Selling a business is a complex process. It starts when a business owner decides to exit the company and doesn’t end until a qualified buyer has closed the deal. It can take years to prepare a business for sale, find a buyer, and make arrangements for transitioning the business over to its new owner. These five key considerations when selling a business in Nashville can help.
Because selling a business is such an inherently complicated matter, all business owners should enlist some professional help. Business brokers are experts at helping clients find buyers and maximize their profits, so don’t underestimate how important it is to find a reputable industry expert.
Though business brokers can help clients navigate every aspect of pushing through a sale, there are some steps that business owners must take for themselves if they want everything to go smoothly. They can read on to find out about the top five considerations when Selling a Business in Nashville to find out how to get started.
1. Reasons for Selling
Every business owner has a different set of reasons for selling his or her company. Some are planning to retire, while others plan to move to different industries. Illnesses and deaths in the family, partnership disputes, and an unsustainable work-life balance can all play a role, as well.
No matter why a business owner wants to sell, it’s worth taking the time to define and even write down reasons for selling. Just about every potential buyer will want to know why the business owner has chosen to let the company go, and sellers will need to have an idea of what their future plans are so they can determine the best ways to use the profits from the sale.
2. Timing of the Sale
It takes time to clean up financial records, improve business models, and find qualified buyers. Business owners who prioritize quick sales over profits seldom get what their companies are worth, while those who start preparing a year or two in advance will be able to make improvements that will make the business look more attractive.
Some owners decide to make their exits when their companies are not as profitable as they could be, but that’s a huge mistake. It’s worth taking the time to ensure that the company is producing a consistent income, has a solid customer base, and is ready to be passed into new hands.
3. Business Valuations
Before moving forward with a sale, business owners will want to know what they can expect to get for their companies. The best way to determine the economic value of a business is to perform a business valuation. There are several strategies for valuing a business, including:
- Market capitalization
- Discounted cash flow (DCF) method
- Times revenue method
- Asset-based valuation
- Earnings multiplier
- Book value
- Liquidation value
- Replacement value
- Breakup value
- And more
When in doubt about which of these methods will give the most accurate picture of a particular type of business’s value, ask a broker for help. A good business broker will know how to value a company, but, at worst, can recommend a professional business valuation company who can provide an objective estimate of how much the company is worth and how much the business owner can expect to profit from the sale.
4. Keeping the Business Running
Some business owners are more hands-on than others when it comes to keeping every part of their operations running smoothly. The thing is, business owners who handle most of the company’s essential tasks will have a much harder time finding qualified buyers. If someone does make an offer, the seller will usually be expected to stay with the company while key accounts get transferred over and the new management staff receives dedicated training, or, even worse, they may have no choice but to structure their deals as earnouts or with lots of seller financing.
There are a few ways for hands-on business owners to start taking a few steps back without jeopardizing the success of their companies. Some business owners hire solid management teams well in advance of the sale so there will be employees who can keep everything running smoothly without daily input. Others automate every possible aspect of running the business so there’s no need for the owner to be there day in and day out.
The key here is to convince prospective buyers that the business will continue to operate as usual up until and after the sale. Hiring a business broker to manage all the details of the sale can give business owners the time they need to sort out how to smooth the transition.
5. Preparing Documents
There’s a lot of paperwork that comes along with selling a business. While a good business broker will be able to help clients make sure they have all their ducks in a row, it’s up to business owners to collect relevant documents and, if applicable, have them reviewed by an accountant. Prospective buyers will expect to be able to analyze, at a minimum, the company’s last three to four years of tax returns and financial statements.
In addition to financial documents, business owners who want to sell should be prepared to provide lists of equipment that will be included in the business sale, contacts related to supplies and transactions, and real estate paperwork such as commercial leases. Make copies of all these documents to give to qualified potential buyers along with a summary of how the business is structured. Providing an up-to-date operating manual can also get sellers extra points in the eyes of some prospective buyers and is the last of the five key considerations when selling a business in Nashville.
Start the Process Now
Business owners who are even considering the idea of selling should start to make preparations now so that their companies will be ready to transition into new hands when the timing is right. Start looking into qualified business brokers now, then take the time to identify potential weak points such as discrepancies in financial records, issues with business structure, or recent losses in revenue so they can be resolved in time to put the company’s best foot forward. When in doubt about the next steps to take, reach out to a business broker who can help you with these five key considerations when selling a business in Nashville.
