurs that wanted to sell off a business that they owned. This is incredibly helpful for you, when you’re working through the process.
- Brokers are incentivized to get your business sold. Getting your business sold is their only job. If you are completely committed to getting the business sold, they will be, too.
If you are thinking about selling your business, hopefully your eyes have been opened to a few different strategies you can use to start finding buyers that are ready to make offers. The same marketing strategies that you’ve used to grow your business can be flipped and applied to attracting buyers that may be interested in submitting offers.
About the author: Jock Purtle is a successful entrepreneur and website broker. He started working in the family business at the tender age of 9 and bought his first company at 19. Jock works with a variety of clients and channels his extensive experience when advising business owners on buying or selling their digital business, always looking to achieve maximum value.
P.S: This is a guest post, courtesy of Digital Exits. “Guest” is not “Sponsored” and while the content is theirs, I selected and approved it as it covers a topic offering added value to businesses. As such, I want to thank them for giving me the opportunity to feature this guest post here.
Also published on Medium.