Preparing to Sell Your Business

  1. What is your business worth? First and for most, you need a better understanding of what your business is worth. This valuation of your business will help you determine whether or not you are ready to sell. It will also help to gauge possible buyers offers as well as give you an idea of what you can expect to net from the sale of your business. I recommend seeking out a business valuation expert. Many business brokers even offer this as a free service.
  2. What is your businesses profitability? Annual sales are important. Net profit is important. However,as a business owner and a future seller, you will want to know what your business actually profits at the end of the day. There could be a number of non-recurring/ discretionary/ personal expenses that your business could be assuming that are unnecessary. Here are just a few examples: personal vehicle, meals and entertainment, travel, etc. You will need to adjust any expenses a new owner would not assume. Make sure you have supporting documentation for these adjusted expenses.
  3. Prepare business financials. Buyers as well as any SBA lenders will need to see at least 3 full years of financials and recent year to date P&L’s. Create an easy to read break down of your financials. This break down should also show and explain the discretionary items as mentioned in the What is your businesses profitability? section. Most inquiries are first time buyers. You would be amazed to know how many prospective buyers do not know how to read Tax Returns or P&L’s. A buyer will want to see a financials snapshot of what the business will look with them in the driver’s seat. Not to mention, you will not want to hand over your official Tax Returns to just anyone.
  4. Organize your legal paperwork. Buyers and/or banks will eventually need to conduct serious due diligence. Review and organize all of your legal documents related to your business. Such documents would include, but not limited to; equipment list, incorporation papers, employee and independent contractor agreements, any type of employee’s benefit structures, permits, licensing agreements, leases, customer and vendor contracts, etc. Make sure you have all documents readily available, current and organized. The earlier you start, the easier it is to adjust any issues, find any missing documents and be prepared to deliver your due diligence documentation to a buyer in a timely fashion.
  5. Dream team. Have a support team in place. Selling your business could be the biggest decision you ever make. Seek out advice from attorneys, accountants, business brokers and any other professionals that can help you through the decision making process. This could make or break a deal and possibly leave money on the table.
  6. Consult with your financial adviser. Discuss your personal and corporate future tax options with your financial adviser. There are various ways to structure the sale of your business that will better position you personally as well as from a corporate stand point.
  7. Would you buy your business? View your business from a buyer’s perspective. What would a buyer see visiting your business for the first time? Buyers look for companies that show well. An orderly shop is often an indication of a behind the scenes organized, effective management and operational team.
  8. Pre-qualify your buyers. You as a seller are interviewing and qualifying buyers just as much as they are interviewing your business. And yes, you will have to ask those uncomfortable questions: What does their financial situation look like? Credit scores? How much do they have in liquid funds? Personal financial records? Work history? Etc. It is extremely important to know the right questions to ask. If these initial questions are not answered early on, you could spend months on a deal just to have it die.
  9. Communication. Secrets kill deals. Lack of communication between a seller, buyer and banks can quickly kill a deal. Big or small, do not hide anything from the buyer or banks. Not only is it extremely unprofessional and dishonest but it will eventually come up and could possibly kill the deal.
  10. How vital are you to your business? A buyer wants to see proof that your business can function and thrive without you. If you’re absolutely vital to your business, who will a buyer be able to turn to for help running the business after you leave?
  11. Know your reason for selling. Buyers are always weary as to why a seller wants to exit their business. Be prepared to articulate your reasons. Do not give a buyer or a bank any hint that your reason for selling is because your numbers are dropping. Some of the most popular reasons are retirement, new venture or lack of passion.
  12. Confidentiality is a must! Do not discuss your exit strategy with any employees, customers, suppliers, competition, etc. If people catch wind that your business is for sale you risk devaluing and/or deteriorating a sale. Have everyone that you discuss the sale of the business with sign a non-disclosure agreement.
  13. Stay focused. Many sellers feel that once their business is listed, it is sold. A seller cannot have this mentality. Don’t let your business performance decline because you’re too focused on the sale of your business. The moment numbers start dropping, buyers and banks get cold feet. They lose confidence in the sustainability and vitality of the business.   You are giving the buyer additional negotiating power to lower their offer or motivation to pull out completely.
  14. What is your motivation? Last but far from least, you must be motivated! Business transactions can be taxing and extremely strenuous on a business owner. When you are in the last round, back is against the ropes, down 2 rounds, how bad do you want it? The average time it takes to sell a business is 6-9 months. They say 50% of the deals under contract actually fall through. The point being, you have to be highly motivated.

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