Building a successful business is an incredible accomplishment. It takes years for most aspiring business owners to get to that point, and many never make it. Now that you’ve accomplished that amazing goal, there may eventually come a time to start considering how to make an equally successful exit. Making a successful exit when selling your business is the topic of this article.
From when to sell to how much involvement you want to have after the sale, it can be hard to figure out exactly what to expect. This article will offer a broad overview of how to make a successful exit when you’re ready to sell so that you can go into the process with open eyes.
When to Sell
Some entrepreneurs know that they will be selling their companies eventually from day one. Others think they’re in it for the long haul but wind up with compelling reasons to sell later down the line. Either way, the key is to sell the business when it’s performing well and on track to significant growth.
The reasons behind business sales are as diverse as those for starting one. Making a successful exit requires some planning, though, so don’t wait until a market downturn is imminent or there’s just no room left in your life for taking care of business. Start thinking about how to plan for a sale a few years down the line if you’re beginning to experience burnout, boredom, or a growing desire to retire now.
How to Prepare
The reason it’s so important to know when to call it quits is that it takes some time and a lot of preparation to make a graceful exit. The first step is to identify any changes that must be made to get the business ready. Those might include filing patents, implementing business processes or systems that will make it easier to scale up, or cleaning up the company’s books now, when it counts. Making a successful exit when selling your business is all about taking care of the little things.
Once you’re confident that it’s the right time to sell, the next step is to hire a skilled business broker who can help you find a buyer and close the deal. As your intended sell-by date gets closer, you should also:
1. Do Some Due Diligence
Organizing the business’s financials ahead of time is just part of what it takes to do your due diligence. You should also identify and resolve all potential issues that could slow the sale down, including the need for shareholder signoffs or resolving any active legal proceedings. Your business broker will write a business memorandum that offers an overview of the company, outlines its history, and highlights its successes. They will do this carefully, so as to not alienate certain types of buyers. This part is probably not as intuitive as most sellers would think.
2. Get Business Valuations and Audits
To you, the business might be worth the world. To someone who hasn’t devoted years, or even decades, to building the company, sentimental value counts for nothing. Be sure to hire outside experts to perform not just a preliminary business valuation but also comprehensive third-party operational audits. Schedule them at least a year before the intended sale so there will be time to address any issues that could come up.
3. Address Any Problems Uncovered in the Audit
Business audits cover more than just your company’s finances. They also look at everything from marketing and sales to management structure and business partners. An operational audit’s purpose is to uncover areas of the business that could use improvement, so be sure to follow up. If you’re planning to sell in five years, schedule the first business audit now so that you’ll have enough time to make the necessary changes.
4. Find the Right Buyer
Part of the purpose of working with industry professionals like business brokers is to expand your pool of potential buyers. In most circumstances, it means that you won’t have to take the first offer that comes up. If it doesn’t seem like a good fit, consult your broker and consider waiting until a better buyer comes to the table. Most competent business brokers will run processes where multiple buyers compete against one another in order to get the Seller the best price and best terms.
Ensuring A Smooth Transition
Things can go wrong and deals can fall through just days before closing, so don’t assume that you’re in the clear until the closing date, when the money clears. Respond to all requests from the buyer within 24 hours and continue to schedule weekly calls with your advisers.
In many cases, purchase agreements also include provisions requiring sellers to provide specific training regarding the operation of the business. This is where what some people call the FAIR framework comes into play. To ensure a smooth transition, you’ll need:
- Fit, or a common set of values shared between the buyer and seller.
- Alignment, meaning an agreement among all stakeholders as to how to move forward.
- Integration if the buyer plans to integrate your business into a larger structure.
- Rationale that creates new value as a result of the merger or acquisition.
Ensuring that the transition is smooth for everyone is worth taking the extra time to find the right buyer. This is especially true for business owners who plan to continue playing an active or passive role in their company, post-sale.
Get Ready for Life After the Sale
Making a smooth exit doesn’t just mean keeping all of your ducks in a row until closing day. Take the time to consider things like how you will use the proceeds from the sale to meet personal or professional goals in the future, how the sale will affect your current retirement plan, and what you’ll do with all of your newfound free time.
Remember that there are many options for continuing to make money from and even remaining involved in the business following the sale. They can include negotiating annuity in perpetuity, retaining ownership of the building to create a stream of rental profits, selling on an installment basis to spread out payments, or even staying on as a consultant or employee.
Start Assembling an Effective Team Now
The idea of selling a business may feel intimidating now, but it doesn’t have to be. For now, just take things one step at a time, pay attention to the details, and find a business broker you can trust early in the process of preparing for the sale, when making a successful exit when selling your business. You’ll need to have a unified team of internal personnel, accountants, third-party brokers, business valuation professionals, and others in place to make sure every step goes smoothly.