Selling a business is a process with many complex nuances. You will need an accountant and attorney to make the transaction a smooth one and comply with regulations, such as how the sale will affect your tax bill and net worth.
If you're thinking about selling your business, here are five factors you should consider in determining if you're ready then what you will do during and after the sale.
1. Why Are You Selling?
Are you looking to do something else with your life, or would you like to retire? Or, is the business just not doing that great so you want to cut your losses?
If the business is doing great and you're looking to do the charity work you were waiting for your whole life or that you'd like to enjoy retirement instead, you'll have an easier time getting a buyer when in happier circumstances like these.
A business that is losing customers, isn't very profitable, and/or has an antiquated business model will have problems getting a buyer let alone a venerable sale price.
2. When Do You Want to Sell?
You should have foresight in when you plan to sell, at least a year or two ahead of time if not longer, rather than a spur of the moment decision.
This gives you time to solidify both your personal and business plans and see if they still align within those two or so years, but also to make any improvements to your financials, company structure, customer base, and other moves that will make the business a great long-term prospect for the buyer and thus more likely to get one faster.
3. How Much is Your Business Worth?
To get a better idea of how much a buyer would be willing to pay for your business, you should have a professional valuation done by a business appraiser. This appraisal will give you an idea of what price to set but also validate this price to prospective buyers and show them that you are serious about completing the sale.
4. How Will You Prepare For the Sale?
You'll need to gather your last four years' worth of tax returns and financial statements and go over them with an accountant. You'll also need to create lists of supplier and vendor relationships, important contacts, as well as any other important paperwork related to your operations like inventory, equipment, and leases or deeds. It's also in your best interest to disclose any major transactions that occurred recently, like taking out a loan or securing a major long-term contract that you think will end long after your exit.
Make sure that all equipment is in working order, and get broken equipment repaired or replaced.
5. Who's Buying Your Business?
Even if your business is in excellent shape, it can take anywhere from six months to two years or longer to get a buyer.
You'll also need to keep your options open in the event that a buyer changes their mind or can't get the financing that they need to buy you out, so keep being on the lookout for buyers. Don't neglect advertising the sale so it gets shown to as many potential buyers as possible.
When you're showing the business around, you'll want to get signed confidentiality agreements so that trade secrets and other sensitive information is protected regardless of whether they purchase the business or not. You may also wish to pre-qualify buyers who are financing the purchase before committing the time to them. A business broker can also take care of finding a buyer for you and remove the hassle of prequalification and advertising.
The Finishing Touches
When you get a buyer, the sale should be in writing with the purchase agreement going into escrow. If you aren't retiring or pursuing a different line of work after the sale, the buyer may request a non-compete agreement as part of the sale conditions so you don't start stealing customers or proprietary information.