Selling a Business

on October 13, 2016

If you are contemplating selling your business in the next few years, there are several steps you should begin to take to ensure that your business is ready when you are:

Get an independent business valuation. What is your business worth on the open market? A professional valuation will give you a basis for understanding how much money you can realistically expect to receive from the sale and will give you a way to gauge offers. An independent valuation will tell you your business’ market position, financial situation and strengths and weaknesses. This in turn will allow you to make some corrections before putting it on the market and hopefully bring a higher price.

Valuations can be obtained from business brokers, accounting firms or investment banking firms. You should make sure the company performing the valuation has done similar valuations in the past. Get some referrals and call around.

Get your books in order. Buyers evaluating your business require at least three years of financial statements. The more formal your statements are — ones prepared and/or reviewed by accountants — the better. This will make the buyer’s due diligence easier as well. Tax returns must be filed and ready for review.

Understand how profitable your business really is. Most small businesses claim a variety of expenses that may not be applicable to a new owner. These must be taken into account. For example, if your business is paying for your personal automobile lease, that must be factored into your profitability analysis.

Consult your financial advisor. It would be a good idea to speak to your tax advisor. The sale of your business should generate a lot of income. Understanding how that will effect your personal and corporate tax situation can help you recognize your options with regard to structuring the deal.

Get ready to make a good first impression. The sale of your business depends in no small measure upon the physical appearance of your operations. Will a buyer visiting your shop see order or chaos? Spruce things up. Put on a fresh coat of paint. Toss out clutter. Buyers want businesses that show well, and an orderly place of business is often seen as a sign of an orderly management team.

Organize your legal paperwork. Review your permits, licenses, leases, incorporation papers, licensing agreements, contracts, etc. Make sure all licenses and permits are up to date and have everything available for review.

Consider management succession. If you are vital to the business, who will a to turn to for help running the business after you leave? Are you willing to stay on in a consultant capacity? If not, you should have a succession plan in place before going to market.

Get your team in place. Start interviewing attorneys and accountants who are proficient in mergers and acquisitions. Strongly consider hiring either a business broker or an investment banker to represent you and help you through the selling process.

Stay profitable. Don’t let your business performance decline because you are too focused on either retiring or selling the business. Buyers buy businesses because those businesses make money.