Business owners sell their companies for many reasons. It could be time for retirement. You might want to simplify your life and work for someone else. Other business opportunities may present themselves and need capital for fuel.
Whatever your reasons, you’ve thought the decision through and decided to sell your business.
Selling your business can be stressful. This is especially true if this is the first business you have sold. From the time you make the decision to sell all the way through the process of marketing, selling, and the inevitable paperwork involved with the business sale, there is a lot to do and much to consider.
The process of selling your business can be daunting, but if you take the right approach, your profits can pay for your next venture or give you the financial freedom you seek.
Whatever type of business you’re in, one thing is clear – you know how to sell.
You sold the idea to the bank or a group of investors, you sold the excitement of working for your business to employees, and you sold your products or services to customers. But there are uncharted waters ahead and you will need help navigating them.
The goal, besides getting your business SOLD, is to get top value. To get there, it’s important to consider a number of key aspects that every selling business owner must keep in mind.
Calculate Your Business’ Value
Business value is a blend of art and science. The art is determining how the business will operate without the current owner. The science focuses on finding an accurate cash flow that survives scrutiny.
Keep in mind, selling a business is really selling the future cash flow of the company.
A business is typically worth from 2 to 4 times the profit, depending upon the type of business and size of the deal.
Clean Up Your Numbers
To determine your company value, you must organize your financials.
Selling a business puts your financial records under a spotlight. Buyers, attorneys, accountants, brokers, and others will be asking for a variety of documents. To ensure a smooth process, as you likely expect, your bookkeeping must be very accurate.
Three years of records are generally the rule. Any errors or sloppy records will wave a red flag for buyers. Even honest mistakes can instill concern in those scrutinizing your books.
The vast majority of small businesses don’t have an accountant or a bookkeeper, but they should, especially in the period prior to sale. Financial professionals help save time, contribute to a smooth sales process, and enhance the professional image of the company for sale, which can lead to less stress and selling the business sooner.
Find a Highly Qualified Broker
Deal size and considerations such as the business’ industry, revenue and whether offers are in play will help determine how much your business is worth. Still, most companies will gain a higher valuation when they work with a broker who can bring strategic insights to the process.
A broker is particularly valuable in the later stages of a sale, which include negotiations, due diligence and finalizing the deal.
There will be extra fees using outside help, but a broker can help get the best price and sell your business faster than you could on your own, especially since you should still be laser-focused on running your business in the time before sale. Brokers are paid commission, which makes them vested in getting you the best price for your business.
The experience and counsel top-notch brokers bring to a deal is indispensable. The also provide services that a business owner who is selling would have a hard time managing without help, including:
- Finding the best buyers
- Marketing the sale
- Providing confidentiality
- Getting the deal financed
The last step of getting your company ready to sell is figuring out your future role. Will you stay on and work for the new owners? If so, what will your new responsibilities be?
If you leave and don’t look back, you need to prepare yourself emotionally to walk away from something you have spent a lot of time, energy, and money building. Saying goodbye to key employees who stay on might prove just as difficult.
If leaving proves emotionally difficult, try reminding yourself of what you have achieved. Take pride in your accomplishments and the base they built for your future. Take a slice of your new-found leisure time and prepare for your next opportunity!