When you sell your business, you want to get all of your cash upfront, putting the risk in the hands of the buyer. When you buy a business, you want to put up as little cash as possible in favor of paying for results in an earn-out—so the risk sits in the hands of the seller.
If a potential buyer sees your company as risky, he or she won’t want to play. A deal gets done when a compromise is met somewhere in the middle—when both parties strike a balance between risk and reward.
The trick to getting a higher portion of your proceeds upfront is to minimize the risk that the business will fade when you leave. Here are seven things you can do to get more of your money upfront (and less tied to an earn-out):
- Get your customers to sign long-term agreements.
- Track your repurchase rate to demonstrate a recurring revenue stream.
- Document your systems for making your product or service.
- Give key employees a long-term incentive plan that ties them to the business after the sale.
- Track your sales pipeline, qualified lead rate and close rate.
- Delegate your personal accountabilities to key managers.
- Write down your secrets for generating qualified leads.
Most acquirers will insist on some form of earn-out or “golden handcuffs.” Your job is to get as much cash upfront as you can by reducing their risk—making that seesaw as balanced as possible.
What else have you done to get your company ready to sell?
John,
Thanks a lot for these handy tips.
“Write down your secrets for generating leads” should go over well with most SMB’s.
The Franchise King