Selling a business can be an emotional, complicated process. The more you know about your organization and how it fits into the world around you, the better off you will be in the negotiation process. By taking a data-driven approach, you will remove some of the stress and emotion of a sale while signaling your preparation and value to would-be buyers. In this week’s Dear Negotiation Coach, Michael Luca, Lee J. Styslinger III Associate Professor of Business Administration at Harvard Business School answers a question about selling a business.
Q: I have been running a small restaurant for 10 years. The business is both my work and my passion. However, my family and I are relocating out of state, so I am looking to sell. Our financials are pretty good, and we have a great set of suppliers. But I want buyers to know how loyal our customers are, and I am having trouble finding ways to show this. Any advice for using and finding data when selling a business?
A: As you’ve surmised, financial statements are just one small piece of the puzzle when you want to demonstrate the quality of an asset you are trying to sell when selling a business. The last decade has witnessed a growth of data that far exceeds anything we have ever seen before. This abundance presents businesses with new challenges as well as new opportunities. When you are trying to sell, these issues are front and center.
In my research and work with businesses ranging from large tech companies seeking to better understand their customers to cities that want to take measure of the local economy, I have found that new data sources can be an extremely powerful way for organizations to understand and demonstrate the value they create.
In your situation, it makes sense to take the following three steps when selling a business:
- Do a data audit. Your financial statements are a great place to start when selling a business. But if you look around you, you will find that you are surrounded by interesting ways to quantify your business. Begin by writing down the various data you have already accumulated internally. What percentage of your customers visits the restaurant repeatedly, and how often? What percentage book reservations online? Do you have treasured comment cards or employee-satisfaction forms that you could share with would-be buyers? In addition to demonstrating your value, this data will signal that you are prepared for and serious about the upcoming negotiations. It also helps buyers focus on what they will need to know in the event they purchase the restaurant.
- Know and manage your online reputation. Aside from the data you carry in-house, a much broader array of data is sitting on the Internet. Do an external data audit before selling a business, focusing on ways to measure and manage your online reputation. Start by looking up your restaurant’s reviews on Yelp, TripAdvisor, and other online platforms. Go beyond your average rating and dig into the details. This will give you valuable customer opinions to share with would-be buyers and insights into exactly what is motivating customers to keep coming back.
- Understand the competitive landscape. It’s one thing to know about your own business. When it comes time to sell, it’s equally important to know about other businesses in the area. Imagine that during your haggling, a potential buyer says, “There are plenty of other restaurants I can go after, or I could simply start my own.” You should be armed with data on your nearby competition, including how many other restaurants there are and how they are doing. You could even check in with your local government to see what records are available about businesses in your area. And as a restaurant owner, you know how hard it is to build a business from scratch. Be prepared to explain this, as well as the value you bring to the table (pun intended!) through your established business and reputation.
Lee J. Styslinger III Associate Professor of Business Administration
Harvard Business School.
Fellow negotiators, what other advice would you offer to this business owner when selling a business? Leave a comment below.