Major Issues to Consider When Selling Your Business
If your business has been a success, you've probably had to pour most of your time, energy, and money into it for what may seem like forever. You may see your company as an extension of yourself, and it may be hard to even imagine life without it. In some cases your entire family may have depended on the business, discussed it endlessly around the dinner table, used it as an education and a proving ground for the children, and practically made it into another family member!
On the other hand, your business may have been only marginally successful, and something you can't wait to get rid of. Or, perhaps you entered into the business with the idea that it would be a short-term opportunity and that you'd sell out whenever you got a decent offer.
Whatever your situation, selling your business will be one of the most important things you'll ever do, because unlike virtually every other business decision you've made over the years, you'll only do this once. You get a single chance to put a price tag on possibly years and years of effort — and once you sign the sales documents, it's over.
You'll come out way ahead, both financially and personally, if you make an effort to understand the steps in selling, formulate your plan carefully with the help of your professional advisors, and, when the time comes, take the time to negotiate a price and terms that satisfy your reasons for getting out of the business.
Even if you think you're many years away from selling out, you should consider what your heirs or successors would have to do if you died unexpectedly. If you don't have a workable exit strategy in place, you (or your heirs) may have no choice but to liquidate the business and sell off the assets piecemeal, getting nothing for the goodwill you've built up over the course of the years.
Here are the major issues you need to think about when it's time to sell your business:
- Initial issues in selling out: how should you time your decision and choose experts to help, and what legal/ethical pitfalls do you need to avoid?
- Valuations of small businesses: how does the market put a price on a small business, and what can you do to maximize your own business's value?
- Finding a buyer: what do you need to know about working with a business broker, creating a selling memorandum, and other marketing concerns?
- Structuring the deal: what are your options as to terms, paying particular attention to the tax implications of various alternatives?
- Financing the deal: what should you know about seller financing, and third-party financing through leveraged buyouts?
- Completing the deal: from the Letter of Intent through due diligence to the closing, what are the typical steps you can expect to go through in the sales process?
- After the sale: a few notes about your new, unencumbered life!
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Ten Rules to Follow to Success
If you are considering the sale of your business, you might want to study each of the following ten rules to help assure success on the way to final closing.
1. Place a reasonable "market value" price on your business. Don't try to start negotiating from an inflated figure. Try arriving at the best "win-win" price.
2. Carry on business as usual. Don't allow the sale process to distract your attention from day-to-day operational demands. Since the selling process could take as long as a year, the buyer needs to keep seeing a healthy business.
3. Insure confidentiality throughout the entire sale process. A breach of confidentiality surrounding the sale of a business can drastically change the course of the transaction.
4. Prepare for the sale well in advance. Be sure your financial records are complete for at least the three previous years. Have available copies of all relevant contracts and other obligations.
5. Anticipating information the buyer may request. In order to obtain financing, the buyer will need appraisals on all assets as well as information to satisfy environmental regulations (when real estate is concerned).
6. If possible, achieve leverage through buyer competition. This involves creating a competitive situation with two or more buyers.
7. Offer flexible financial terms. Don't demand all-cash at the closing. Consider accepting contingent payments or an asset transaction. Depend on the advice of your CPA and attorney--their knowledge of financing and tax implications-- to keep the deal doable for the buyer.
8. Be prepared to negotiate; try not to "dominate." You're used to being your own boss, but be prepared to learn that the buyer may also be used to having his way. Decide ahead of time when "to hold" and when "to fold."
9. Keep the deal on track. Avoid time from dragging it down. Try to assure that potential buyers stay on a time schedule and that offers move in a timely fashion.
10. Be willing to stay involved in the business for a reasonable "transition period." Even if you are feeling burnt-out, realize that the buyer may want you to stay within arm's reach for a while.
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