5 Tips For Selling Your Business
Selling a business is a legacy decision that impacts so many things. Retirement, inheritance for future generations, travel, starting a new venture or business and many other thoughts rush into the mind of the selling owner. Because of the importance and impact of this decision, business owners want representation from trusted and seasoned professionals.
Selling a business is no easy task, and the challenge may demand more than one might expect. Crafting the perfect deal requires specific knowledge, a vast network, and the right strategy. You can always count on there being some unexpected surprises and obstacles along the way. Hiring an independent agent to appraise your business's valuation is always one of the first steps.
We hope the following 5 tips for selling a business will help you understand the process as you consider selling your business. Having someone at your side along the way can provide comfort, knowledge, and experience to help guide you.
Consulting with a trusted business broker will provide invaluable advice and help. Know that some business brokerage firms charge an upfront engagement fee to list and market your business while others are paid a success fee that is paid only if they successfully sell your business.
Tip Number One When Selling A Business:
1. Create a competitive market by engaging multiple buyers.
It is no secret that a seller receives a better offer for their business when there are a lot of potential buyers.
To attract multiple buyers, it is important to:
- Cast a wide net to buyers
- Work with a brokerage firm that communicates weekly with all of their buyers through their newsletter
- Create the best Confidential Information Memorandum
- Be prepared by collecting ALL the pertinent information prior to marketing
- Have a short list of hot buyers at all time
Tip Number Two When Selling A Business:
2. Understand how Works in Progress (WIP), Inventory & Working Capital are handled in a business sale.
Let's face it, if you have never sold a business, terms like SDE, EBITDA, WIPS, Due Diligence, and many other aspects of selling a business can get a bit overwhelming. What is the difference between an IOI, LOI, and a standard business contract, and which one is best for you to use for your type of business?
WIPs and Inventory must be managed well in order to ensure an orderly sale. Working capital should also be taken into account when considering a sale price as it affects the amount of cash that may be available at closing.
Tip Number Three When Selling A Business
3. Control the business transaction through professional representation.
Hire a professional accountant, lawyer, and business broker to help you understand the value of your company as well as draft an effective purchase agreement. To avoid any unexpected challenges during the transaction process it is essential to ensure that all state laws and regulations are adhered to.
If the seller of the business loses control of the negotiations during any aspect of the negotiations then they are at risk of losing money or the deal never closing. Someone on your behalf has to work on moving the deal forward multiple times each day or the deal will not close. Time kills deals and one of the reasons that 50% of deals under contract never close is that control of the deal is lost.
Tip Number Four When Selling A Business:
4. Know what information SHOULD be shared and WHEN it should be shared.
Selling a business is a very confidential matter. Buyers will begin immediately asking for all types of information like equipment lists, employee names, your marketing strategy, your taxes, and even your clients' list. Keep in mind that information is a powerful negotiating tool.
You may need to disclose certain assets and financials, but you need to know what information should be shared and when this information is supposed to be shared. Your business broker will keep you informed and communicate a clear plan so that you will know what should be shared or not shared and when it should be shared.
Tip Number Five When Selling A Business:
5. Have clean and accurate financials.
Having accurate financials is key to getting an appropriate business valuation, securing lending, and actually selling your business. Without accurate books, the buyer will never feel comfortable buying your business and the SBA will never approve a loan for the purchase of your business. Pay close attention to the details, such as tax returns and equipment lists, inventory to ensure everything is up to date.
This will also help you determine a realistic sale price to maximize your gains and minimize any losses. Additionally, having clean records may be beneficial when it comes time to negotiate with potential buyers. In many cases, your business broker will work directly with your CPA or accountant to make sure that they have your most up-to-date financial information.
If you are considering the sell of your business, please do not hesitate to reach out. You can reach us at 919.603.4027.
