How to Sell a Business
September 8, 2016
You spend a good portion of your life giving your blood, sweat and tears to building your business. But then an ah ha moment happens. You wake up one day and you think to yourself, “I am mentally and physically fried and I don’t want to do this anymore.”
Maybe you realize your business is maxed out and you no longer have the capital or resources to take it to the next level or provide the services your customers are asking for. The bottom line is you know in your gut, it’s time to sell. Typically, a business owner thinks his or her business is worth a lot more than what someone is willing to pay. When determining if the time is right, there are some key factors to successfully selling your business.
PREPARE FOR THE SALE
- Make sure the books are up to date with audited financial statements.
- Prepare a list of documents (the package) you will provide to the potential buyer: financial statements, 4 years of tax returns, a list of equipment being sold, current lease and any other important documents.
- Keep it quiet as it might scare employees and customers.
- Determine if you want to use the services of a business broker.
- Discuss various sales scenarios with your CPA and have a good understanding of the tax ramifications. Will you do an all-out cash sale or carry the paper to defer the capital gains?
- Hire an attorney to review the offering documents and the sales contract.
- Create a marketing plan to sell the business.
- Determine what you will do if the buyer defaults.
- Consider selling to key employees instead of an outside buyer.
- Operate the business normally
- Be realistic in your sales price. Be ready to justify your price and be ready to negotiate.
- Many buyers want a business that creates re-occurring streams of income. If the business doesn’t have it now, consider ways to create it. It’s much easier to place a valuation on a business that has re-occurring revenue than one that has random sales.
- Compare your business to competitors. Is it more or less profitable? Does it have more or less debt? Compare all metrics.
- Determine the reasons you want to sell: retirement, partnership disputes, illness or death, overworked, boredom.
- If profits are down, consider waiting for a different time to sell.
- Be forthright and honest in all of your dealings. Do not over inflate the business.
- Have the potential buyer sign a confidentiality agreement before you show them your books or insights to the business.
- Be patient, it takes time.
- Do your own due diligence on the buyer. Do they have the capital and business expertise they say they do?
- Set definitive deadlines so the pending deal doesn’t linger.
- Will they require a non-compete from you?
- Will they want you to stay on for a while to see the business through.
- Make sure the buyer is a good fit with your employees and your customers.
- What are you going to do with your life? It is very difficult for the entrepreneur to “turn off” the entrepreneurial juices.
- Do you have a personal financial cushion if the seller defaults?
- Realize that selling a business is time consuming and for many, an emotional roller coaster. Make sure you are mentally ready to move onto the next chapter of your life.
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Jon Sanchez is a registered representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor. Member FINRA/SIPC. OSJ Branch: 12671 High Bluff Drive Suite 200 San Diego, CA 92130. Sanchez Wealth Management, LLC and IFG are not affiliated entities. CA Insurance Lic. #0772626.