Preparing to Sell Your Business
Before you cash-in on the successful company you’ve built and retire to tropical paradise, take time to adequately prepare the business. Whatever your motivation for selling, the effort you put into preparing it for sale can mean the difference in the final result.
Evaluate What You’ve Got
Begin with a realistic idea of the value of your business. For an initial estimate, investigate the selling prices of similar businesses in your area, but be aware that the values of even seemingly comparable businesses can vary greatly. A business valuation expert can help you make this determination. Factors that will affect the ultimate sales price include past revenues, the value of your business assets, the company’s future prospects and the health of the local business economy.
Prospective buyers will likely perform their own valuation of your business and you will be in a better negotiating position if you have your own objective sense of what it’s worth. Finding out that your business is worth may sway your decision to sell or require a revision of your future plans. In addition, explore the tax consequences of selling with your accountant before you sign the letter of intent to sell with an interested buyer. Waiting until after you sign may eliminate tax-saving opportunities.
The Ideal Buyer
Once you have an idea of value, create a profile of the buyer who would benefit most from purchasing your business and market to that target. Perhaps a large, local company in the same area would be interested in your location, customer relationships or some other valuable aspects of your operation. Maybe a long-time competitor would relish the chance to expand. Perhaps one or more of your own employees might be interested in ownership. Once you’ve identified the most promising potential buyers, you can focus your sales efforts.
Present a Clear and Positive Picture
Prospective buyers will ask a lot of questions about your company’s finances, products or services, staff, customers, vendors, facilities and many more aspects of the business. Being prepared with the correct facts and figures will help to smooth the process. At a minimum, you should have five years’ financial statements including balance sheets and profit and loss statements. The potential buyer will also likely ask the IRS to send them copies of several years’ returns, so it is important that you report the correct income and expenses on your returns filed with the IRS to reflect the true profitability of your business. Even though you are selling, be sure to maintain all the elements that originally earned your company its good reputation and make an effort to present an appealing picture to potential buyers.
Also, consider what kind of participation you would like to have in the business in the future. Many owners want to continue to be involved even after they have passed on the reins to a new management team. In other cases, the new owners ask for continued participation to ensure a smooth transition. Establish in writing what the outgoing owner’s new role will be, including any continuing financial interest in the business.