Selling your business is a BIG deal. Having launched my first business right out of law school and deciding to sell it less than a decade later to an eager buyer, I know this well! Selling a business brings both excitement and uncertainty. Whether you’ve been approached by someone who has interest in purchasing your business or are considering looking for a buyer because you want to move onto something new, you need to prepare for what’s ahead.
Looking back on my experience, I realize I could have been better equipped (both from a business perspective and in terms of personal expectations) to navigate the process. So you have a smoother transition, I suggest you consider taking the following steps before you sell.
- Be Sure This is What You Really Want.
If you’re truly passionate about your business and love running it every day, selling it for X dollars may make your checkbook happy, but it may leave you unfulfilled emotionally. Take your time to assess the pros and cons of selling your business because it will change your life in a major way.
- Find a Financial Advisor You Can Count On and Trust.
When I sold our company, my husband (who was co-owner) and I were skilled managers, but we were novices about things like business valuation. Having a trusted financial advisor to provide an objective perspective on our financial position helped us immensely. Some business owners engage a mergers and acquisitions advisor or investment banker to serve in that capacity. In exchange for an advisor’s time and expertise, you can generally expect to pay a fee of approximately 1 percent of the transaction amount. While that may seem like a lot of money at first glance, many entrepreneurs find it a worthy investment because it can help the due diligence and negotiation process go more smoothly.
- Look for a Buyer Who Shares Your Vision for the Company.
One of the most difficult pills for me to swallow was to see my company’s direction change after it was no longer mine. Especially if you have employees who will continue to work at the company after it’s sold, you may consider searching for a buyer who respects your vision and will keep the company on course.
- Put Your Books in Impeccable Order.
When you have prospective buyers interested in your business, bankers and investors will look at your financials with a microscopic eye. Make sure you have your ducks in a row with quarterly profit and loss statements, a current balance sheet, and two to three years of tax returns.
Also, prepare to field questions about things like your administrative and operations infrastructure, market penetration rate, average lifetime value of a customer, and your costs to acquire a new customer. Buyers and investors want to know not only how your business looks on paper, but also how well it’s positioned to succeed in the future.
- Don’t Think It’s a “Done Deal” Until the Deal is Done.
The due diligence exercise that comes with selling a business can be a long process. With my business, our sale was approved but didn’t close until after six months beyond that. I suggest asking for a signed letter of intent from the buyer so you have some reassurance that the deal will eventually go through. And in the meantime, keep running your business as usual so it doesn’t fall behind in meeting its goals and objectives.
- Think About What Lies Beyond For You.
With so many moving parts to focus on throughout the process of selling your business, don’t neglect to think about what you’ll pour your energy and effort into after the deal is closed.
My husband and I signed on to work for the company that bought our business for a period of time. We found working in a small division within a larger corporation was quite a bit different from running our own small company. We didn’t make the transition very gracefully, which resulted in us feeling somewhat resentful and like fish out of water.
I advise you to think carefully about what you want to do after the sale of your business is final. If you plan to stay on with the new company, make sure you’re prepared mentally to give up your autonomy. If you decide to go your separate way, plan what you’ll do with the money from the sale and what you’ll do with your time. Maybe you’ll invest it in starting a new business of your own or fund another entrepreneur’s venture. Perhaps you’ll get involved in volunteer causes. No matter what you do, make sure you find a purpose and maintain your sense of identity.
The Right Decision Starts With The Right Mindset
When you’re considering selling your business, you’ll need to:
- Do a lot of soul searching.
- Enlist the expertise of others who can help you understand what’s involved.
- Educate yourself about what you can expect during the process.
Don’t succumb to pressures to make a rash decision. Whether your choice provides you with contentment or feelings of contempt depends on how well you do your homework and how thoroughly you assess the opportunity.
The above content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.