Thinking About Selling Your Business?
The time has finally come and you’re ready to sell your business. Planning for the sale of a small business may seem daunting. Perhaps you’re not sure where to begin or how to go about selling a business. To make the process as easy and profitable as possible, you’ll want to start planning early. Having time on your side can really pay off when selling a business. Whether you’re ready to retire or just move on to a new venture, here are a few important steps to keep in mind.
How to sell your business: key steps before the sale
Selling a business requires a lot of planning. As you begin the process, it’s important to focus on the step you’re in and the long-term objective. Otherwise, you may end up making short-term decisions that go against your ultimate plan. Here’s an overview of the process and post-sale considerations.
Get organized and know your numbers
The first step is to get your business financials in order. Clean up your books, prepare financial statements, projections, and compile key metrics for your industry. Understand the numbers. What is the financial position of the business? Outstanding liabilities? Relative growth in gross sales and net income? Number of customers and relative size? Alignment with your forward projections? You must be able to answer and justify the question; why would a Buyer want to buy this business?
Again, this is why it’s best to start as early as possible, so you have time to make adjustments. Perhaps you use cash to refinance, pay down debt, or cash out minority shareholders. Even if you don’t need to make any substantive changes, messy or incomplete books can kill the deal before it even gets started.
Gather your team of advisors
When selling a business, having a team of trusted advisors around you is crucial. Here’s why: chances are you haven’t sold a business before and likely won’t again. We don’t know what we don’t know…and you only have one shot to get this right.
In planning for the sale, get your team of business and personal advisors in place ahead of time. Your business advisory team may consist of a business broker/investment banker, valuation expert, accountant, tax advisor, and transaction/M&A attorney. On the personal side, your financial advisor, estate planning attorney, and CPA/tax advisor should be involved throughout the process.
There’s a lot of complexity to consider: structure of the deal, ways to retain key employees, tax planning, cash flow planning post-close, etc., so it’s very important to work with a team of specialists that can help you navigate your options. Many sellers of a business will carry a portion of the sale via a promissory note to help the buyer finance the purchase. Are you willing and able to do so?
What’s your business worth?
Understand the real-world value of your business in the current market by working with a valuation expert, business broker, or investment banker. When wondering how to sell your business, ask what buyers would be willing to pay today? There are general rules of thumb and industry standards that can give you a general idea of value but every business is unique and there are many factors that must be considered when determining real value. A good advisor can help you strengthen the components of your business that will add to its ultimate sale value.
Define your goals and financial needs
Before going too far down the path of exploring all the ways to sell your business, first consider your goals for the transaction. Do you want to sell 100% of the company at closing and walk away with the cash? Do you want to pass the business to family members or employees? Are you willing to keep working for 3-5 years after selling all or a portion of the business? How important is it that the brand continue? What are your cash needs?
There are many ways to sell your business and it is important to have a creative team to help you structure the transaction. But there’s no sense in spending time on options that don’t align with your objectives or financial needs. So before getting enmeshed in a complex deal structure and tempting tax-minimization strategies, take stock of your wants and needs.
As a business owner, your focus has been on running and growing the company. When selling your business, it’s imperative to take steps to plan for your personal financial future and to utilize the right expertise to help you ensure the highest value for your business.
Nick Malouff, CEO and Owner BHGRE BloomTree Realty specializes in Commercial and Business Sales. To contact Nick, call 928-925-2023