Selling Your Business
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Selling Your Business
A guide for business owners who want to sell their business and successfully exit.
Selling your business can be a rewarding and lucrative decision, but it requires careful planning and preparation. Whether you want to retire, pursue a new venture, or cash out, you must follow some essential steps to ensure a smooth and successful exit. Here are some of the most important steps to selling your business.
Business brokers often do not undertake all of these steps—many run a sales process. The “average” business broker is focused on small businesses. Achieving a successful sale relies on experienced advice, long-term preparation (the best sales take 2-3 years), and a plan to maximise business value, attract potential buyers, and finalise a business sale.
Complete the form to get your FREE copy of It All Begins with Insights by Dr Craig West, CPA – to better understand what your private business is worth, what exit options are available, and what needs to be done to identify, protect, maximise, and extract its maximum value.
Before you start the selling process, you must educate yourself on business valuation, taxation, legal issues, and market trends. You should also consult with professionals such as accountants, lawyers, brokers, and financial advisors who can help you with the technical aspects of the sale. Educating yourself will help you avoid common pitfalls and mistakes that can cost you time and money.
Engaging with an experienced exit planning adviser ideally one within an accreditation like CEPA- Certified Exit Planning Adviser) will greatly improve the outcome. Your investment in advice will help generate higher value (achieving the right purchase price), create a higher likelihood of a successful business sale, and mean less stress for everyone involved.
The due diligence process is about verifying and validating the information and documents related to your business. It is a crucial step for both sellers and buyers, as it helps to establish trust and transparency. As a seller, you should undertake due diligence on your business to identify and resolve any potential issues affecting the sale.
For example, you should review your financial statements, tax returns, contracts, licenses, permits, leases, inventory, business assets, liabilities, lease agreements, and customer and employee records. You should also prepare a disclosure statement that lists any material facts or risks that could affect the value or performance of your business.
Many transactions fall over at the due diligence stage; some see a dramatic reduction in the selling price. The potential buyer will be sceptical and needs to “prove” the business’s net worth before they become the new owner. Due diligence can be costly and time-consuming but is important – this is a great are to get experienced professional advice.
A business valuation is an estimate of your business’s current market value. It is based on various factors such as revenue, profit, assets, liabilities, growth potential, competitive advantage, and industry trends. A business valuation can help you set a realistic and fair asking price for your business and negotiate with potential buyers. You can get a business valuation from a professional appraiser, a broker, or an online tool.
We prefer to use a Business Insights Report by Capitaliz, which provides a buyer view of the business, in much the same way as prospective buyers.
A Business Insights report will help you identify two key numbers: What is my business worth today? What should it or could it be worth?
Multiple factors can drive value in your business – intellectual property, business structure, intangible assets (brand, for example), and the quality of your financial records.
In the same way, some factors can decrease value – legal obligations, long-term supply contracts (which can also be a positive), high accident rates, and high staff turnover, undocumented processes can all increase risk and, therefore, reduce value.
Once you have a business valuation, you must prepare some documents to help you market and sell your business. These include:
The next step is to identify and find potential buyers for your business. You can use various channels and strategies to reach out to buyers, such as:
Once you have identified and qualified some potential buyers, you need to negotiate the terms and conditions of the sale. This involves discussing and agreeing on the following aspects:
You can choose to receive a lump sum, a partial payment, or a deferred payment. You can also choose to finance the sale yourself or use a third-party lender.
You can choose to sell your business as a whole (asset sale) or only sell your shares or ownership (stock sale). You can also choose to sell your business outright or retain some equity or involvement.
You can choose to include some conditions or clauses that protect your interests or reduce your liabilities, such as an escrow account, a non-compete agreement, or a holdback provision. You can also choose to provide some guarantees or assurances about the accuracy and completeness of the information and documents you have provided.
You can choose to close the deal as soon as possible or wait for a certain period of time. You can also choose to provide some support or assistance to the buyer during the transition period, such as training, consulting, or mentoring.
Negotiating the sale of your business can be a challenging and complex process, as you need to balance your interests and expectations with those of the buyer. Here are some key negotiation points that can help you achieve a favourable outcome:
You should have a clear idea of what your business is worth, what your goals and priorities are, and what your best and worst-case scenarios are. You should also have all the necessary documents and information ready and organised.
You should be willing to listen and understand the buyer’s perspective, needs, and concerns. You should also be open to exploring different options and solutions that can satisfy both parties.
You should maintain a positive and courteous tone throughout the negotiation process. You should also avoid emotional or personal attacks, ultimatums, or unrealistic demands.
You should be realistic about what you can expect and achieve from the sale. You should also be honest and transparent about your business, its strengths and weaknesses, and any potential issues or risks.
The timing of selling your business can have a significant impact on the value and the success of the deal. There are various factors that can influence when to sell your business, such as:
You should sell your business when you feel ready and motivated to do so, whether it is for retirement, a career change, a new opportunity, or a personal reason.
You should sell your business when it is performing well and showing strong growth prospects, as this will attract more buyers and command a higher price.
You should sell your business when your industry and market are favourable and stable, as this will increase the demand and the value of your business.
You should sell your business when you have a competitive edge and a unique value proposition, as this will differentiate your business and make it more appealing to buyers.
The location of selling your business can also affect the value and the success of the deal. There are various options and considerations for where to sell your business, such as:
You can choose to sell your business within your local or regional market, as this can offer some advantages, such as lower costs, easier logistics, familiar regulations, and existing relationships.
You can choose to sell your business outside your local or regional market, which can offer benefits such as higher prices, broader exposure, more opportunities, and new markets.
You can choose to sell your business online or offline, and each has pros and cons, such as convenience, speed, reach, and security.
Get your FREE copy of It All Begins with Insights by Dr Craig West, CPA, to explore the exit options available and what needs to be done to identify, protect, maximise, and extract its maximum value.
Dr Craig West