For small business owners, selling a business is mentally and emotionally exhausting. Selling a business that you spent your life building is no easy task. Hence, many get cold feet as they near the deal. Remember, it may not get sold even if you are ready to sell your business. A business is not a car or equipment you can sell quickly. It is a living organization that is toughing several lives daily – employees, suppliers, customers, and more. Hence, you need to prepare yourself and your business for a sale emotionally, financially, and administratively by organizing your thoughts, processes, and business.
This article will take you through a flow of thoughts and processes to help you sell your business.
Things to Consider Before You Sell Your Business
Selling a business is time-consuming. To give you a rough estimate, it will take anywhere between six and eighteen months in the market before you find the right buyer, negotiate an offer, do due diligence, and sign the purchase agreement. During this time, you need to ensure your business is running smoothly and don’t back out of the decision as it could be expensive. Hence, you must prepare for a business sale three years in advance.
Why Do You Want to Sell Your Business?
Get clear in your head why you want to sell your business. Is it to cash out profit, continue the legacy, ensure the safety of your employees or any other reason? You can have more than one goal for selling the business. Prioritize them as negotiable and non-negotiable. It will help you throughout the process, from finding the buyer to negotiating the deal. Share your goals with your team of accountants, lawyers, and business consultants so everyone is on the same page.
Maintaining Business Performance
If you have decided to sell your business, make sure your business is efficient and attractive to the buyer. Buyers prefer a company with sustained sales and profit growth, strong cash flows, efficient expense management, and a strong balance sheet. If you have a huge debt or a significant tax liability, it could reduce your negotiating power. If your sales are doing well, avoid any strategic investments that could hamper sales growth in the short term. And if your sales are not going well, you might want to invest in products and services. Buyers look at the last three years’ financial statements and business performance.
If an industry or macro event reduces your sales and profits, it is advised to delay selling the business, as you may not get the best price from the buyer. You could probably improve future earnings and reconsider the sale.
Organize Your Paperwork
Any asset you sell should have complete documents and be clear of fines and tax obligations. Similar is the case with a business sale. Ensure your financial records are updated. You should neatly file supporting documents like tax filings, bank statements, invoices, leases, minute books, contracts, and other corporate documents. You might also want to pen down HR policies, business workflow, and processes to assist anyone in understanding your daily operations.
The buyer might need all this paperwork during due diligence to validate the information provided. You might want to separate nonoperational expenses and assets from the buyer’s analysis as they don’t add business value.
Create a Succession Plan
You have been in control as a business owner. It is time to let go of this control and make your business self-sufficient to run efficiently without you. It is where succession planning comes in, where you train your employees and give them responsibilities. Training will also involve creating process manuals, workplace safety policies, HR charts, and reference materials to guide employees in your absence. An independent-running business can attract buyers, especially individual buyers acquiring business, for a steady cash flow to maintain their lifestyle.
Valuation: A Starting Point for Negotiations
With the business ready for display to prospective buyers, you must value it. The value can be determined through a valuation method suitable for your business and goals. It is better to get the business valued by a third party as they would be neutral and arrive at a realistic value, which could form the base to get the buyer and seller on the negotiation table.
Remember, valuation is the start of negotiation and not the final price of the business. The buyer’s preferences, macroeconomic factors, and the outcome of due diligence could affect the cost. Many deals did not go past the negotiation table as the two parties could not agree on a price. However, a failed deal could help you understand the weak points on which you can work to get better negotiating power with the next buyer.
Finding the Right Buyer
Your reason for selling the business will determine what kind of buyer you want to pitch—strategic, financial, or individual.
- A strategic buyer could be your competitor, supplier, or customer acquiring your business to expand, kill competition, or for any other business reason. Such a buyer can offer the highest price and achieve your goal of cashing out profits.
- A financial buyer could be an investor or private equity firm that acquires businesses only to improve its return on investment. They will buy the business, make it efficient, and then sell it for a higher price.
- An individual buyer may be an entrepreneur or manager who wants to run a business, earn passive income, or maintain a lifestyle. While they may not give the best price, they can keep the business running.
A business consultant can market your business to the right buyer using the strategy that attracts such buyers. These above six steps can prepare your company to reach the negotiation table and get the best price possible.
Contact Ford Keast LLP in London, Ontario, to Help You Sell Your Business
Talk to a professional business consultant and accountant to help you prepare your business for sale by organizing the paperwork to make your business attractive to the buyer. To learn more about how Ford Keast LLP can provide you with the best business consulting and accounting expertise, please get in touch with us online or call us at 519-679-9330.
