There may come a time you consider selling your business. Not being properly prepared could kill the deal. This complex transaction may need an accountant, business lawyer or broker. There are also a number of considerations that have to be part of the business plan so that negotiations result in favor of all parties, but especially for you.
Company owners looking to sell their businesses should first consider undertaking a due diligence investigation of the business or company that they want to sell. A thoughtful due diligence evaluation of the business prior to the sale process will ensure that the entire process is easily manageable, efficient, and cost-effective for the seller.
Understand the Reasons for the Sale
Unless they’re coming to you, any potential buyer is going to want to know why you are selling. There are many common, neutral reasons on the list, such as retirement, partnership dispute, illness or death, boredom and being overworked. Many entrepreneurs want to get rid of a business because it’s not profitable. That’s one reason that will make a business harder to sell.
When considering what potential buyers will value in your business, look at its readiness, the timing and ability to sell, the potential for increased profits, consistent income figures, your customer base and major contracts that will keep operations afloat after the sale.
While not impossible, the sale is not likely to happen overnight. Prepare for it well in advance. Analysts suggest no less than a year ahead of time. Meanwhile, do your due diligence. Review financial records, corporate structure and CRM to ensure the business is profitable and attractive. If you have Firmex, it will greatly facilitate due diligence. It will ease the transition and show buyers the business can thrive long after you leave.
Valuation of Business
An invaluable tool in the sale will be your ability to prove the worth of the business. This may be best accomplished by hiring a business appraiser. They will ensure you don’t go too high or too low. The appraiser will provide a thorough explanation of what makes the business worth buying with documentation that supports the asking price and help gauge list pricing.
Selling on Your Own
Choosing to sell without a broker will not be difficult, especially if you already have interested parties. Do remember, without a broker, you will not have access to their resources. As your rep, the broker will be responsible for research, contact, setups and making sure you only meet serious prospects. The broker will do the marketing while you keep the business going. You may end up with a higher price when the broker finds a buyer that you might have never encountered.
Make sure all your tax returns and financial statements are in order. Go back at least five years (if your business is that old). Have an accountant review them to ensure they reflect the business positively. Have a checklist of what comes with the sale (equipment, stock, desks, virtual data room, etc.). Get your lease, list of contacts and vendors, and any other relevant paperwork. Make generous copies and create an information packet for distribution.
Finding the right buyer is going to be a challenge. Be prepared to reach out through as many media channels as possible to attract as many buyers as possible. Keep close contact with potential buyers to make sure you know what they’re looking for and how interested they are.
If you have a broker, make sure you’re both on the same page about how you promote the search business to buyers. Know if buyers prequalify for financing. Work out the details with your attorney or accountant about financing. Leave room for negotiation, but stand firm on reasonable pricing considering the business’s future worth. All agreements should be in writing, including a nondisclosure contract to protect your information.
Managing the Profits
Depending on the current state of your finances, try as much as possible to hold off spending the profits from the sale. Have a plan that outlines any financial goals and get up to date on tax consequences based on sudden wealth. Consult with a financial adviser on the best ways to invest and protect the money with a focus on long term benefits, including getting out of debt and saving for retirement.
If you are ready to sell your business, expect a time consuming and, most likely, emotional venture. Make sure you have a good reason. This will help ease the burden, as well as sharing that burden with lawyers, accountants and other professionals.
If you want to talk before diving in, look into counseling from one of the many organizations that offer this service for free. Your local chamber of commerce will have relevant resources, workshops and seminars on how to prepare to sell your business.
It will be tough to leave the business you grew from infancy in another’s hand, but when all’s said and done, you did the work and the sale lets you reap the best of rewards. You’ll have a hefty sum of money and free time to do with what you will. You could even start a business!