Selling your business
Professional advice can help you determine the right time to move on. It can also help ensure the expectations you have from the sale of your company are met.
Deciding to sell a business you've spent years building can be a difficult decision to make. It can also be hard to know when the timing is right to sell.
But 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 go to work in the morning?
- Do the financial motivators that give you the determination to succeed still influence you?
- Is your business still your passion?
- Or 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, both you and your business can suffer and 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 clean, and 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
- motivated employees and a good team in place
- satisfied clients that provide repeat business
Positioning your company prior to the sale is crucial, and if you haven't planned, you may not be ready. Working to strengthen the above attributes will help bring you the value you expect out of your business.
Consider your company's growth cycle
Every business experiences growth and it typically comes in cycles. It may be an over-used sports analogy, but the best time to sell your business is often when it's at its peak. Selling on an upswing, when sales and income are strong and the value of your 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 to medium size business developing a succession plan is crucial.
It takes time for others 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 will stay on as a consultant for a period of time
Preparing a succession strategy, and knowing that the company will be in strong 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 a lower offer than the business is worth. This is obviously a situation you want to avoid.
Have an after-work plan
And after years of effort, retiring from your business can be a frightening prospect. What will you do if you aren't 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 with evaluating and valuing your business, structuring the sale to maximize your return, deciding whether to sell shares or assets and looking at options to help you lower any capital gains tax.
A business advisor can provide invaluable advice. Working with your accountant and lawyer, they can pull together a team of professionals to ensure the expectations you have from the sale of your company are met.