Dos and don’ts of selling your business

Considerations and implications for deciding to sell

Deciding to sell a business you've spent years building can be a difficult and emotional choice. It can also be hard to know when the timing is right to sell. Professional advice can help you determine when to move on and how. It can also help ensure the expectations you have from the sale of your company are met.

When it comes to selling a business, letting go at the right moment can be the difference between achieving the value you feel is appropriate for your business and receiving offers that are substantially less. To help you through this potentially life-changing decision, consider the following:

Sell if it's right for you

If you're thinking about selling, it's good to do some soul searching to determine why.

• Do you still get excited when you start your day?
• Do the financial motivators that give you the determination to succeed still influence you?
• Is the business still your passion?
• Are you simply feeling tired or have your interests changed?

Finding answers to questions like these can help. When you're motivated and hungry, your business typically thrives. If you're moving on to other things or feel checked-out, both you and your business can suffer – it may be time to sell.

Understand how long it can take to sell

Creating an effective exit strategy can be a complicated process, and evaluating your business and achieving the right selling price takes time.

The process of selling a strong company can take a few years. You need to ensure your financials are in order and that sales are maximized. You have to find the right buyer, complete adjustments, and both sides need to do their due diligence. All that and the closing time can impact the sales process.

Position your company for the highest return

During the sales process, many potential buyers will want to review five years of tax returns and audited financial statements. They'll want to see a strong balance sheet and income growth. Among other things, they'll be looking for:

• strong retained earnings
• year-over-year increases in sales
• controlled expenses
• evidence of innovation and forward thinking
• a good team of motivated employees
• satisfied clients that provide repeat business

Positioning your company prior to the sale is crucial. If you haven't planned that, you may not be ready. Working to strengthen the above attributes will help bring you the value you are looking for from the sale of your business.

Consider your company's growth cycle

Every business that experiences growth knows that it typically comes in cycles. Of course, the best time to sell your business is when it's in peak condition. Selling on an upswing, when sales and income are strong and the value of the business is rising, can give you the best return on the time and energy you've invested.

During a downturn, if you don't capture new market share, dropping sales can substantially lower the value of your business.

Create a succession plan if you're passing your company on

Passing your business to family, or finding a key employee interested in buying, can maximize your proceeds from the sale while minimizing your closing costs. For a family-owned small- or medium-sized business, developing a succession plan is crucial.

It takes time for new people to learn your business, and your successor will need to prove they are capable of leading the company. You should consider:

• finding a successor who is right for your business
• timing the transfer to minimize tax
• whether a holding company or family trust can help the transition
• if you plan to stay on as a consultant for a period of time

Preparing a succession strategy, and knowing that the company will be in good hands when you leave, can help provide the best return for everyone involved. It can also make it easier to know when it's the right time to sell.

Think about your age and health

Your age and health can also be factors in timing a sale. Being forced to sell quickly due to health concerns can pressure you into accepting an offer lower than the business is worth. You obviously want to avoid that happening.

Have a post-work plan

After years of effort, retiring from your business can be a frightening prospect. What will you be doing if you’re not working?

Preparing yourself in advance can make the decision to leave easier. It can also allow you to analyze your business situation more objectively, and help you sell your business at a time that will bring you the value you expect to receive.

There are benefits to a team approach

Finally, you should seek professional advice when considering a sale. Experts can help you evaluate and value your business, structure the sale to maximize your return, decide whether to sell shares or assets, and explore options to reduce capital gains tax.

A business advisor can provide invaluable advice, working with your accountant and lawyer. This team of professionals can help ensure the expectations you have from the sale of your company are met.