Selling Your Business: Critical Issues to Consider

Selling Your Business

The Big Day Arrives

The day will arrive one day when you want, or need, to sell your business. Selling a business you’ve worked hard to build is an extremely emotional and challenging experience, not often realized by business owners. It is complex and there are many issues to consider. To guide you through the process and help you deal with the issues to be addressed when selling your business…the following tips may help.

Firstly, why you are selling your business is a good question to ask yourself. Is it retirement, relocation, illness, or divorce…as the process and outcome may be different in every situation? If your business is flagging, selling your business is going to be hard. Very few buyers want to buy an unprofitable and poorly managed business.

Without doubt, the first question a prospective buyer asks, is why you are selling your business. Be cautious, anything other than retirement always raises a red flag, as buyers get suspicious, even if the reasons are perfectly genuine. You must be clear on the reason for selling your business, as this will make a prospective buyer much more comfortable with you and the business.

Exit Planning…Sound Advice

Having an exit plan is always sound advice, since without a clearly defined plan you have no roadmap to guide you though the process. A plan such as this pays dividends in managing your transition and transferring the business to a new owner. It is paramount, that once your business is sold, you have a sound plan to invest the proceeds, as today’s political environment is full of uncertainty and you certainly don’t want to lose all your hard earned wealth through lack of planning.

Be prepared for a time consuming task, as finding buyers is not a simple matter. The process of selling your business will be time consuming and at times very arduous. However, during this time period, you still have conduct business as usual, especially ensuring that profitability is maintained or even grown, as this is what determines value. The last thing you want to do is ruin your chances of selling the business, as it becomes less valuable.

Keep it Confidential

A key factor is confidentiality during this selling process. Naturally, you tell your wife and family, but beyond that you will need to be very cautious about who you confide in. Keep this information from your employees, customers, and vendors as long as you can, because any breach can have unintended consequences. Almost always people get suspicious when a business goes up for sale, which rarely is the case, but the business can suffer. Valued employees might leave, vendors tend to enforce stricter credit terms, and customers seek new places to buy from.

Engage a Professionally Qualified Broker

How you sell your business is an important decision to make. Some business owners try to sell their business themselves, but soon realize that running a business and selling a business are not compatible. Which then begs the question, are you going to sell it yourself or engage a qualified business broker. If you do use a business broker, make sure he/she is a credentialed broker, such as a Certified Business Intermediary (CBI) from the International Business Brokers Association (IBBA). Engaging a qualified business broker will pay dividends, as it enables you to run your business as usual, saves time, and allows you to concentrate on maximizing your business value without the hassle of dealing with prospective buyers.

Business Value…Science or Art

One of the most important tasks is determining the value of your business. This process is both a science and an art. Naturally, as your life’s work, you will have an emotional attachment to your business, which affects your perception of its value. Unfortunately, more often than not this is unlikely to match the actual market value. Often this is a jolt to your system, so be prepared for a possible shock. If it’s an asset sale you should determine what assets you wish to sell and those you wish to keep. You business broker can help in that task to value the assets and set the optimum selling price. However, keep in mind that buyers will try to negotiate a lower amount that your asking price, so be prepared.

Deal structure is an important factor when you have a prospective buyer who is willing to make an offer. How do you want to get paid for your business? Do you want to sell it outright, or are willing to take a note back and help to partially finance the business for the buyer? Often many owners are reluctant to finance the business for the buyer, as they are rightly concerned about the buyer’s ability to honor their repayment obligations. However, in today’s world the likelihood of the buyer obtaining a bank loan is greatly reduced if the seller has no investment in the sale of his/her business. Confer with all your professionals on this matter and seek guidance from your business broker, your lawyer and accountant who will help you to work out the details.

Be Well Prepared

Lastly, you must have the business in perfect condition and be well prepared before putting it up for sale. Especially important, is having a clean balance sheet and up-to-date financials, such as the profit and loss statements. Gather and prepare all necessary documents that prospective buyers will ask for, such as your financial statements and other documents applicable to the business. Also, do the same you would do in selling your home, ensure that the facility, such as the building, is in good repair, and all equipment to be sold is functional. Prepare for the sale of your business, as the chances of selling it will be greatly enhanced when there is little for the prospective buyer to use as objections and a bargaining chip.

If you thoroughly prepare your business for sale and leave no stone unturned in the cleanup process, it will pay dividends. Keep in mind this will be a hectic and stressful time. And the only way to survive this process and keep the stress to a minimum is to be well prepared. Good luck in selling your business.

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