Maintaining Operational Momentum is a Key to Selling
Congratulations! The organization has painstakingly made the decision to seek a suitable buyer and to sell. However, the journey to make this decision a reality is filled with many unknowns including several unforeseen challenges and several significant decision points. Not to mention, an unpredictable marketplace which can always spoil the best laid plans. So what should the organization do now?
Continue to drive and operate the business. It sounds like a very simple concept, yet many fall into the regretful psychological trap of starting to shut down the business well before a buyer has been identified. This misstep, so very common, often results in a significant drop in market value for the seller. It is not uncommon for the business value to drop by 50%+ by the time the business sells after the business owners have lost focus on operating the business throughout the buyer search process.
One of the most popular misconceptions around selling a small business is that it is easy to complete a transaction within a relatively short timeframe. Recent market studies indicate that it takes on average nine (9) months to identify a suitable buyer and close a sale of a small business. This statistic has been increasing steadily over the last few years. Depending on the size of the organization, industry, and complexity of the transaction it is quite common for the selling cycle to last years (up to 5 years). In this timespan many variables, both internal and external, can impact the eventual final selling price.
Examples of internal variables:
- Sales growth
- Expense management
- Employee turnover
- Customer contracts and vendor agreements
Examples of external variables:
- Competition actions
- Vendor pricing
- Economic events
The best action a business should take is to focus on maintaining or improving on the variables which it can impact (i.e., internal variables). The business owner should continue to push sales growth (e.g., advertising, promotions, etc.), look for ways to improve operational efficiencies, maintain and service customer contracts and lock-in vendor agreements. Each of these steps will help to maintain the long term value of the business throughout the sales cycle.
The worst action a business can take is to relax, become complacent, allow the sales process to be a distraction, and shift attention to searching for a buyer at the cost of maintaining operational momentum. Even when a potential suitor initiates, there are so many factors which could elongate the process or impede an eventual sale. On average the success rate of a sale of a business is less than twenty percent (<20%) of all transactions that are initiated.
Using the services of a professional advisor can greatly reduce the time period and risk in the sales process. Knowledgeable advisors know how to market a business effectively, and can appropriately advise a seller on price and terms.
For more information or to schedule a complimentary consultation please contact BridgeLane Advisors, at email@example.com.