10 Steps: Getting Ready to Sell Your Business
Usually, most people with businesses confront its sale once. It is a major decision and if not done correctly, can greatly affect life in retirement. Following, are some steps to follow to get your business ready for sale.
- Your future: Decide if you really want to sell, and whether you want to walk away or continue working for the new owner
- Net after taxes: When a business is sold, the cash flow ends. Have an accountant make calculations of what you could expect to retain, your annual cash flow after selling, costs and taxes
- Asking price and expected price: Engage a valuation expert to estimate the value, what your asking price should be and what you might end up settling for. Also, ask if they can identify hidden or strategic value and what it might be worth to the right buyer
- Identify the best buyer: Knowing the value and strategic value might help you identify the best buyer. Also, look for major competitors that might be interested in buying your business to acquire more volume, eliminate a competitor or add experienced personnel. Sometimes, a competitor located in a faraway place might want to get started where you are, raising the price you’ll get
- Negotiating strategy: You should speak to your CPA or attorney to help develop a sales strategy and negotiate posture. Many times, it is better to have someone represent you than trying to do it yourself. Your representative can pick up on reasons the buyer might have to buy your business and that might increase the asking or sales price
- Business broker: If you want to sell to a competitor, you can approach them yourself, but it must be done discretely so that they won’t make a run on your customers or personnel. Using a business broker maintains confidentiality about your identity until the prospect is qualified as a serious buyer. The broker should be experienced in your industry. If the transaction size is large, then you would use an investment banker
- Legalities: You should have an attorney review your licenses, contracts, warranties and intellectual property to determine if you have exposure and clear title to assets being sold, whether your employees are bound by non-compete agreements, and how you can extricate yourself from leases
- Key employees: You may have some key employees that the buyer would want to retain. These should be identified and a plan to keep them should be formulated. If they would need to be given retention payments, who would pay it (and how) has to be discussed
- Financials: You will need to have an accountant restate your financial statements to show what the assets and profits would be without the current owner group involved and with someone else running the business
- Book: You will need to assemble and organize all the information a buyer would want to know and present it in a package or “book” that would make it easy to review by the various members of the buyer’s team. You will also need to assemble your own team – CPA, attorney, financial planner and broker (mentioned earlier)
Every business sale takes work, focus, the right team and is goal driven. When selling your business, you will usually only get one opportunity to get it right. Do as much as possible to make it a successful transaction.