5 Must-Haves to Sell Your Business
Selling a business is unfamiliar territory for most business owners. The process of selling what is likely your life’s work is a significant, life changing event and the outcome of the transaction will affect you financially and emotionally.
Having a plan for your exit is absolutely essential. Not only will proper planning help to maintain business continuity and maximize value in a transaction, but it gives you peace of mind during a challenging time of transition. While most business owners are entirely consumed in the day-to-day challenges of leading their business, proper exit planning absolutely cannot be ignored or deferred. Not sure if you’re ready to sell? Take our seller readiness quiz here! It can seem overwhelming to even know where to begin; start exploring with our 5 must-haves to sell your business.
1. Understand What your Business is Worth
How much do you think your business is worth? This is probably the first question that comes to mind when you begin to think about selling. It’s important to set valuation expectations on the front end before approaching the marketplace. To start preparing your business for sale, you have to understand how your industry values companies and how that translates into dollars for your business.
So how do you find out how much your business is worth? You’ll need a professional, independent, third-party valuation by an investment banker or external valuation expert. They’ll put the value of your business in clearly understood and easily communicated terms, and a well-supported valuation opinion provides the strong foundation required to effectively negotiate fair and favorable terms.
A word of caution: buyers may lose interest in a business if the owner overstates its value. Similarly, a seller can inadvertently negotiate against themselves if they understate the value of their business.
2. Have Your Goals in Order
You, as a business owner, have financial and personal goals you would like to achieve in connection with a transaction; it is important to define them before beginning the sell-side process. Outside of your financial goals, you may want to think about the company legacy, retention of employees, familial goals, and more.
Defining your financial goals can be complex. Start by meeting with your wealth manager with your independent valuation in hand. The wealth manager will analyze your entire portfolio and calculate your post-sale needs. They will also determine whether your personal needs will be met by the proceeds you’ll receive from the sale, after repaying any business debt and taxes due on the sale proceeds.
You should also understand what a sale could potentially mean for your lifestyle. If the proceeds from the sale cannot sustain your desired post-sale lifestyle, you may need to defer the transaction to a later date, spend a few years increasing business value, or consider reducing your financial needs. You need to be sure you’re actually ready to sell; take our seller readiness quiz here!
3. Have Your Team in Place
A well-assembled transaction team is paramount to achieving your goals. While you focus on leading the business as if you would own it for another few years, your transaction team will be your guide and help execute the sell-side process. Each member of the team possesses specialized knowledge in the areas that need to be thoroughly understood for a successful sale. Your team should include:
- Certified Public Accountant (CPA)
- Investment Banker
- Wealth manager
4. Have a Succession Plan
If you haven’t considered who will lead your business after you exit, now is the time to make a plan. Creating a management succession plan is about making yourself less relevant to the on-going success of the business; transition daily responsibilities to key employees overtime, including someone who is capable of one day running your company.
Many closely-held businesses depend heavily upon their owners for continuing success. If that is the case with your business, potential purchasers may experience difficulty finding your replacement when it is time to sell. If you can’t step away from your business for a couple weeks’ vacation, a buyer will view this as a potential roadblock to a sale. Create a succession plan that your shareholders approve of to mitigate this issue. Shareholder agreement and your company’s ability to operate in your absence helps ensure its long-term viability, and makes your company more marketable.
5. Have Financials and Forecasts Up to Date: What Opportunities Lie Ahead for Potential Purchasers?
When you begin to think about selling, you need to not only understand your market and market share, but you need to be prepared to explain to a potential purchaser how they can address opportunities you have forecasted. This kind of forward thinking will position you to market your company for sale with confidence and a compelling message about the growth and profitability your business has in its pipeline.
If you don’t currently have an organized method for mapping your upcoming budgeting, planning and potential future outcomes based on past events and management insight, now is the time to put this in place. This asserts that your business is on a positive path for potential purchasers.