5 Keys to Selling a Business in a Small Market
Many business owners assume that selling a business in a small city is the same thing as selling a house in a small city—it might be a little bit more difficult, but real estate is real estate so it will probably end up selling well. While it’s true that most businesses can be sold if valued at the right price, not all businesses are sellable, and there are not as many buyers for businesses in small markets.
Does that mean you can’t sell your business in a small city? Absolutely not. No matter where you are in the U.S., it’s possible to sell your business. However, with that being said, there are a few important factors to be aware of when selling in a smaller town. In this article, we will walk you through five keys to selling your business in a small market like Humble, Texas and how you can get the most value for your company.
Key #1: Buyer Database
The number one key to selling a business in a smaller market is having access to a buyer database. If you sell your business to a customer, an employee, or even a family member, it’s likely that you won’t get the highest price possible because markets dictate the value of businesses, not individuals.
A market is not one person. A market looks at a number of buyers over a period of time to help suggest and establish how much your business is worth. That’s why it’s so important to make sure your business is actually seen in a confidential manner by the right qualified buyers in your industry—not just on a billboard by the side of the road. Having your business included in an actual database with buyers who are actively looking for businesses like yours can help ensure that you get the most value out of selling your company.
Key #2 Confidentiality
The thing about small town living in America is that there’s a tendency for everyone to know everything about what everyone else is doing. Whether you live in a tiny town like Humble, Texas or a small community in Alabama, it’s not uncommon for people to find out that you want to sell your business or even that you’re just considering it. The problem with this is that maintaining confidentiality is key to successfully selling a business in any size city—and potentially even more so in smaller towns. Neglecting confidentiality can absolutely harm the value of your business in many different ways.
One of these could be losing key employees because they fear they are going to be fired. Vendors might also stop working with your business because they’re worried they won’t be paid. The right kind of qualified buyer might also shy away from your business because they know the damage that can happen when everyone knows the business is for sale. That’s why ensuring you can maintain the right level of confidentiality is essential to selling your business in a smaller market—and the right kind of professional partner can help you do just that.
Key #3 Accurate Valuation
The third key to successfully selling your business in a smaller market is valuation. When approaching and negotiating within any market, it’s critical that your valuation is correct and that it falls within the realm of what a business in your city should sell for. While there’s not a huge difference between the value of a business in a large metropolitan area versus a small town, location is still a factor to consider and it still is something that can have a negative pull on your overall valuation. The truth is, there are a number of factors and criteria that play into your business’ valuation—and it’s important that whoever comes up with the valuation has a firm grasp on each of them.
For example, one thing to consider when it comes to selling a business in a small town specifically is the potential cost of a buyer having to move to that town. Or, depending on the industry, the buyer might choose to hire a new manager to run your business who might also be relocating from elsewhere. Both of these scenarios are possible and both can be easily overlooked as factors that play into the valuation of your business.
That’s why it’s so important to work with an expert who knows how to sell a business in your town and in a small town in particular. At Sigma Mergers & Acquisitions, we are proud to have sold business all across the south for over 20 years. We understand how to sell businesses in small towns and know what it takes to help you access the most value out of your company. Give us a call and we can value your business and guide you through the process to protect your confidentiality while finding you the perfect buyer.
Key #4 Formalized Agreements
It’s not uncommon in small towns for businesses to run on “handshake deals.” Whether these deals are with landlords, vendors, customers, or even employees, they each need to be put into writing when the time comes to sell. Having proper agreements in place is necessary for a successful sale—and it’s often those businesses from small towns that lack them.
For example, you might own a business in a small town and don’t actually have a formal lease with your landlord. While that might have worked for you for many years, it won’t for a new owner. In fact, if a buyer is hoping to work with a bank to finance their purchase, the bank will often require to see the proper documentation first.
Having everything in writing also helps to prevent scenarios in which landlords or even vendors say down the line “well my agreement with the previous owner was XYZ…”. Converting those handshake deals into formalized writing can help ensure a smooth transition process for all the parties involved while also providing the buyer with transparency of all business operations.
Key #5 Specialized and Qualified Professionals
The final key to selling a business in a small market also applies to businesses in large markets as well: working with specialized and qualified professionals. Business owners often have relationships with professionals like CPAs and attorneys that have helped them historically with their businesses. The problem is that these particular professionals might have experience on the operational side of the business, but know little of the processes and best practices required for selling said business.
For example, maybe your CPA is accustomed to doing your tax returns; however, they might not be as familiar with the reports that your potential buyer would need to see. In the same vein, attorneys can be used to handling contractual agreements with vendors and employees, but they might not have as much experience working with purchase agreements, stock purchase agreements, asset purchase agreements, or even how non-competes are handled.
That’s why it’s so important to partner with professionals who are qualified to help you sell your business and who have years of this sort of experience under their belts. At Sigma, we have a number of CPAs and attorneys that we can refer you to that understand how to manage these kinds of business transactions. Our network of professionals understands how to take the reports from your own CPA or attorney and extract the information and data that’s needed to present to a buyer.
In our many years of helping business owners sell their businesses, we have found that professionals who are unaccustomed to the world of acquisitions and sales often have a hard time understanding the ins and outs of the process. These professionals probably do a great job of helping you operate your business, but you will most likely need a more specialized attorney or CPA to help you sell your business both effectively and efficiently.
At Sigma Mergers & Acquisitions, we can help you do just that. We can guide you through the entire sales process and connect you with the right professionals who are qualified to help. Contact us today to learn more about how we can come up with a confidential valuation for your business based on real facts and industry insight. Whether your business is in a huge metropolitan area or a small town, our goal is to help you get the most value and equity out of your sale.