There are a number of reasons you might want to sell your business. You might be ready to retire and move on, or you may just be itching to try something new. Maybe you are more into the startup mentality, and everyday operations and management are not right for you. No matter what your reason, when you are ready to sell your business, you need to answer some questions first.
The reason is that you want to make a profit from the sale of your business, but you also want to sell it at the right time to the right buyer. The process is more complicated than it at first might seem. It’s not like selling a house: updating your appraisal, putting it on the market, getting and screening offers, and waiting for the buyer to get financing and then closing.
While selling a business does involve those steps, it also involves much more. Here are some questions you need to answer before selling your business.
Are You Ready?
Is your business ready to sell? It is healthy and even growing? Are your financial statements and reports ready for someone else to look at?
Most businesses set up their books to provide the best tax advantage, but that does not typically show all the money you make or have the potential to make. In order to show that to a buyer, you will need to do what is called recasting your books. Unless you are one, you will typically need your accountant to help you do this.
Also, make sure your business technology is up to date, your equipment is in good shape, and your debts are current. This will help you get the best business valuation possible.
What’s it Worth?
This brings us to the question of what your business is actually worth. To determine this, you will need a professional business valuation. While you, as the owner, might have a good guess as to what you think the value of your business is, a pro will know more.
- What is the market value of your business? What are similar businesses in the industry selling for?
- What is the value of your equipment? You will need an equipment appraisal to figure that out.
- What is the combination of those things, and what intrinsic value do your reputation and your customer base have?
- What other assets does your business own, and what are they worth? Should you sell them all with the business or keep some?
The answer to all of these questions gives you a better idea of the value of your business, and what a professional can actually list and sell it for. Even when you have a valuation though, that is not the end of the story.
How’s the Health of my Industry?
Hopefully, your business is healthy and growing before you decide to sell, but what is the overall outlook for your industry? Is it growing over the next five to ten years, shrinking, or going through a transition?
It is really important that you are honest with yourself at this point because your business broker and those selling your business will be doing this research as part of their due diligence. So will your buyer.
You would never buy a business that was not going to profit long term, and neither will your buyer. If your industry is going through a transition, you might want to weather that before you sell your business, or you might risk doing so at a loss. Research the health of your industry before you even put your business up for sale.
Who is Your Buyer?
Unless you are doing a management buyout or transferring the business to a family member, you probably don’t know who your buyer will be. But it is a good idea to have an idea what your ideal buyer might look like. A professional business broker can help you understand:
- What skills with the buyer need?
- What state licenses and certification will they need?
- What business acumen will the buyer need?
- What kind of finances will the buyer need?
These are basics, but there are other things to consider, like how the buyer will affect company culture, whether they will have to relocate, and what affect the buyer will have on your current employees, supply chain, contractors, and more.
Developing a potential buyer persona will help both you and your marketing team target the right buyers.
How Long Will it Take?
This is a big question. If you are looking for a quick exit, you will probably have to sell your business under its value, and you may have to compromise terms in many ways. No matter what though, selling a business takes time. The processes are complicated, and some of them, like due diligence and financing, just take time unless you find a buyer with cash who is willing to skip those steps. Those are rare circumstances.
The best idea is to understand that the process will probably take months to complete once you find a buyer, and finding a buyer will also take time. It can take a year or more to complete a sale, and in some instances, it can take years to find the right buyer and the right deal. Sometimes the owner must work with the new business owner for a while to ease the transition.
A lot of this depends on you and your reasons for selling your business. Know those things, and adjust your timetable accordingly. Be flexible if you want to exit your business to the maximum benefit.
How Will I Get Paid?
The ideal for most sellers is to just get someone who hands them cash at closing or has full financing, but this is often not the case. There are many ways you can get paid for selling your business.
Sometimes, you can finance part of the deal, thus earning interest and speeding up the closing process, along with providing yourself a stream of income for the duration of the loan instead of getting a lump sum.
Other deals involve sales-based payouts, balloon payments over time, or payment in the form of stocks or vestment in the business. The point is that just because you get your asking price, it does not mean you will get a large lump sum of cash at closing.
Sound complex? Selling a business always is. That is why you can’t do it by yourself. You need a team, and often the quarterback of that team is your business broker. They can help you with business valuation, marketing your business to the right people, and much more.
Previously Published on Unbound Northwest