Selling a business can be as important as owning it.
There are many things to consider when selling your business, such as the value and financial prospects of your company, what potential buyers want, whether you’re done with it, and what you will do with it after it is sold. Ask yourself these six important questions if you are considering selling your business. They will help you assess your options and determine the best next step.
1. Am I ready to sell?
Begin by stating your reasons for selling. What is driving your decision? You may be burned out after the pandemic, and need a new perspective. You may feel like a hamster stuck on a wheel, unable to find its way. Selling may not be the best solution in these situations. Think about your goals and how you would like the sale to go. You can write down your thoughts and list the pros or cons.
After answering these questions, ask someone you can trust for their opinion. Selling your business is not only a financial decision, but also an emotional one. If you’re still interested in selling, take the time to understand what is driving your emotions.
Also read: How to Value a Startup Company: Top 5 Method
2. What is the value of my company?
You should be able to understand (and accept) what your company can achieve on the open market. My experience with many business owners has been that they value their business at a minimum of 50% more than its actual value. You should always have a third-party evaluate your business.
You can either use a program that provides a “back-of-the-envelope” calculation or consult a professional business valuer. Back-of-the-envelope estimates are usually based on return on investment, a practical and quick way to arrive at a sale price. An ROI calculation is widely used, but it ignores many factors, including time, inflation, capital appreciation, and risk.
A professional business appraiser will give you a more accurate estimate, which is based on different factors and approaches (including assets, market comparability, income, etc.). This route can be challenging because you need to find the right appraiser for your industry and business.
3. Is knowing the value enough?
It is important to understand the value of your company beyond just how much it should be sold for. You should prepare your finances for the transfer of ownership. This includes your tax returns, licenses, and deeds as well as your profit and loss statement.
You should also take an inventory of all your assets, both tangible and intangible. This includes any liabilities. You and any potential buyers will both benefit from a detailed business plan. This helps them understand how the company generates its revenue.
4. What will I be selling to?
You will likely have a number of options to choose from. You can, for example, sell your business to your employees via an Employee Stock Owning Plan (ESOP) which offers many benefits but also some hurdles to overcome. Or perhaps you have capable family members who want to run the company. Consider an investor outside of your immediate circle. Private equity firms or strategic buyers are also options.
5. What kind of professionals will I require?
Selling a business is a team effort. Each deal has many components and is complex. Your business’s industry, size, and nature will determine the professionals you need. These are the professionals that business owners should have on their team for exit planning:
- A Certified Public Accounting. Find a dealmaker who has experience in ensuring the sale and transfer are done correctly. Selling a business involves several tax-related issues. You want to be aware of the most recent regulations and ways to save money.
- A Certified exit planning advisor (CEPA) Can help you get the most out of your sale, taking into account both your financial and personal objectives.
- A Certified financial planner (CFP) Can help you with financial aspects, such as what your financial future will look like.
- A business attorney. The lawyer will develop legal plans and ensure that you are not in any trouble.
- An estate attorney. You can benefit from pre-liquidation planning by hiring an estate attorney.
Experts in business valuation. They can provide a more accurate estimate of the value of your business. If you do not want to use a number on the back of an envelope, this is what you can do.
- M&A advisors. They will search for financial or strategic buyers of your company. They are usually more interested in helping mid-market companies and above.
- Business brokers. Contact potential buyers and screen them for qualifications or financial capability. They usually help the lower-middle market.
- A professional insurance agent. This person can assess your insurance coverage and adjust it to your specific needs.
Some professionals can assist in areas that overlap. it is best to work in a team to ensure that you have the support needed. Working with the correct people can help you achieve a smooth transition and a successful result.
Also read: How To Sell An Idea: 7 Best Tips
6. What will I do after I sell?
It is important to prepare and understand what you will do after the sale. This is because most of the small business owners (including myself) define themselves by their company.
They only care about their own business, how to grow it, and what the best price is for selling the company. When I ask what they plan to do with the extra time, they give me surprising answers. I often get unexpected answers, such as “I hadn’t even thought of that” and “I’ll probably spend more time with my grandchildren.” It’s nice to spend time with your family, but they all have lives of their own. Soon you’ll be looking for new things to do.
These six questions are likely to raise more questions. It’s a good idea to take the time to think about your answers to these questions, whether you decide to sell your business or keep it. By answering these questions honestly, and engaging the best professionals at the appropriate time, you can ensure that your hard work is rewarded.