Maybe you want to sell your business. Maybe you need to sell it. No matter the situation, selling is on your mind. But the process does require a little bit of reflection—both on your business and on yourself. Ask three questions before you dive into the deep end.
The decision to sell isn’t always yours to make. If it isn’t performing, you don’t have much of an option. But you can actively prepare for a successful sale.
Experts recommend collecting 2-3 years of tax returns that show maximum profitability, along with a slew of other documents disclosing everything from your financials to your clients.
Airtight employment agreements that guarantee they’ll stick around during and after a sale wouldn’t hurt either.
Your team should include a CFO services partner, an attorney, a broker, and a financial advisor.
If you’re the gasoline that’s powering the entire engine, a buyer will quickly see this and realize it’s not a viable investment.
The real test of whether your business is ready to sell is whether it’s capable of running without you and—in the worst-case scenario—without its largest client. For your business to be sale-ready, you need to avoid high customer concentration—which is to say that no single customer should make up more than 20 percent of your revenue.
Once the business side of things is in order, you have to consider the other half of the puzzle: yourself. Are you financially able to maintain your current lifestyle after you sell the business? Are you retiring, launching a new business venture, or some other alternative?
Take the time to meet with a financial planner or CFO services provider to understand the implications of selling the business on your personal cash flow and investments. Many entrepreneurs neglect to account for perks such as S distributions, company vehicles, and tax write-offs that can dramatically impact their finances once they no longer own the business.
Another important—yet often underestimated—aspect of selling your business is coming to terms with the fact that it will no longer be yours. It’s difficult to cut that cord, but remember that the buyer will inevitably make changes. Depending on the scope of those changes, the business may transform completely from the one you started, and you have to be OK knowing that.
If you go through with the sale, what will you do with all your newfound free time? Chances are you’re used to spending at least 40 hours a week at work, and you may feel lost when you can’t rely on that same office and its employees expecting you every morning.
If you’ve already got a new venture in mind, free time may be a welcome change. If you’re planning on retiring, though, it can have some unexpected effects on your mental and physical health. Studies show depression risks are higher for retirees who live alone.
It’s important to have a plan in place for your personal life before you call it quits on the business. Maybe that means volunteer work, travel, or a part-time job to keep you busy.
Just as panicked investors cash out when the market tanks, some entrepreneurs interpret negative shifts in business as a signal to sell. In reality, the opposite is true.
When you initiate a sale, the health of your business should be on the upswing, not the other way around. A management shake-up, a downturn in the economy, or a sudden profit loss shouldn’t be the only driving forces behind your desire to sell.
The market itself is also an important consideration. Take the 2008 housing crisis, for instance. Many business owners in the real estate and construction industries would have taken a major loss if they had sold at the time. Instead, waiting it out a few years made for much better sales prospects.
Ideally, you’ll give yourself several years of lead time before you sell. This way, you can strike at the right time—instead of being at the mercy of the marketplace.
Selling your business isn’t as simple as putting a sign in the window. It’s a major changing of the guard for a moneymaking entity, so you need to know why and how to navigate the sales process.
We already noted that many businesses sell during performance or market downturns—even though it should be the other way around—but your unique driving force might be much more nuanced:
You want to spend more time with family.
You’re ready to cash in on years of hard work.
The risk has become more stressful than the reward.
Your “why” is important because buyers need to distinguish a good opportunity from a poor investment. If your business has positive profits, consistent income, and customer loyalty, you should have no problem, assuming the price is right (and we don’t mean the game show).
Not sure what would be a fair sale price for your business? Hire an appraiser. The appraiser will assess your company’s valuation, detailing why their numbers fall where they do. Use the appraisal as a jumping-off point for your asking price, ensuring that you aren’t pricing yourself out of a sale.
Yes, we touched on legal and financial documents earlier. But paperwork is substantial in business sales. For a little extra oomph, you might also consider including a list of equipment included in the sale, your lease details, and details on regular business contacts.
Finding the right buyer is probably one of the hardest parts of selling your business because it doesn’t happen overnight. It could take months or even a few years to complete a sale, let alone get the right parties interested.
Think of it like selling your home—as a process:
Line up at least a few buyers in case a prospect backs out.
Make sure buyers are prequalified for financing.
Work with your CFO services partner or lawyer to finance the sale.
Provide negotiation wiggle room.
Have the buyer sign a nondisclosure agreement.
Once you sell, it’s not necessarily party time. Work with a CFO services partner or financial planner to get a feel for the tax consequences of the sale as well as how to invest your profits for the long term.
Asking the right questions before you sell your business ensures it’s the best move for you. Need some guidance on navigating the process? Get in touch with the CFO services pros at Ignite Spot to help steer your ship. Take the first step now and schedule your free CFO session!