People spend years building businesses, sacrificing various elements of their lives and selves along the way. It can be a rewarding process, but it’s also one that comes with plenty of decisions and responsibilities. Eventually, you have to think about what’s next for your business, as much as what’s next for you. Doing so includes preparing the business for sale.
This can take a lot of effort for one person, but there are plenty of resources out there to assist you along the way. To begin your transition out of business ownership and get your company ready to hit the market, follow the steps below.
1. Clean House
While your business might be doing just fine as-is, producing profits with very few glitches along the way, that’s not enough. You should consider how your business looks to a potential buyer or investor. What are they going to see both physically and financially?
As a business broker, I’ve walked into countless small businesses that look like a complete mess but it’s been that way for so long that the owner is oblivious to the clutter and disorganization. A little housecleaning can go a long way. The key is to clean house physically as well as financially. This means having clean, accurate and honest financials and tax returns.
2. Build A Team
Often, entrepreneurs are go-getters and get-it-done-themselves types of people, but in order to position your business for sale, you need to make sure you’ve built a team around you that is not dependent on you doing or controlling everything.
What would happen if you took off, without notice, for 30 days? If the business stalls or suffers, you need to focus on reinforcing those areas to operate with employee and manager oversight, without them being dependant on daily guidance from you.
3. Look At Value As A Buyer
Selling a business is a lot like selling a home in that sellers often want to ask a lot more than the property is worth because of emotional attachment or personal investment value. You have to look at the value of your business from a buyer’s perspective: What exactly are you offering here, and what is the ROI on their purchase?
Make sure that you work with a local, knowledgeable business broker who can help you determine what the fair market value and market multiple is for your business so it’s priced appropriately. Remember, the business is not priced based on how much blood, sweat and tears you’ve put into it. It will likely be based on a market multiple of three-year weighted average sellers discretionary earnings (SDE).
4. Keep Management Focused On Business
This is a huge benefit for any company: a focused management team. Yes, even when you’re trying to sell a business, the day-to-day operations must still go on. In fact, if you handle the sales process properly, most if not all of your staff should not even know the business is for sale. To ensure that happens, your team needs to be focused completely on the business operations and not the potential sale negotiations taking place.
Everyone has heard stories about last-minute game changes and dealbreakers, and if your team is already out the door at this point, your business is going to suffer and therefore your valuation will decrease. This is why hiring a professional team is vital—you stay focused on keeping the business operating and trending in the right direction and let your advisor team handle all the aspects of selling your business.
5. Put Together Your Advisor Team
Having the right team in place may be the most important thing you can do to increase the chances of you selling your business. You will need a knowledgeable business broker, transaction attorney and tax advisor who handle business exit planning.
There are a lot of things you can take a DIY approach to in life, but selling your business is so important, so detailed and so complex that it is not worth trying to figure out on your own. This is likely a big part of your future retirement, and unless you specialize in valuing, selling and closing transactions, it’s not worth risking your future retirement funds to try and do this yourself.
6. Consider Tax Implications
Before you even consider selling, you’ll want to consider the tax exposure that’s going to happen along the way but more importantly, post-closing. Relying on financial advisors will be key, and your current CPA may or may not be the right person for the job. Be sure to work with someone who specializes in tax strategy and planning for business owners looking to exit, not just someone who has filed your business tax returns for the last few years who may not specialize in this work. There are some tax strategies that you are required to have implemented prior to closing the transaction, so don’t wait and think you can do this too late into the process.
7. Plan Your Finances
You have to think about how you’re going to live and manage your finances after you sell your business. Will you be living off sale profits? Starting a new business? What kind of lifestyle do you want to be able to afford? You need to make sure that you know how to handle your personal finances post-sale so that you aren’t caught off guard by something that comes up along the way.
Just as important, you need to have some type of purpose that will give you fulfillment and joy. Honestly, many business owners who retire and think they are going to play golf and sit on the beach eventually end up bored and unfulfilled. Make sure to identify what you will do to bring productivity and fulfillment in your post-transaction life.
Follow these seven steps and you’ll be prepared for whenever the time is right for you to sell your business.