Economic conditions such as high market demand for profitable businesses, labor shortages, and economic uncertainty in the year ahead are bringing many business owners to the point of selling their business. Whether a business sale is on the short-term horizon or a consideration in five years, the sale will be one of the most significant business actions you will make. To receive the most value and ensure the success of the sale, you need to determine your priorities, evaluate the timing of the sale, and assemble an expert team to assist you along the way. The process can be emotionally and financially daunting. Before moving forward with a potential sale, it is important that you are prepared for the key steps in the process.<\/p>\n
Are You Ready to Part with Your Business?<\/strong> Do You Know How Much Your Business is Worth?<\/strong> Is Your Business Ready to Sell?<\/strong> \u2022 Profit and lost statements for the last five years, including the present year Have You Found the Right Buyer?<\/strong> \u2022 Previous employment history and business ownership Do You Have the Right Team?<\/strong> \u2022 Have all potential buyers sign a non-disclosure agreement (NDA) Are You Prepared to Negotiate?<\/strong>
\nHave you thought about how much money you need to make off the sale to retire comfortably? Do you have someone in mind you plan on handing the reigns off to? Do you have a financial consultant, broker, or CFO to work alongside you to ensure a seamless transition and fiscal success? Do you know what you plan to do once you sell? Answering these questions allows the exit strategy to begin.<\/p>\n
\nMany business owners can estimate how much money they\u2019d like for a comfortable retirement, but not all know just how much their business is worth. For example, you can estimate that your company may be worth $10 million but find no buyers in the current market are interested in purchasing the business at that price. Knowing your company\u2019s current market value will protect you from selling under fair market value, or not finding a buyer because the business was listed for too high a price.\u00a0 To do a proper valuation for your business, you will need the guidance of a professional who will review your projected financials along with the last three years of profit and loss statements, your business tax returns, and balance sheets from that time period, as well as a statement of cash flows. The revenue trends and how much cash flow the business is generating are key. Trying to successfully negotiate a deal without a prior understanding of what your
\nbusiness is worth puts you in a position to lose money.<\/p>\n
\nUnderstanding your business assets is an added benefit of going through a business valuation. Below is a list of basics you should have in order before selling your business:<\/p>\n
\n\u2022 Present balance sheet
\n\u2022 Tax returns from the last five years
\n\u2022 List of annual expenses
\n\u2022 List of company property such as furniture, technology, equipment and more
\n\u2022 Any kind of inventory lists
\n\u2022 Commercial property appraisals
\n\u2022 Lease agreements
\n\u2022 Earnings and revenue reports
\n\u2022 Stakeholder information
\n\u2022Insurance policies
\n\u2022 Employee contracts
\n\u2022 Vendor and supplier contracts
\n\u2022 Locations of warehouses
\n\u2022 Customer contracts
\n\u2022 Relevant invoices
\n\u2022 Other important bank statements<\/p>\n
\nJust as important, you should have a list of what you look for in the right buyer to make sure your companies have the right synergies. To make sure your goals align with the buyer\u2019s goals, ask them questions pertaining to the intention for buying the business. Don\u2019t hesitate to ask how many companies they\u2019ve acquired or how these companies are performing. Finding a great buyer doesn\u2019t mean you should immediately sell your company. You need to make sure you\u2019re ready to retire from the venture or if you want to continue. Some strategic acquisitions will have arrangements to keep you in the company and let you handle the day-to-day operations. In this case, you could sign a short-term agreement to keep working with the company and gradually retire. Some considerations:<\/p>\n
\n\u2022 Education
\n\u2022 Cash available for investment
\n\u2022 Cash available for future financing of the business
\n\u2022 Minimum income requirement both monthly and annually
\n\u2022 Future vision for the company\u2014will you still be involved in any way?
\n\u2022Investment experience
\n\u2022 How much time they need to make a decision\/complete the sale
\n\u2022 Reason they are interested in the sale
\n\u2022 Their business philosophy
\n\u2022 Will they be hiring new employees to replace existing ones?<\/p>\n
\nWhen you begin planning to sell your business, you may find it\u2019s a complex undertaking. A team of professionals, including financial professionals, tax advisors and business and estate attorneys, can make a big difference in setting the stage for a successful process. Even for a relatively small business, there\u2019s a myriad of federal, state, and local regulations and tax issues to consider, not to mention one or more extremely important contracts to negotiate. Exiting your company may feel more like a marathon than a sprint. Assembling the right team of experts can walk alongside you during the process, making all the difference between selling the business and selling it at a premium price. Considerations include:<\/p>\n
\n\u2022 Keep all information that does not need to be disclosed segregated internally
\n\u2022 Produce a letter of intent (LOI) for the buyer to sign that goes over the terms of the intended deal
\n\u2022 Work with internal teams to keep any changes inside the business\u2014such as employee departures, vendor relationships, or industry changes\u2014from being enough to hurt the deal
\n\u2022 Navigate tax implications by understanding how federal and state taxes apply\u2014the structure of your business, the classification of the sale and the terms of the sale will all affect how the sale is taxed
\n\u2022 Ensure compliance with employee and labor laws
\n\u2022 Understand which records are important to keep for financial reasons and how to file dissolution documents when the time comes<\/p>\n
\nOne of the first things to remember is solidifying a deal never goes exactly as planned. It is rare for a business owner to immediately find a buyer that offers the exact price he or she imagined. Sometimes the key is negotiating, and that can take anywhere from three months to over a year for a deal to close. A CFO can help you weigh your options and offers. You might be hit with a situation where one offer is less in price but has more perks such as letting you still have some piece of the business. Another buyer could be offering more for the asking price but not provide the option for you to keep part of the business. Similarly, you may be offered a high price by a competitor, but they have a completely different vision for your company that you think, from your experience, will not bring the brand success.\u00a0 If you run into a situation where none of the offers matches the asking price, you can work with a CFO to see what you can do to make your business more attractive. There are plenty of ways in which you can help to increase the value of your business. If you always keep future business value in mind, you\u2019ll increase your chances of future success with investors and buyers whilst driving current profits.<\/p>\n