For many business owners, the prospect of selling their business can seem overwhelming. Building a successful business usually takes an immense amount of hard work and letting go of the emotional connections that come with that hard work can often be as difficult as giving up the financial success that comes with owning a business.
Fortunately, the process can be broken down into parts and pieces to make it easier. What follows is a review of the steps you need to know and do to successfully sell a business, along with some tips to do it as smoothly and efficiently as possible.
The First Step
The first significant step in selling your business is to know why you’re doing it. Whether the sale is happening because you’re retiring, moving on to something else or doing it out of financial need, understanding the reasons why is an important first step.
Why? Because they help you do an honest assessment of the state of your business, along with the market and what potential buyers are looking for. This assessment will help you ask for a fair price and sort out the different buyers and their offers, which is vital to a successful sale.
Get Organized
As you do this assessment, it’s important to get your ducks in a row before the sale. That means knowing the state of your financial records and making sure they’re updated, then figuring out how and when you’re going to notify your customers about the sale.
All of this will help you determine the value of your business, but you may want to call in a business appraiser, a business consultant or a lending advisor to help with all this. It’s important to have a neutral third party evaluate your business, as this will prevent you from overvaluing or undervaluing your business.
You should also work with an accountant as part of this process. Once your financial records have been organized, the accountant you hire can give you critical information about the state of your business, the sale itself, and the price you’re asking.
Make sure you can present your business in a positive way that highlights your strengths. That means having the numbers accurately reflect your profits, your existing customer base, the income potential, and so on.
The Negotiating Process
Once you’ve taken these steps, you need to consider the particulars of the negotiation process. Depending on your market, your expertise, the size of your business and how quickly you need to make the sale, you need to be aware of the proper channels to use to announce an impending sale.
You may also want to hire a negotiator to help with this step if you’re in a field where that kind of expertise is available.
A good negotiator can help keep you balanced as you go through the ups and downs of the sales process, which can be pivotal when it comes to keeping the process on track while avoiding common mistakes.
The Sale Itself
It’s easy to assume you’re done when you’ve found a buyer, but actually that just triggers another round of important work.
Depending on the size of the business and the price you’re asking, there may be several rounds of financial screening involved to make sure the potential purchaser has the resources to deliver your asking price.
You should also know the intent of the buyer following the purchase. Most business owners want to make sure their customer base is in good hands, and that should be part of the final rounds of screening as well.
After the Sale
It’s tempting to celebrate with an impulse purchase once you’ve got the proceeds in hand, but it’s generally not a good idea. Before you consider that, you need to meet with a tax planner or a wealth manager to allocate the funds you’re going to receive.
Why? The capital gains tax on your windfall is one of the biggest reasons. If you don’t plan for it effectively, you may end up forfeiting a good portion of what you’ve just made.
Another good reason to do this is to know where your newly earned money is going. You need to have a balanced idea of what you’re going to do with it, and savings, reinvesting and possible spending should all be part of the plan. It’s an important final step, one that will validate all the hard work you’ve just done to make a successful sale.