Four Things You Must Consider if You Want to Sell Your Business on Your Own Terms

Are you thinking about selling your business? It’s a big decision, but if you’re ready to move on to the next phase of your life, it can a rewarding transition. Owners and investors all eventually exit their business, but you do have a choice: leave things to fate or exit on your own terms. You might have guessed that we highly recommend the latter!

Here are a few guidelines to help make selling your business a painless experience that preserves your legacy:

Start Early

The first and most important step is to start early. This may seem obvious, but so many business owners wait until they’re ready to retire or experience some other major life event before they start thinking about selling. The truth is, it can take years to prepare your business for sale and get the best possible price. Waiting until the last second to consider selling also undermines your long-term financial goals. It may be too late to “fix” existing problems, which can cost you literally millions of dollars.

The Outsider Perspective

Taking the business “out of the family,” so to speak, necessitates an understanding of the market and the financial health of your business.

First, pricing is everything. You need to make sure you’re not leaving any money on the table by pricing too low, but you also don’t want to price yourself out of the market. A business valuation will give you a realistic range for what your business is actually worth. Prospective buyers look at the last 3 to 5 years of your financials in order to make a pricing decision. You should get a limited scope valuation regularly–at least every 5 years– to know what your business is worth and what may need adjusting.

Also, get your financials in order! No one likes a messy paper trail, so keep things tidy. This includes putting together a complete and accurate picture of your company’s revenue, expenses, debts, and assets. It will make the due diligence process much smoother for potential buyers. Unreliable, outdated financials also reflect poorly on the business and could affect your ability to negotiate.

Make sure to show the money you make in the most favorable (but honest) way possible. Get the “discretionary” expenses like family cars, wages to non-participating family members, and excessive M&E out of the company! You want to show a smooth, upward-trending growth curve.

Second, don’t neglect taxes. If the money you make isn’t reflected in business tax returns, no one will pay you for it – it’s as simple as that! Even if it’s only on paper, bankers won’t want to lend to a business that loses money. If your buyers keep getting turned down for financing, your dreams of selling could be squashed, or worse, leave you stuck with a business that is virtually worthless.

And last, but certainly not least, make sure your physical assets are as clean as your financials. When homeowners get ready to put a house on the market, they “stage” the house to make it look enticing to prospective buyers. That means getting rid of the dead weight–sorry, Aunt Edna, we had to throw away your collection of Beanie Babies–and making space for someone else’s imagination. You should take the same approach. Get rid of any junk, add a coat of paint, and clean out that dead inventory. Those extra parts you’ve been holding on to for 20 years? Putting it up on eBay and getting 10 cents on the dollar is better than nothing!

The Inside Game

Passing on the business on to a family member or associate comes with its own challenges. You’ll need to have the “talk” about who will take over, what that entails, and what (if anything) the new owner can change. This is a difficult conversation to have, but it’s better to do it sooner than later. No one likes surprises, and business owners need to be clear about their expectations for the future. Family members may need training and non-participating siblings want to feel fairly treated when their inheritance is on the line. Again, seek out a strong valuation and plan, plan, plan! Contacting a certified financial planner/expert who knows commercial business to help everyone feel confident.

The Taxman Cometh

Taxes are a certainty, as the old saying reminds us. Again, the early bird gets the proverbial worm here. Receiving good tax planning advice early in the process, before you must sell or exit your business, will save you a lot of headaches down the road. For example, do you want to spread business financial gain among several family members? It can take time to bring them in. Are you concerned with minimizing your tax exposure? This might mean doing a corporate restructuring in advance. Do you want to set up a giving plan? That process takes several steps, and there may be tax advantages that can only be structured over time.

One way or another, your business days will end, and the theme is to plan early. In reality, exit planning for your business starts the day you buy your business. That might sound intimidating, but it’s true. Only you can have the forethought to choose the ending as mindfully as you have built your business over the years.

With our years of experience and preparation, hiring Stacey International LLC can help you take the leap. We help maximize exit plans with less stress and more profit. Even if you are just considering a sale, we are here to help the process and preserve everyone’s sanity.

Got a minute for your peace of mind? Reach out to schedule a meeting with us today.