Ask These Questions Before Selling Your Business
After much time and effort starting, growing, and maintaining your business, moving on can be a difficult transition. To ensure you are best prepared to do so, know your business before you sell by asking these questions.
I am Looking to Transition Out of My Business, Is Selling the Best Decision?
First, any business owner should question the motivation behind their decision to sell their business. Oftentimes, these are emotionally and financially driven answers.
Maybe you’ve spent decades building your business from the ground up and are ready to retire, or maybe it makes more sense for you from a current economic standpoint to hold on to the business for an extended period of time.
If your business is established and has demonstrated years of financial success and growth, what are you expecting from the sale?
Having a precise outlook on these expectations will allow you to enter the selling process with better confidence and leverage.
Additionally, you should understand your options given the current state of your business.
Is your business better off being passed down to the next generation or being acquired by a private equity firm with expertise in the industry?
If you don’t know which is a better option, working with a business advisor may be advantageous.
While selling may initially appear as the most attractive decision, be certain that you can obtain your best outcome from the sale.
Don’t settle for anything less than what you envision to be your ideal next step in life because once the sale is done, it’s done.
You don’t want to have any regret about something you’ve spent years investing yourself in because you made an impulsive and unprepared decision.
Having a clear outline of the selling process and putting faith in your decisions will allow you to determine what the ideal business sale looks like before it begins and increase your chances of walking away from the sale pleased with the result.
If Selling is the Best Decision for My Business, How Have I Set it Up For New Leadership?
Once you have made the decision to sell your business, you should begin to prepare for the entrance of new leadership.
In order to do so, it’s important to ensure that you have accurate financial information to distribute to potential buyers.
Aside from complete financials, you should have non-financial information regarding the employees and customers and legal documents pertaining to the establishment and operation of the business on hand.
Before identifying a buyer a crucial step of the selling process is conducting internal due diligence by analyzing the information available firsthand.
Allowing you to present the best version of your business to prospective buyers. Another focus point to increase value is generating a plan of how the business will operate without you present.
A business that relies too heavily on the owner is one that will be less attractive to buyers because the knowledge will leave with the past owner.
To avoid worrying about this, focus on hiring the right people that will assist you in accomplishing your goals.
CPAs, lawyers, and business advisors can all be extremely useful to business owners in the due diligence and selling processes.
What Type of Buyer Would I Want to Take Over the Business?
It’s important for you as a business owner to understand the different types of buyers to enable you in finding the best fit for your business and ensure its success down the road.
There are typically three types of buyers for a business: individual, strategic (I.e. industry competitors), and private equity groups. Individual buyers typically want to own a business without having to start their own.
The individual buyer is involved daily in the operations of running the business and relies on its profitability to make a living, they may or may not have industry experience.
Strategic buyers often own a company that is a competitor or supplier of the company they are acquiring. Strategic buyers have the goal of integrating the new business into a business they currently own.
Private equity groups are investment management firms that usually invest in a business with the idea of reselling in three to five years.
Moreover, private equity groups often own a main platform business and are looking for privately held businesses that would be ideal additions to that platform.
Having knowledge of the motivations of these buyers will allow you as a business owner to better align your hopes for the business’ future with the goals of the buyer.
How Would I Like the Sales Process to Go?
Going through the sales process alone as a business owner can be a challenging endeavor.
The sales process is detailed and contains many steps that ordinary business owners are unaware of in order to get the business sold. It may be advantageous to you and your business to figure out who can help you through the selling process.
Business Advisors can act on your behalf to keep your identity private and carry out all the necessary procedures to find qualified buyers for a fee often at the beginning of the engagement and when the business is officially sold.
However, if you have extensive connections in the industry and feel confident simultaneously trying to sell and run your business a business advisor may not be for you.
Another possible person to aid in the sales process is a tax advisor.
CPAs can assist in getting all your financials prepared for due diligence and navigate through the taxes that come along with the sale of the business.
Another two roles to consider are lawyers and wealth advisors.
A lawyer can set up all of the contracts and legal documents needed to sell the business to a buyer.
A wealth advisor looks out for your future by helping you outline the way in which the proceeds from the sale of the business can be best utilized for your life beyond owning your business.
While not all business owners feel the need to utilize other professionals throughout their sales process, possessing a certain knowledge of how your business will achieve the best possible sale.
It also means understanding all of the steps in the sales process and your capability in carrying them out alone or with help, all while meeting or exceeding the standards of potential buyers.
What Financial and Lifestyle Outcome Am I Looking for in the Sale of My Business?
When a business owner thinks about selling their business, it’s quite common to have financial and lifestyle goals in mind.
Financially, many things come into play when a business is sold to the owner.
One item to determine is how you will handle the sales proceeds.
Working with a wealth advisor through this can be an effective way to properly plan for a life of retirement or in a new occupation.
If you’re looking for a large cash payout at the time of the business purchase closing, you’ll want to have a good idea of how the money can best be utilized for your new lifestyle.
However, not all business owners depart from the business after the sale.
Often, the new buyer needs the assistance of the previous owners during the transition phase as your expertise and experience within your business make you a valuable asset to the new owner.
Finally, business owners should consider how their lifestyle and financial goals will be affected if they offer seller financing.
A common deal structure is for the owner to take on a part of the business transaction value in seller financing which is paid out over time.
You should first decide if financing a portion of the sale proceeds is a possibility for you, and how this could impact your motivation for wanting to move on from the business.
While seller financing can also be an enticing aspect to potential buyers, the drawback is that it may be more difficult for you to permanently step away from the business over the years of the agreement.
Weigh how these financial outcomes will play into the lifestyle you envisioned for yourself after selling your business, and use that awareness to your advantage in securing the most optimal sale.
Here at Tsetserra Growth Partners, we want to help avoid uncertainty by giving you a sounding board when you are asking yourself these five questions. You have worked hard to get to this point, contact us to make the most out of it!