How to Sell a Business No One Understands
Selling a business is never an easy proposition.
The basic best practices involved in doing so successfully are fairly simple to understand and carry out, but that’s not the same thing as being easy. In fact, successfully selling a business can require as much or more work as running the business.
But, in some cases, entrepreneurs who have gotten to the point that they’re ready to sell their businesses sometimes run into an added complication that they hadn’t considered before: no one seems to really understand their business.
When that’s the case, how do you find the right buyer and get what the company is really worth?
Why this is a problem
First of all, why do some entrepreneurs run into this problem?
Usually, it comes up because today’s economy favors narrow specialization. Highly specialized niche businesses can do really well-providing products and services in this economy, especially on the B2B side (although there are plenty of B2C examples that fit this description as well). For those customers who truly want and need that specific product or service, they may only have a handful of available providers to choose from, or just one.
But the flipside of this niche economy is the fact that most people who are not directly involved in that niche industry as a current provider or a customer, either don’t know it even exists or don’t know enough about it to even consider buying a business that specializes in filling that need.
This means that business owners wishing to sell their specialized niche businesses can run into a real problem as they try to get on the radar of prospective buyers.
A simple example:
Let’s say Bob owns a widget polishing business.
Widgets are vital to the efficient operation of large scale printing machines such as those owned by newspapers, magazines, and book publishers. If the widgets go unpolished, they tend to wear out within 2-3 years, requiring a costly replacement. With the proper polishing, however, they can last as long as 7-10 years, greatly enhancing the printer’s return on investment.
That’s where Bob makes his money: he and his staff have the technical know-how to take apart the printing machines quickly and efficiently, effectively polish the widgets, and put it all back together without costing the printer egregious downtime. And he does it at a fair price.
Bob pulled down nearly a quarter of a million dollars in revenue last year polishing widgets.
Obviously, Bob is running a successful business in a specialized niche. To those printing operations who know what a widget is, what it costs to replace one, and how valuable it is to keep it polished, Bob is a God-send because he’s the only company on the East Coast that offers this service.
But to everyone else – including you and me – Bob may as well be speaking ancient Greek when he tries to sell his business to us. We have no idea what he’s talking about, much less can we see ourselves taking over his thriving widget polishing business and making a go of it.
Start with the basics
The basic best practices mentioned earlier still apply every bit in the case of Bob’s Widget Polishing as they do if you’re selling a restaurant, a laundromat, a drug store, or an online retail shop, so that’s where Bob needs to start:
- Get the records in order
- Organize things to run smoothly without you
- Clean up the physical premises
- Sell while the business is on an upswing
These are common sense rules that apply to every business sale. No matter what your company does, a prospective buyer is going to want to verify that it’s making money and should reasonably be able to continue doing so. They should be able to see themselves taking over for you without a huge upheaval or long, drawn out learning curve. They shouldn’t be turned off by poor curbside appeal.
So, even when you’re selling a business that no one understands, you should make sure these bases are covered.
Get professional help
Although it’s advisable to pull together a team of professionals to assist with any business sale, when the business is difficult to explain, it’s even more important to do so.
A qualified accountant can help Bob arrange and annotate his business records in such a way that the financial health of the company shines through even if the prospective buyer has no knowledge of widgets and their need for polishing.
A lawyer with experience in the appropriate industries can help avoid any regulatory or contractual snags unique to the niche Bob’s operating in.
Finally, an experienced business broker can do wonders locating the most qualified buyers for Bob’s business, although they may be few and far between. She’ll also know exactly how to market the business to those particular people so Bob can hope to get the very best price.
Expect a longer sales cycle
While the average business sale takes 6-9 months, selling a niche business that’s hard to explain will likely take longer for obvious reasons. It’s best to prepare for that and to be willing and able to ride out the long sales cycle rather than feeling pressured to take a lowball offer or give up on selling.
This is another area where professional help comes in very handy, but in the end, it really comes down to the seller’s attitude and planning.
If you’re considering selling your business and think it may be difficult to explain to most people, be sure to do plenty of research beforehand and prepare yourself well for the eventual sale. With the basics covered early on, professional help finding qualified buyers, and the right outlook, there’s no reason to think you can’t successfully sell a specialized niche business for a great price.