Have you had an opportunity to sell your startup and want to take advantage of it? Have you lost the illusion for your business? It is likely that in all these cases you have any doubts about what to do and how to do it.
The paths of startups can be very different from one another: some grow very fast, some don’t, some fail, and some succeed. However, only some have a chance to be sold. With this article you will learn to:
Know the reasons why companies are sold.
Search and find buyers for your startup.
Evaluate alternatives for sale.
Follow certain steps in the sales process.
Give value to your company.
How to make a company sales contract.
We know that the moment of deciding to sell your company is complicated because it is not only a simple sale in which you get paid and you go home. You sell a business in which you put all your illusion, so emotions also come into play. Therefore, we want to go hand in hand throughout the process.
Reasons why companies are sold
Although owning your own business has many advantages, it is not the idyllic world that some people imagine. Entrepreneurship brings many joys and provides enormous learning, but it also requires great effort and facing a multitude of obstacles every day. As a consequence of the above, a reason may arise why you decide to sell your startup. Among the most common reasons are the following:
You need liquidity. An unforeseen need has arisen and you need liquidity to cover it, so you have considered selling the company you created.
Change of activity. There may come a time when you get tired of the activity you do and want a change.
You have a lot of debts. Your company has not evolved as you thought, the income has been reduced, the debts have increased and the time has come to make a drastic decision.
There are conflicts with your partners. You created the company with several partners in equal parts, a partnership agreement was not signed and now there is a conflict situation that blocks the company.
Some of these situations have alternative solutions to the sale that we will see later that can prevent a sale when you want to continue your business.
How to find buyers for your startup
Selling your business does not mean hanging the “For Sale” sign, like on floors, and waiting for buyers to arrive. You will have to take into account three basic questions:
Choose the best time to sell
In general, entrepreneurs seek the inflection point where the business they created begins to grow and transform from a startup to a company.
Have an attractive product or service for sale
Some business buyers are looking for a product or service that is attractive to the market and others are also looking for a product or service that is complementary to that of the company they already have.
Plan the sale
Planning involves establishing the steps to follow, the conditions in which you are willing to sell, and how to find buyers.
Where do I find business buyers? You will have to do exhaustive work to locate interested parties and you can use the following methods:
Companies specialized in the sale of companies. In the market, some companies are dedicated to putting buyers and sellers of companies in contact. They will charge a fee for their services, but they can be a huge time and money saver.
Search among partners, customers, and suppliers. Sometimes the people closest to your business may be the ones who see the opportunity to acquire it and take over.
Search among the competition. Your competitors may be interested in increasing their market share and attracting new customers.
Investment funds, venture capital. Look for investment funds and venture capital companies that are dedicated to investing in your sector and offer them the possibility of buying your company.
In general, two types of business buyers can be distinguished based on motivation:
Buyers by opportunity. The purchase of your company can generate a value in the buyer as the increase of the turnover of the market share.
Buyers out of necessity. The buying company may need to grow to continue competing in the market and one way to do this is to buy from another company.
Knowing in-depth the potential buyers of your company will help you establish the conditions of the sale and negotiate them.
Alternatives for sale
If you really want to continue with your company and you only see the sale as a way out, you should consider alternatives depending on the problem you have.
If what you need is capital or financing for your company, you can go to one of these alternatives:
Aid for freelancers. They materialize in several ways:
Non-repayable grants. For example, the self-employment promotion program.
Single payment or capitalization of unemployment. It will allow you to receive a capital injection.
Subsidized financing. This is the case of ENISA.
Search for financing. In addition to funding subsidized Look for other financing alternatives such as crowdfunding or micro patronage. These are platforms where you publish your project and they look for small investors who will give you a non-refundable capital injection or in exchange for a reward.
Partial sale of the company. You can consider partially selling the company, but you will have to take into account if you are willing to lose control or not.
Commercial mediation. If the sale of the company has been forced by a conflict between the partners, an alternative that may be useful is commercial mediation. A mediator will listen to both parties and can come up with solutions that suit the situation.
Steps to sell
If you have already evaluated the alternatives and are still determined to sell, you will have to follow a process with several stages so that the sale is carried out in the best conditions. We propose the following steps:
1. Establish the price of the sale: how do I value my startup?
Keep in mind that it is not the same to sell a company that is just starting as a company that already has a certain experience in the market. As for startups, there can be two circumstances: that the company is in the seed stage or that the company has matured.
Seed state assessment
In this state, the seed capital has been provided, so the valuation of the startup is complicated. You can use the business plan, but if you use it, you will be assuming the growth estimates you have established for certain. Also, two factors will influence the value:
Your reputation. You may have had other businesses before and your reputation in the market is good.
The rise of the sector in which you work. If the sector in which you have developed your business has great potential value, you will have better prospects for setting the price.
Valuation in a state of maturity
In this state, we can rely on more specific data to assess a startup. The criteria that you can use are the following:
Sales history. The volume of sales that have occurred during the life of the startup. There may not be a lot of volumes, but if there is an increase over time it can be used to see that there is a good trend.
Cash flow. It is the difference between income and expenses in a given period.
Sale of similar startups. Look for startups similar to yours that have been sold recently and establish the value of your company by guiding you by the value of those purchases.
Investment. It consists of calculating the value of your startup based on what you have invested in it and applying a factor related to the business opportunity to correct the value.
2. Set the rest of the conditions of the sale
Establish what is going to happen with licenses, patents, the brand, the web, and, above all, with your employees, if you have them. It is essential that you leave all the ends tied and that you anticipate your potential buyer so that the sale is more agile.
3. Protects the confidentiality of the operation
Before buying, your buyer will carry out a legal study of your company or ” due diligence ” and will ask you for all kinds of information about your company, so you should be careful to make him sign a confidentiality agreement so that the information sensitive of your company does not spread.
4. Seek help (if you need it)
If the negotiation process overwhelms you and you need help, do not hesitate to go to a company specialized in the sale of companies. His experience will help you to solve all your doubts.
5. Negotiation and signature
During the negotiation of the sale, there will be aspects in which you have to give in and others in which your buyer will give in. For this reason, it is necessary that before negotiating you establish your minimum limits, below which the sale does not interest you.
When everything is clear and the negotiation is over, you will have to sign a partnership sale contract. In the next section, we will tell you the keys.
Keys to following to make the sale contract
A partnership sale contract is a document signed by the buyer and seller to formalize the sale of the company. For the operation to be carried out without problems, it is best to hire a lawyer specialized in this type of transaction.
On the other hand, you must know the essential keys of the contract which are the following:
Contracting parties. All the data of both the buyer and the seller (full name, NIF, and address) must be included. If acting on behalf of a company, the details of the company’s articles of incorporation and the power of attorney or appointment by which it is acting must be included.
Content of the contract. These are the basic clauses, among which the following stand out:
The price and the method of payment.
The assets of the company: machinery, furniture, merchandise, customers and suppliers, patents, contracts with suppliers, workers or insurance companies, brand, website, and licenses.
The liabilities of the company: if the company is sold with debts, a detailed list of each debt and how it will be paid must be included.
Accounting: the most common is that an accounting balance sheet of the company is attached to the contract. Once you have agreed on the conditions of the sale with the buyer of your company, you can send a draft contract to the buyer that regulates everything agreed. The sales and negotiation process can belong.
There are many reasons why you may decide to sell your startup: you have lost the illusion, you need liquidity or you have problems with the other partners. Be very clear about your reasons and consider alternatives such as partially selling, looking for other sources of financing, or requesting the help of a commercial mediator.
The sale of your company can be a laborious process in which you will have to collect a lot of information and, above all, set a price that will depend on the state of the business.
The entire sales process culminates in the signing of a company sales contract that will include the agreements you have reached with the buyer.