Everything You Need to Know About Selling Your Business
Everything You Need to Know About Selling Your Business
As an outgoing entrepreneur, it may reach a point whereby you feel like selling your business. If you are an honest entrepreneur with honest intentions, you have a high probability of succeeding in this. Some several reasons and motivations push you to do this. The reasons and motivations vary from person to person.
Reasons for Selling Your Business
· You may sell your business simply because you want to.
· You may sell it because you want the adventure and challenge of starting another business.
· You may also sell it as a result of declining revenues. It makes you not have the motivation to continue with the business.
· The other thing is that you may sell your business simply because you have discovered new paths and opportunities.
· Also, you may sell your business as a result of negative industrial change. For instance, when you discover that certain industrial changes will affect your business.
· The other reason is that you may sell it as a result of partner disagreements. Most people start a business with a lot of hope and vision. However, a conflict may arise between you and your partner to the extent of parting ways.
· The financial reason is another major factor. It is a push factor for most entrepreneurs. Even with good profits, owners sometimes make bad decisions that lead to financial downfalls. The downfall may be bad to the extent of not being able to pay vendors. Some even find themselves being declared bankrupt. It may force you to close the business. As an entrepreneur, you may not wish to reach this point simply because you will have to do extra to get back on your feet. For instance, you will need to hire a bankruptcy attorney to assist your situation from a different perspective. Such attorneys are quite expensive, and you may not be in a position to hire one. To avoid all this stress, liquidating the business might be the only option to avoid financial burdens.
· Lifestyle change can also motivate you to sell a business. After playing the entrepreneurial role for a long time, you may decide to take a different path. A path that does not involve that particular business.
As discussed above, reasons vary from one business owner to another. You may not be confined to one reason. Several reasons may make you do so if you have made up your mind on this, all the best in achieving what you want. However, there are several crucial things you need to know about selling your business. Some business owners approach selling their business as most real estate companies do. They set the price a bit high, hoping to close the bid with the highest bidder. But there is a lot more to selling a business than just walking away with a lot of money.
Things You Need to Know About Selling Your Business
Know Your Business Worth from The Beginning
Most business owners wait for the actual day of selling their business to determine its worth. However, it is not the right approach to take. Consider researching your company’s value early enough and keep updating it. Evaluating your business periodically is important because:
1. It allows you to keep a record of the company’s worth throughout its business period.
2. It enables you to track the areas that need improvement. For example, if our business needs new office furniture.
The valuation process is important as it assists you in making appropriate and smart decisions regarding your business.
Key Points to Consider When Valuing Your Business
· Goodwill- This refers to the established reputation of a business. It is regarded as a quantifiable asset that is calculated as its value when sold.
· Multiple sources of revenue.
· Book value-This refers to the value of an asset according to its balance on the balance sheet account.
· Several nets after-tax earnings.
Several approaches are normally taken to determine the value. Some may determine by considering any of these metrics. Others may come up with a value by taking an average of the four metrics. However, before deciding, ensure you consult with business advisors to determine the appropriate metric that suits your business.
Consider Your Retirement When Setting the Price
It is important to determine how much you will need in retirement when selling the business. It is good to consider the kind of lifestyle you would want after selling it. You may not know the actual amount you might need when retiring. However, the whole idea is to have a goal that you can work towards. With this in mind, you can improve your company keeping in mind the selling price.
Understand the Three Types of Buyers
Buyers are different. Not all buyers have the same priorities. You could get a value based on who wants your business.
The Three Main Types of Buyers
1. A strategic buyer- a buyer who adds something extra to the already existing business. They may also come in to expand the business.
2. The second type is the private equity buyer. Private equity activity has shown great improvements of late. These companies pay with cash and pay well in the current market. However, most private equity buyers are ambitious in obtaining a business with a strong future.
3. The high-net-worth family buyer. This buyer buys a business to either increase their investment or gives it to their children. Once in a while, they may withdraw regular income from the business. For this case, show them the kind of yield they will be obtaining.
After considering the buyers, think about how the business could appeal to each buyer. Ensure you reach out to interested parties with potential. Finally, please explain how your business could be the one they are looking for.
Make Proper Preparations When Selling to Family
As a business owner, you may want your family to run it in the future. It would be best to understand that handing over your business to your children is a different process from the regular sale. You may consider taking the full value of the business and ask your children to pay for it. On the other hand, you may gift the business to your kids and fund their retirement with an annual salary.
There are several ways to transfer ownership. For instance, you are dividing a certain percentage of your business to our children. Whichever path you choose to follow, ensure you consult with an attorney dealing with such cases.
Consider Your Next Move First
You can get excited when you think about selling your business. The thought of making some money can be appealing. It may make you not plan appropriately. For this case, instead of thinking about the money, consider what you want to do next. Do you have something else you want to venture into after selling your business seriously? For example, you may want to venture into building restoration companies for your community. Ensure you are not plain and you have a vision in mind before selling what you depend on.
You are not just selling your business for the sake of it. It would be best if you found someone who matches your passion for the business. This assures you that the company is in the right hands. Choosing the right person for the business will make the business last.
Acquire the Right Team to Develop a Plan
As a business owner, you may wish to seek help from other people before selling your business. It normally attracts a fee, but it will be worth it. By engaging the right advisors, you will enjoy high net proceeds and peace of mind. Ensure you gather advisors dealing with these matters. Make time once in a while in your office and share ideas. You may not be able to deal with complex negotiations on your own. Therefore, take advantage of using highly skilled advisors to showcase your interests.
You can then merge your current accountants’ and legal advisors’ experience on this matter. If they have been in your business for a while, their knowledge will assist you greatly in pulling up an awesome deal. Therefore, bring your team together and let them do their job without interfering with it. A good and strong team will assist you accordingly and develop a solid strategy to represent your interests.
Live in The Present
You may want to note that your business’ previous performances are highly irrelevant at the time of sale, especially if you are struggling of late. Most buyers are interested in the present performance (usually the past year). They are also interested in the viability and sustainability of the business in the case whereby you operate in a dynamic space such as a new website.
Always Be Transparent
Honesty is the best policy. The truth will always come out no matter the circumstance. Ensure you are honest from the beginning. If you have ventured into a business whereby you have offices for sale, be transparent by telling the buyer the rate at which you sell them. Never exaggerate the figures. Serious investors understand that every business has its highs and lows. If you are honest from the beginning, the chances of the business hitting rock bottom are low.
Be Ready to Answer Lots of Questions
It depends hugely on the business and whether you are using a business broker or not. Selling yourself makes you answer many questions as opposed to using a broker. The type of business you are dealing with may also raise many questions—for example, distance movers‘ businesses. A buyer may want to know more. Be prepared to answer all questions regardless of how they may seem. Do not judge anyone. You may just be dealing with a potential buyer.
Crucial Documents Required to Sell a Business
After evaluating the things, you need to know about selling your business, and it is important to determine the documents and information required. Before selling your business, there are various documents you will need at certain stages. You will not need all these documents. However, to be on the safer side, ensure you are well prepared. Sometimes, during the negotiation stage, a buyer may require certain documents that may be confidential. At this point, make an effort to explain to the buyer why you are hesitant to give out the information. They include;
· Confidentiality Agreement
· Internal profits and Loss statements (for two or three years)
· Well updated balance sheets
· Individual financial statements for buyers to complete
· Corporate return tax for two or three years.
· An additional document to compliment the financial
· Professional certificates related to the business.
· Policy covers.
· A copy of the current lease.
· Employment agreements.
· Clientele contracts
· Promissory note for any seller financing.
· Security agreements, financing statements, and post-closing agreements.
To put a deal on the table, a buyer will need a substantial amount of the above information. Therefore, be considerate, put yourself in their shoes, and understand their request.
Selling your business will never be an easy process. It will require several considerations. It will require a lot of your time and your energy. In summary, it will begin by determining the reasons for selling, ensuring the business is in the right shape when selling it. As discussed earlier, prepare the sale early in advance. It is important as it will help improve the financial records and establish a strong customer base.
Moreover, go on by determining the value of your business to price it appropriately. Decide on whether to use a broker or negotiate it by yourself. Ensure to organize your financial statements and revise them with your accountant. Once you do all the above, you will be in a position to identify a buyer. If you find a good buyer, go through the financial screening process to earn their trust. If the process succeeds and you sell your business, be wise. Determine how you will invest or use the money—all the very best as you prepare to sell your business.