Things to Consider Before Selling a Business

Things to Consider Before Selling a Business

Are you thinking of selling your business? While you’ve worked hard to build the company, it might be time to let go. Whether you’re moving into another industry or retiring, there are a few to consider before selling a business. Preparation and planning will help maximize the value received when you sell your business. Before scheduling a consultation with a business broker, review these crucial considerations.

Why Are You Selling?

Let’s begin by determining the reason for the sale. Are you ready to pursue another venture, or are you ready for retirement? Sometimes, it’s just the right time to move on.

The main reason for the sale will influence most other decisions, and it will determine how quickly things move and your expected level of returns. Therefore, it’s important to take your time when moving forward with a sale.

What Will Others Find When They Start to Dig?

While your business may be efficient and profitable, there’s always room for improvement. Understandably, sellers will put your company under scrutiny, reviewing all aspects of your operation. Because it is hard to look at your company objectively, consider hiring a business broker who is both a business auditor and a financial specialist to review the business and identify areas in need of attention is a smart move. Brokers have been through the process many times and is definitely one of the things to consider before selling a business.

Do You Know the Company’s Real Value?

As mentioned above, it can be hard for business owners to be unbiased when valuing their companies. For owners, a company’s value includes the hard work they’ve done and the sacrifices they’ve made. While your work certainly has value, buyers aren’t likely to regard it as an asset unless you’re staying on as a manager or a consultant.

Although your company’s value is mainly based on profits, market participants have a substantial say in that value, which may include intangible items and hard assets. Before putting the company up for sale, retain a business broker who can assess its value from a buyer’s perspective.

What Do Buyers Want?

You’re getting ready to sell the company, but have you thought about what a potential buyer might want? Business buyers need to gauge a company’s performance to determine whether it’s a worthy proposition. That’s where good record-keeping and accounting come into play. Buyers want documentation, and by providing it, you’ll give them extra peace of mind.

What’s Going to Happen to My Employees?

Most company owners see their employees as family members, but not all buyers have the same view. Will the company’s new owner retain everyone, or will they need a new line of work? Once you’ve stepped down, it’s all up to the buyer. However, most buyers will absolutely value your employees.  Most companies today run lean.  Most buyers are buying your business because of your employees.  Although it is not guaranteed, the Buyer will most likely want to retain your employees.

Think About Your Finances and Future

While the proceeds of a business sale may seem like a windfall to some, it doesn’t always work that way. Don’t forget about your financial future after the company is sold. Ensure that the sale won’t destabilize your finances. Though you may earn a profit and expect to put it toward your next venture, you’ll need to account for the capital gains taxes you’ll owe.

Also, you’ll need to consider whether the business’ sale may lead to other liabilities, such as debts you’ve backed. These debts must be paid to ensure that you’re not held liable for future defaults. Because your fiscal well-being is linked to that of the company, consult a finance advisor who will protect your interest.

Does the Company Have Multiple Owners?

If you’re a sole proprietor, you’re holding the reins as far as the company’s sale is concerned. However, if you’re a shareholder, a partner, or an LLC member, things may get complicated. The shareholders’ agreement, bylaws, or operating agreement will determine how the business may be transferred or sold and how the proceeds will be divided. You might need a lawyer’s help to ensure that the bylaws or agreement are closely followed to avoid legal issues regarding the business’ sale or the distribution of profits.

An Offering Memorandum May Help Reassure Uncertain Buyers

Serious buyers will want to know all the details of your company’s operation. A quick summary based on a DIY template probably won’t attract many buyers. When putting a company up for sale, the offering memorandum should describe the company, its products and services, its daily operations, its financial reports, the management and senior staff, and its future objectives.  This is where a business broker can help.  After all, they’ve probably put together dozens of memorandums and know how to interest buyers.  Some of the wording is counter-intuitive to how sellers think.  It’s best to leave this step to an experienced business broker.

Keep Things Confidential During the Promotional Phase

When putting a company up for sale, it may become necessary to divulge confidential information and trade secrets to potential buyers. You’ll need a binding, all-encompassing NDA (non-disclosure agreement) to safeguard this vital information. Without an NDA, the information disclosed to prospective purchasers could be used to their advantage. Don’t rely on a do-it-yourself template; consult an attorney who can help you write an NDA that protects your company’s interests.  Almost all business brokers have a legally-vetted NDA.

Read the Purchase Agreement Thoroughly (and Look Further Than the Sale Price)

A business purchase agreement includes numerous details, but it’s surprising how many owners focus solely on the price. However, ignoring the agreement’s other details could be an expensive mistake. Read each offer’s terms carefully and consider how they affect the company’s transfer and purchase.

Back Your Financial Claims With Evidence

Potential buyers want proof of a company’s profitability. If you’re claiming revenue from certain sources, be prepared to offer documentation of its receipt. You may also have to provide access to your financial records and accounts so serious buyers can have them reviewed by outside financial experts or accountants. While it may seem obtrusive, it’s a necessary step on the road to a successful sale. Of all the things to consider before selling a business, having verifiable financial records is probably the most important thing to consider when selling a business.

The Most Important Consideration of All

If you’re selling a business, a crucial consideration is whether you need professional help with promotional efforts and the sale itself. While some company owners handle sales and transfers without assistance, it’s wise to ask for help. The money spent on a business broker is a significant investment that can bring big profits when the sale goes through or determine whether the sale goes through, at all. However, hiring a business broker is only one of the things to consider before selling a business.

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