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Selling the Company

Planning Ahead: Steps To Selling The Company

With the new year, entrepreneurs and business owners are looking ahead and putting plans in place for the coming year and beyond. For most the focus is on increasing sales and revenues to grow the business, for some it is looking to take things in a new direction, and for others it may be stepping away from the business entirely and selling the company. Regardless of the objective, planning is essential.

If a business owner is interested in actually selling the company, there are a number of key steps that need to be taken to help ensure success.

Take your time when selling the company

Planning for the sale of a business should begin at least one year in advance. It can take this long to get financial information and documentation pulled together to allow the owner to find the best buyer for the business, that is a match financially and has the right professional experience to step in and take over. When a buyer is found and the deal is finalized, it is also important to allow time for the transition.

Find the right people for the job

To find a buyer, you may want to consider consulting a reputable business broker. A broker can help navigate the steps of preparing and selling the company. Also, tap into your connections to ask around and get advice from trusted sources such as an accountant, banker and attorney. You may be an expert in your industry, but these professionals have handled transactions like this numerous times and often know what to look for. Consider asking people in your business network for referrals and while brokers can be helpful, avoid professional brokers that ask for large upfront deposits.

Succession planning

When selling the company, the business owner may stay on for a period of time as a consultant or contractor. Either way, at some point they will be leaving, and it is crucial to put together a management team that can run the company without the owner. This process can also take time.

Do not assume that relying on longtime employees and managers is enough. In some cases, a manager may have been on staff a long time, but they are still not as involved in the entire business process as the owner and may not know a great deal of the business operations. Planning ahead will eliminate the need for the seller to stay on long after the business is sold and allow time to train and promote someone from within or to hire a qualified person from outside the business.

Document an operations manual

In addition to developing the right management team, developing instructional materials and documenting information on the “how to” for the operation is vital to a successful transition. The creation of a company manual should include everything from detailed major operation information and key vendors to an organizational chart of employees and the small day-to-day tasks. This gives a real value for the company by providing the potential buyer with a base for operating the business.

Make your company desirable to buyers

First impressions are important. Think of how you would react to your business if it was your first time walking in or seeing the behind-the-scenes operations. Making necessary upgrades, documenting procedures and listing business statistics, such as operation costs, yearly sales increases and customer growth, gives a potential buyer the information they need upfront.

Transferring the products

If the company sells a service, most contracts are month-to-month so customers can leave anytime. This means the buyer will devalue the cash flow stream. If you can patent or trademark services and products, this will add value to the company, allowing the seller to command a higher price. If possible, do not take a seller carry-back note. This means the sales price will be paid over a time period and may be based on the future profitability of the company. Less cash upfront is better than more cash over a longer and uncertain period of time.

When selling, it is important to be realistic. According to data from BizBuySell.com, more small businesses were sold in 2010 than 2009, but were sold for less.

Whether it is a business-to-consumer or business-to-business model you are trying to sell, planning ahead is vital. Reviewing the business structure, its operations and securing a reputable broker positions the seller best. In other words, planning to sell the company you have spent countless hours building will ultimately make it more desirable to buyers.

The only question now is, once the business is sold what will you do next?

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