Selling your business is an exciting prospect for any owner, but it can also be overwhelming, even in the best circumstances. A business sale can take time, so planning ahead is the best way to get yourself out the door (and onto the beach) as painlessly as possible.
1. Start With The Big Picture
There is a lot to consider when going through the sale process, but owners should start by considering some basic questions:
Is the business ready?
You need to be honest with yourself about the state of your business and the possibility of finding a willing, qualified buyer. Businesses are most attractive when they have a recent history of profitability, evidence of sustained growth and organized financial records.
Are you ready?
Even if your business is ready for sale, you might not be. The process can be formidable, and it can be emotionally difficult to part with something you’ve built from the ground up. If you’re part of an ownership group, you also need to assess if your partners are ready to sell.
What is your expected timeline?
Selling a business requires time and, in some cases, can take a year or more. Think about when you want to be out the door and try to work backward from there.
2. Be Thoughtful About Purchase Price (But Don’t Get Fixated)
The main consideration for most sellers is the purchase price, and for good reason. How to value your business can be a challenge, but it is important that you have an idea of what price you want to get before marketing to buyers. Value can be measured in assets, earnings and future cash flow, and is often guided by what is happening in your industry. In some cases, getting professional advice from a business appraiser will be the best way to find the right purchase price.
It can be difficult to put a value on your life’s investment, but try to keep your emotions out of the equation. Keep sight of your big picture goals and remember that there may be other ways to build value into the deal (for example, through future earnout rights, retaining some equity or seller-favored tax planning).
3. Finding Your Buyer
Once you have a price in mind, you will need to find a buyer. You might be lucky enough to be approached directly, or you might already have someone in mind (such as a longtime employee who can pick up where you left off). Other sellers will need to actively market their business through a broker or personal contacts. Remember that you may have to kiss a few frogs before you find the right buyer.
4. Be Prepared for Due Diligence (and Be Truthful)
Due diligence can be tough for companies of any size. Be prepared to provide details on every aspect of your business, from operations to finances. It’s crucial that you tell the truth about the good and the bad. Issues that are disclosed early can often be resolved, and full disclosure is the best way to protect yourself. On the other hand, withholding information can kill the deal or lead to costly disputes after the closing.
Many owners want to keep a potential sale under wraps until it is closed. However, it can be a lot of work to answer the buyer’s questions while trying to run the business at the same time. You may want to consider involving one or more trusted employees early in the process (subject to appropriate confidentiality restrictions). This will help you stay responsive to the buyer and carry on business as usual.
5. Involve Experts Early
Finally, be sure to involve your tax and legal advisors early on. It can be tempting to avoid the expense of experts until you’ve struck a deal with your buyer, but using the right legal structure and tax planning at the outset can make a big difference in your bottom line. Negotiating how your business is sold can be as important as how much you can sell it for.
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