Your business is like a member of the family: You birthed it and nurtured it, and it has been with you through every important milestone in your life. But there may come a day when it’s time to set it free.
Whether you want to retire, launch a new project or just liquify your investment, selling your business is an event you need to plan for. Here, experts weigh in with the most critical factors to consider.
Ask yourself the right questions
Take personal inventory by answering some hard questions up front, suggested Kira Harris. Harris owns FMZ Business Brokers, specializing in helping small business owners sell.
Not all businesses are even good candidates for sale. “Someone else might not be able to run your business,” she said. If your business is based largely on your personal reputation, for example, you’re not yet ready to find a buyer. You also need to decide how soon you want — or need — to sell, as well as assess if there are any negative events looming in the near future.
Get your records in order
Make sure your business records are organized and accurate. You’ll hear this advice over and over, and that’s appropriate because it’s critical to a successful sale. “This includes your Minute Books, employment agreements and real estate leases,” advised Andy Goldberg, a CPA who advises familyowned businesses.
You may need to go back into the books to create accurate financial statements, said Roger Murphy, CEO of business brokerage Murphy Business & Financial Corporation. “Because most small businesses try to minimize taxes by expensing personal charges to the business, such as supplies, business travel, golf membership, charitable donations and personal vehicles, one of the most important things you do is recast the financial statements to find the accurate discretionary cash flow of the company’s operations and the fair market value of the assets and liabilities being sold.”
Know your true valuation
Have a frank discussion with a valuation professional as early as possible — perhaps even several years before you intend to sell. You can connect with one via a business broker or your corporate attorney or perhaps through a business marketplace.
Michael T. Stanczyk, a business sale attorney and blogger, said, “Your valuation should be based on objective items: comparable sales, cash flow, revenues, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), and so on.” A professional helps you avoid subjective assessments. “If the subjective is very different from the objective, then a sale will be difficult and will leave you disappointed. Maybe it’s not time to sell,” said Stanczyk.
Make sure you’re ready to let go
Sometimes the sale of a business doesn’t happen because deep down, the owner doesn’t want it to.
“I worked with the owner of a specialty marketing firm that generated multi-millions for 30 years, and he very much wanted to retire,” said Selena Tan, founder of O Positive Coaching, who works with owners planning to sell or retire. Despite years of prep, he was unable to complete the sale. Eventually Tan determined he was sabotaging the transaction because he didn’t want to let go of the work.
The solution? “He decided to settle generous severances for his staff, discontinue marketing and work only part-time with existing clients. The rest of his time he now spends happily with his family and traveling.”
Prepare your business to operate without you
Like a child you’ve raised to eventually leave the nest and make a life on its own, you need to prime your business to continue without you. Indeed, it’s critical to your ability to sell, and for the business’s future success, for you to become expendable. You need to build infrastructure within your business so that clients are doing business with the name on the door and not you personally.
Give yourself enough time
A successful sale can take three to five years of planning. Use the time wisely. In addition to taking care of details such as updating your records and getting an accurate valuation, you should develop customer lists, train your staff to operate autonomously and even attend trade shows in your industry. “It’s a great way to meet potential buyers and service providers like business brokers,” says Stanczyk.