4 things to keep in mind when selling your business
With entrepreneurship on the rise during and after the pandemic, business owners are facing a lot of firsts. One thing that new business owners need to be prepared for is selling their business when the time is right.
Business owners decide to sell for many reasons including retirement, relocation, new opportunities and health complications (like burnout). A seller’s exit strategy must be organized and prepared properly for a smooth transaction and transition.
READ ALSO: 7 reasons to use a CPA to sell or buy a business
Four things to keep in mind when selling your business include:
The selling process does not occur overnight, which means the seller has time to factor in every detail when drafting an offer. Time your sale at least a year ahead of time to properly prepare your financial records and business structure, so you can leave your business profitable for the buyer. Consult with a business appraiser to get a detailed valuation of your business’s worth. The valuation you receive will support the listing price when you choose to sell at. Sometimes a good time to sell your business is when you really do not want to sell your business. Buyers look for signs of desperation and if they do not see it, they may offer more than you are expecting. I have listed my business for sale on and off the last five years and just recently sold it two months ago, when I finally got the right offer. You learn from each offer you get on how you handled it well and/or if there are things you will change when another offer comes around.
2. Your situation
When you decide it is time to sell, ask yourself these questions:
Do I have a business partner? Your partner may want to buy your share or another partner’s share.
Is there a buyout agreement between the partners on how to value the business? It can get ugly. The lawyer you used that represented all the partners cannot represent you now, it’s a conflict of interest. So, think about an exit plan preemptively.
Is the business profitable? The best time to sell your business is when it’s doing well, your finances are in check, sales are at great, numbers and economic demand is high.
What hurdles do I face? There can be lots of hurdles to get past. Make sure that you have everything in order to transition the business to the new buyer, so you don’t face any liability for the business after the sale has been completed. Make sure to move the lease assignment to the new owner and understand your responsibilities for the business if you don’t sell your entire share.
When I recently sold my business, I sold it to the general manager who worked for me for the past 12 years. We created an S Corporation, so if things ever go south, I can step in to take the business back. If you can sell your business to someone you trust, see if this is an option for both of you.
3. Gather all necessary documentation
Prepare a purchase contract that lists the details of all parties involved in the transaction: all business assets, equipment, inventory and liabilities, payroll and an agreed purchase price. Consider hiring a business lawyer that specializes in this type of business transaction to help guide you in this process. A lawyer will make sure that all documents are completed correctly and are valid, to avoid any costly legal mistakes.
In addition to creating a legal and valid purchase contract, make sure you organize your financial reports, sales, profit and loss statements, three years of previous tax returns, bank statements and other financial documents ahead of time. Get all your financial statements and tax returns and review them with an accountant to certify your finances. Also, develop a document of current assets being sold with the business, and if you were leasing any assets, include that information in the selling process, too. When you have all your documents in order, create copies for the buyer.
4. Keep it confidential
During your business’ selling process, confidentiality and security are key! You will be meeting (potentially) with many people, have them sign an NDA Non-Disclosure Agreement that this information/sale is confidential and do not tell anyone, especially the employees or business associates. Keeping your selling process confidential will allow you to get an optimal price for your business. When placing your business for sale, keep it anonymous in advertisements that your business is for sale because competitors can spread the news, and customers can get nervous, threatening the future of the business’s reputation.
The tips above will ensure that once you’re ready to sell, the process moves as seamlessly as possible.
Author: Jack Diehl, the president of the Association for Entrepreneurship USA, graduated from the Rochester Institute of Technology with a bachelor’s degree in Manufacturing Engineering. His initial 10-year career included new factory set-up of Maverick missile seeker head assemblies and project engineering & procurement for Hughes Aircraft Missile Systems Group. After leaving Hughes, Jack developed an auto repair operation of 9 different auto repair centers. He was responsible for initial site selections, property development, business financing, staffing, quality control and other necessary aspects of owning and operating a successful small business for over 20 years. Originally from a rural farming community in upstate New York, Jack now lives in Tucson, AZ. His interests include domestic and international travel, motor sports and jazz music.