After all the hard work that goes into starting and maintaining a business, deciding years later to sell that business can be among the biggest challenges in a CEO or business owner’s career.
You’re certainly an expert in your own field, but unless you have experience in selling a business, chances are you need to fully prepare yourself and your company for the challenge ahead.
The good news is, there are many steps you can take, as well as any number of professionals who can assist you when the time arrives to sell. Keep these tips in mind:
Choose the right team of advisors.
Once you’ve made the decision to sell, it’s time to put together a team of advisors to help educate you and guide the process forward. Key advisors can include:
- A business broker to assist in raising market awareness of your company
- An accountant or lawyer to address tax, legal, and financial matters
- A business coach who offers a broader perspective on the proposed transaction
Another valuable resource is membership in a peer advisory board like TAB (The Alternative Board.) As a TAB member, you’ll benefit from the insights and experiences of fellow business owners who have gone through the selling process in the past.
Know the value of your business.
Understanding the true value of your business is essential for knowing what price to ask for it. The primary elements of valuation are cash flow and EBITDA (earnings before interest, taxes, depreciation, and amortization). Potential buyers may also weigh any significant revenue your business is generating against overall liquidity and access to available cash.
You might assume a business that’s generating significant revenue should justify a higher asking price, but buyers often take into account numerous other factors, as well. These might include how long the business has been profitable, the overall performance of the management team, the status of relationships with key customers, legal considerations, etc.
This is where enlisting the services of a skilled CPA and/or business appraiser becomes essential.
Be disciplined in keeping your plans quiet.
Until later stages of the selling process kick in, there’s no need to spread the word you’re contemplating a sale of the business. You don’t want to send “customers or clients into panic mode,” notes Business.com, so “it’s probably best to keep an impending sale quiet until you have identified a buyer and finalized the details of the sale.”
Attend to any lingering business issues.
No buyer will be interested in a company with a lot of “unfinished business.” Are there customers with long-standing gaps in accounts payable? What current projects are near completion, and do problems exist that are holding up deliverables for other customers? Cleaning up the balance sheet, getting rid of excess inventory, and attending to other loose ends is critical to making your business more attractive to potential buyers.
Be ready with answers to a buyer’s inquiries.
Buying a business is a huge undertaking, so you can understand that prospective buyers will have many questions for you. Obviously, the key question you need to answer is “Why are you choosing to sell your business now?” Buyers also want to know more about the valuation process, how your absence as CEO or business owner might affect things going forward (once the sale goes through), and related questions. Don’t get caught flat-footed when the buyer Q&A process comes around. The better your answers, the stronger the case is for selling the business when you want to.
Keep things running smoothly.
As noted, the sales process can be time-consuming and demand a lot of your attention. But you can’t afford to abandon oversight of current business operations. The US Chamber of Commerce reminds us that “the deal isn’t done until everyone signs the paperwork.” If there’s a sharp decline in revenues during the negotiating process, “the buyers could come back to the table and ask for a lower price.”
Want to learn more about how to properly assess your business and get it prepared for sale? Register for our free TAB Boss Webinar, “How to Make Your Business Irresistibly High-Valued.”