Preparing to sell a business is a complex process and often takes longer than business owners anticipate. If you are considering selling your business, here are some steps that will help you prepare.
Are you emotionally ready to sell your business?
How will you spend your time after you’ve sold your business? Have you developed hobbies or joined social groups like a running club, a tennis league or a woodworking group? Sellers who have not planned for their leisure time often struggle to execute a sale. This can result in frustration, wasted time and money and can be a distraction to the business.
Determine what sale price you “need” for the business, not what you “want” for the business.
Take stock of your entire personal balance sheet including all assets and liabilities outside of the business and future cash ﬂow needs. Work with a professional wealth advisor to see how much money is necessary to fund your retirement. Be clear about your retirement goals — including purchasing a second home, education for grandchildren, travel expenses to see far away family, charity bequests and any other anticipated expenses. After consolidating your ﬁnancial needs, you can determine the sale price required to achieve your goals. That number may be different from what you “want” to sell the business for or what it is truly worth today.
Research the current value of your business.
Talk to one of our trusted advisors about having a valuation of your business done for the most accurate value. It is important to have at least a high-level understanding of the value by analyzing the numbers through a quality of earnings effort to be able to estimate the cash ﬂow potential and the rough value of the business. Developing a realistic view of current value is key to a successful transition.
What if there is a gap between my “need” and the actual business value?
It is better to learn, in advance of entertaining an actual sale offer, if the actual value of the business is less than the amount of money you will need during retirement. If this is your situation, you have some alternatives. You can try to increase the future value of your business by growing revenue and proﬁtability. You could consider possible acquisition targets that would expand either your product line or your geographic reach. Other preparations could include cleaning up historical accounting records, building a base of externally prepared financial statements and creating data-supported projections with deeper details of revenue and profitability by product or customer. Working with an experienced business advisor can help you navigate these strategic growth initiatives.
Put your business on the market.
Once the value of your business meets your ﬁnancial needs for retirement, and you are emotionally prepared to sell, you can put your business on the market. Your professional team should include an investment banking firm to market the business, a transaction advisory services team to perform quality earnings work on the business and add deeper credibility to the numbers presented by the investment bankers, an experienced M&A attorney and a tax advisor.
With thoughtful reﬂection, clear goals, an accurate valuation and a solid team, you will be well positioned to become a “former owner.”