Selling a business can be a daunting task, especially when it’s a business you’ve built from the ground up.
It’s important to understand what to expect and how to prepare for a successful sale. From getting the business ready to market, to finding the right buyer and negotiating the deal, you need to be prepared to tackle each step of the process to ensure you get the best possible outcome.
Knowing what to expect and how to prepare ahead of time can help you navigate the challenges of selling your business with confidence.
Know Your Company's Worth
Knowing your company’s worth is important because it will help you determine an appropriate asking price for potential buyers. Having an accurate valuation of your business will also help you negotiate a better deal and attract the right type of buyer.
Knowing the value of your company will also provide you with leverage when discussing terms and conditions with potential buyers, as well as allow you to set realistic expectations for the sale process.
Finally, having a clear understanding of your company’s worth will help ensure that you receive fair market value for your business.
Hire an appraiser for an evaluation
Appraisers can provide an accurate and impartial assessment of the company’s value, which will be a key factor in determining the selling price. An appraiser can also identify areas for improvement that may increase the value of the company and provide feedback on how to optimize its worth prior to sale.
Additionally, an experienced appraiser can help you understand current market trends and ensure that you receive a fair price for your business.
What is the true profitability of your business?
It is important to understand the overall financial health of the business, including its profitability and cash flow. This information can help you determine the value of your company and will be used by potential buyers when negotiating a sale price.
In order to understand your company’s true profitability, you should analyze all available financial data, such as income statements and balance sheets. Additionally, it is important to consider factors such as overhead costs, taxes, and any one-time expenses that may have impacted profits in prior years.
You should also look at trends in sales and revenue over time to gain an understanding of the overall performance of the business.
Finally, it is essential to have a complete picture of any debts or liabilities associated with the business before selling it. Knowing this information can help you negotiate better terms with potential buyers and ensure that you get fair value for your company.
Find the Right Buyer
Finding the ideal buyer for your company can be quite the challenge. The buyer should have the resources and expertise to ensure a successful transition and continued growth of the business. A bad buyer could cause irreparable damage to the business, leading to decreased customer satisfaction, reduced profits, and even bankruptcy.
Additionally, a good buyer should be willing to pay a fair price for your company, allowing you to maximize your return on investment.
Finally, it’s important to find a buyer who shares your vision for the future of the business and is committed to maintaining its core values.
Why are YOU selling?
Fully understanding and being able to convey why you are selling your company is important because it can help you attract potential buyers and set expectations for the sale of your business. Being open and honest about why you are selling can help to position your company in the best light, making it more attractive to buyers.
Potential buyers will want to know why you are selling so they can assess the risk of acquiring your business and understand what they can expect from the transaction.
Additionally, being transparent about why you are selling can also help build trust with potential buyers, which is essential when it comes to completing a successful sale.
Why are THEY buying?
Knowing the motivations of the potential buyer can help you understand which areas of your company they are most interested in and how much they are willing to pay for them.
Additionally, understanding why someone wants to buy your company can give you a better idea of whether or not the deal is likely to be successful and if it is worth pursuing. This can save you time and energy by avoiding deals that are unlikely to work out in your favor.
Lastly, it is important to ensure that the buyer shares the same values and vision for your company, especially if you are involved after the sale.
Hire a Broker
Hiring a broker is an important decision and one that should not be taken lightly. A good broker can provide the expertise and knowledge needed to get the best possible outcome when selling a business.
They can help you develop a marketing strategy to maximize exposure and optimize pricing, negotiate with buyers, manage the legal paperwork, and provide guidance throughout the entire process.
Ultimately, hiring a broker will save you time, money, and energy in the long run by helping you ensure that you get the best possible deal for your company.
Prepare Your Documents and Get the Books in Order
Organization, clarity, and easy access is key to streamlining due diligence processes and provides a buyer with more confidence in your company. Knowing your numbers and having easy access to legal, tax, and important documents keeps things moving and allows everyone to be on the same page.
The importance of accounting records
Accounting records are an essential part of preparing to sell a company. They provide a comprehensive picture of the financial state of the business and its performance over time, which is necessary for potential buyers to evaluate when deciding whether or not to purchase a company.
The records also provide evidence of ownership, profits and losses, taxes paid, assets and liabilities, and other important financial information that may be needed for legal purposes.
Additionally, accounting records can help identify any areas where additional investment is needed in order to improve the company’s value before it is sold.
Organizing tax and legal documents
Organizing all tax and legal documents ensures that all relevant information is available to potential buyers, which can help to facilitate a smooth transaction. It also helps the seller to maximize their returns from the sale by providing accurate and up-to-date information about the company’s financial standing.
Additionally, organizing these documents can help protect the seller from any legal liabilities related to the transaction.
Finally, having organized tax and legal documents can help make sure that all applicable taxes are paid in a timely manner and in accordance with applicable laws.
Hire a Financial Advisor
A financial advisor can provide valuable advice on the best way to structure this complex transaction, including assessing market conditions and potential buyers, helping to negotiate terms and price, and providing guidance on managing tax implications.
They can also provide insight into potential legal issues that may arise and assist with transferring assets or liabilities.
A financial advisor is an invaluable asset when it comes to getting the most value from your sale, so it’s important to hire one who is knowledgeable and experienced in the field.
Stay Focused on Running Your Business / Enhance Value
While going through this process, it is important to not lose site of the responsibilities and people right in front of you. Dedicating time to processes, growth, and documentation will only increase the value of your company. Prioritizing the sale over operations will only cause frustration and a loss of value over time.
Increase Profitability
Potential buyers will be interested in the financial health of the company and will be more likely to make a purchase if the company is profitable.
Furthermore, it can also help you increase your asking price, as buyers are often willing to pay more for a profitable business.
Additionally, higher profits can provide a cushion against market downturns and other economic challenges that could threaten your company’s future success.
Finally, increased profitability can also make it easier to secure financing from lenders or investors who may be interested in helping you grow your business.
Ensure a loyal workforce
The loyalty of the workforce reflects the culture of the company, which is a key factor in determining its value. A loyal workforce creates an environment of collaboration, trust and productivity that can help to maximize profits and increase the value of the company in the eyes of potential buyers.
Key employees, on the other hand, provide specialized expertise and knowledge that can be critical for achieving success within a specific industry or market. They also have a strong influence on other employees, creating an atmosphere where everyone works together as a team and is committed to helping achieve success for the company.
Both loyal workers and key employees can be valuable assets when it comes to selling a business since they will help make it attractive to potential buyers and ensure that operations run smoothly even after the sale has been completed.
Documented Processes
documenting processes provides evidence of the efficiency and effectiveness of your business operations. It shows potential buyers that your business is organized and well-managed, which will help to increase its value.
Additionally, having documented processes can help ensure a smooth transition for the buyer, as they will have clear instructions on how to operate the business once they take ownership.
Finally, it can also reduce the time and cost associated with due diligence as potential buyers will be able to quickly review the existing procedures and processes in place.
Management Succession
Without proper management succession, potential buyers may be unwilling to purchase the company, as they will not have the confidence that the business can continue to operate and grow without the current owner.
Management succession ensures that there is a plan in place to transition ownership and leadership, with clear roles and responsibilities for each individual. This helps to create certainty and security for any potential buyer.
Furthermore, having a well-thought-out succession plan in place demonstrates that the current owner is organized, professional, and capable of planning for the future of their business – all qualities which make a company more attractive to potential buyers.
Negotiation and Close
Once you have identified a potential buyer, it is important to negotiate a fair price that is beneficial for both parties. This can include discussing the terms of sale, such as payment plans, warranties, and other related elements.
Once the terms have been agreed upon, it is important to draw up a legally binding contract that outlines all of the agreed-upon terms and conditions.
Finally, once all parties have signed off on the contract, it is time to close the deal and transfer ownership of your company.
Price becomes less important as you go
Price is obviously important, but this part of the negotiation can be dealt with relatively early on in the process. Every other aspect of the deal such as terms of the sale, agreements, perception of reputation, goodwill, and various other details that are important for both parties.
All this to say, ensure that your ducks are in a row on every other facet. Know what you want as these various details are truly important.
Due diligence and full disclosure
If you have been fortunate enough to reach the due diligence stage, you should have already signed a Letter of Intent that details the final agreement. Even though you may think you are close to the end of the process, you must still demonstrate evidence to validate any claims you have made, alongside an in-depth evaluation of your business.
You may feel frustrated with the buyer due to the faith you have placed in them and the comprehensive assessment they are now conducting. There isn’t much that can be done to ready you for this, apart from bearing in mind it is a regular part of the procedure.
Sale Structure
What form will the transaction take? Will it be a sale of assets or shares? Will there be cash payment on completion, shares, post-closing bonuses, warrants, options or a mixture of all these?
Every vendor, purchaser and transaction is one of a kind and there are innumerable reasons for picking the ultimate structure. It is rare for a final agreement to be the same as the one put together in the beginning and it will likely necessitate input from a business, tax, financial and legal vantage point to determine the best approach.
Licensed Advisor
A licensed registered advisor will have the expertise to provide guidance and advice throughout the process. They will be able to identify potential buyers and negotiate the best terms for you, as well as handle all of the paperwork and legal requirements associated with selling a business. This can help ensure that you get the best possible price for your company, while also avoiding any costly mistakes or delays in the process.
Having a licensed registered advisor on board can help increase buyer confidence in your business. Buyers will know that you have taken steps to ensure the sale is conducted legally and professionally, which can lead to more competitive offers from potential buyers.
Hiring an unlicensed mediator to facilitate any securities transaction can result in the issuer facing legal repercussions, both in the form of civil and criminal penalties. Additionally, this could lead to a transaction that is deemed voidable, thus allowing the buyer or investor to revoke the acquisition. In the event that the purchase does not turn out as expected, the investor or purchaser has the legal authority to demand a refund from the issuer at a later date.
Bottom Line
Know your why
Know why you are selling your company so that clear expectations can be put forth and so that you find a buyer that values the very same things and will carry on your company legacy.
Increase your company value
Don’t lose focus of your current responsibilities while selling your company. Continuing to lead, organize, and grow your company will only make your business more valuable to a potential buyer.
Don't go it alone
It is important that you put professionals around you that have been through this before. Hiring a team to help with all of the tedious complexities will not only ensure that things are done correctly, but will allow you to continue to focus on running your business and making it more attractive to buyers.
