Five Factors to Consider When Selling Your Business
Deciding to sell your business and getting ready for the process to sell your business, takes time. But how much time and how and when to get the process going? Consider this: Preparing to sell your business can take a year or longer. The actual sales process itself can take up to six months or more. It’s so important to have a plan in place far ahead of your intended sale.
Five factors to consider when selling a business:
- Retirement age
So you’re thinking of retiring at 65 and anticipate putting your business up for sale at age 64 1/2? You may want to rethink that strategy. A major risk to a potential buyer is the immediate departure of a working owner or an integral part of the business. Buyers may be more attracted if the previous owner stays on and remains active for an agreed amount of time, say six months to a year. Factoring in this time prior to selling is something to think about.
2. Get your house (business) in order
Have accurate and up-to-date financials ready to show potential buyers far in advance to putting your business up for sale. Think about a third party or outside accounting firm to review the numbers and validate any information. Potential buyers will want to be able to view the following:
- Up to three years of historical financial performance, including monthly information of the last two years, plus year-to-date numbers for the current year. This gives potential buyers a sense of performance and trends
- A full overview of your business, including your customer base, strengths, weaknesses and competitive landscape insights
- Organizational charts and key employees
3. Look within
In some instances, a potential buyer might be right under your nose. Some business owners want to create an opportunity for employee ownership. This can be done with an Employee Stock Option Plan (ESOP), which is a trust and is incorporated into a retirement plan for an organization. It offers some tax advantages to the seller. The employee buyers are vested after a number of years so they’re encouraged to remain long term.
If there are partners in the ownership, one partner seeking to sell may try to come to an agreement with other partners to complete a sale. Looking within doesn’t work for all businesses. It works best where the chief asset is human capital and that can include architectural, engineering and accounting firms. It all comes down to money too—does the potential employee buyer have the money to buy.
4. Pursue third-party buyers
Of course buyers want to seek a fair and full price for their business. Owners want to maximize the value of their business and look for a buyer who offers the best price and terms. Still, many are concerned about their number one asset: The future of their employees. This is where the prospect of putting your business on the market can get emotional as relationships have been built and bonds have been made through the years. Getting top dollar turns to getting a good cultural fit. Definitely something to think about during your planning phase.
During the sales process, initial bids are provided. Bids are typically ballpark and are not the final agreed-upon price. Buyers will want to dig deeper into the company’s financials. Buyers may want to conduct a “quality of earnings” audit to verify that the financials being reported are accurate. After all this is completed, the final negotiations get underway.
5. Look at unsolicited offers with caution
Remember the old saying, unsolicited advice is exactly that—same goes for unsolicited offers: Not worth much. If the offers seems too good to be true, it probably is. Often an unsolicited offer loses value as the negotiation process continues. It’s best to be careful not to put too much faith into it.
Selling your business requires commitment and patience. It requires a significant amount of time and this is in addition to your “day job.” Enlisting the help of a qualified and trustworthy business broker should not be discounted. Brokers can help you far in advance of selling your business by taking you through the planning process, before putting your business on the market. Not only will they help you get your business ready to sell, but they’ll work to identify and contact potential buyers and help guide you through the various complicated steps.