When preparing to sell your business, it can be tempting to dive in head first and cut some corners in order to begin the actual transaction. However, the most successful business sales are those that are researched thoroughly before any papers are signed or hands shaken. Specifically, you and your business transaction team (your attorney, your accountant, and your broker) should all be on the same page by establishing what exactly your business’ position is in the industry at large. Some fruitful questions to be asking are: What do other businesses in this industry sell for? How is my business valued in the scope of the industry as a whole? How well has my business done, relative to the patterns of the industry? These questions are foundational in beginning your business transaction on a strong foot. Let’s look at three “pieces of the pie” that will help you to establish your context as you begin marketing your business.
Know your industry. Just like starting a business, the success of selling a business relies heavily on how well you know the industry. Are you selling a dental practice or a graphic design company? Are you selling an appliance repair business or an accounting firm? It will become clear early on that every business transaction will look very different across industries, but there will be a pattern within the industry that you will not want to overlook. Invest plenty of time in finding out what exactly the business transaction “check-list” looks like for your particular line of work.
Know your market share. Your research will begin to narrow once you have a deeper understanding of the industry you are in. Next, you and your team are ready to analyze your market share; in other words, how competitive are your business’ products or services compared to the industry as a whole? Your market share is calculated by taking your sales and comparing them to the industry as a whole over a certain period of time. For example, if you sold $200,000 worth of lawn care services last year, and the lawn care industry in the U.S. sold $400,000 worth of lawn care services, then you business’ market share would be 50 percent. This calculation is important in assessing and marketing the value of your business in relation to your competitors.
Know your company’s performance. Establishing your market share will lead right into assessing your company’s performance. Analyze, with the help of your team, all the “ups” and “downs” of your business over time can be accounted for. Moreover, this will ensure that the value of your business is marketed fairly.
In such a fast-paced world, there is great value is slowing down to do your research and properly assess the value of your business before putting it on the market.