Selling a company is the most popular exit strategy for many business owners. In some cases, there are no successors who want to continue the business. In other cases, it was always the business owner's plan to convert the business into liquid assets at a certain point. Whatever the reason you want to sell your business, following these tips for selling a business will help ensure that you get the best price and that your business sells.
Sell at the Right Time for the Right Reasons
The most common reason for selling a company is that a business owner falls ill or gets too old to continue to run it—the worst time to be selling. For one thing, it's going to be extremely difficult for you to deal with the additional stress of selling a business in those circumstances; for another, the buyer will use your circumstances as leverage against you.
So don't wait until then. The right time to sell is when you're still hale and hearty and have a successful business to sell.
And what are the right reasons? Selling a company is very much like selling a house in some respects. When you're selling a house, you don't say that you want to sell because the house is too small. You say that you want to move to be closer to work, for instance. When selling a business, you want to sell because you want to pursue a different opportunity or because you're seeking a different lifestyle (such as retirement).
Be Clear About What You're Selling
Before selling a business, you need to consider what all the assets of a business are and decide what you are selling. Determine what physical assets you are selling and what other assets you have to sell. Selling a company often includes assets such as goodwill, trademarks, or client lists as well as physical assets. The value of these will depend on their quality.
If your business is incorporated, you also need to decide if you are going to sell your company as an asset sale (where you sell everything in the corporation but not the incorporated company itself) or a share sale (where you sell everything including your incorporated company).
Determine What Your Company Is Actually Worth
Facetiously but truthfully, your business is worth as much as it will fetch in the marketplace. But determining just what that price is the trick. There are several different business valuation methods ranging from asset-based to future earnings approaches. Of course, no one approach can be used in isolation; the current market, economic trends, and what other similar businesses have sold for also need to be taken into account.
You should definitely have a professional business valuation done. While legally anyone can do a business valuation, a business valuation done by a professional will be regarded more favorably by potential buyers and may save you legal hassles later on.
In Canada, one place to find a professional business valuator is through the website of the Canadian Institute of Chartered Business Valuators. In the United States, the American Society of Appraisers is a good starting point.
Make Sure Your House Is in Order
When you're selling your company you need to be especially careful not to let things slide. In fact, this is the time that making the extra effort to keep things in tip-top shape can really pay off. Think again of selling a house; like a house that's up for sale, you want your business to show well.
So whether you have any interest left in running the business or not, you need to make sure that you are keeping the business's records up to date, the inventory up, and the premises maintained. People want to buy thriving businesses, not neglected ones.
You'll also want to be sure that you've reduced your liabilities as much as possible, doing things such as settling any lawsuits and making sure all tax payments are up to date.
Get Professional Help When Selling a Company
Selling a company is an even more complex transaction than selling a house—and arguably, one that has even more emotional impact. Besides providing the necessary expertise to guide you through the selling process, hiring professional help can help you maintain the emotional distance and objectivity you need to successfully sell your business.
Which professionals should you hire?
- As already mentioned, a professional valuator can determine what your business is worth. Their valuation will be much more credible to a potential buyer than yours.
- A commercial realtor or business broker can be a real boon in terms of finding and dealing with prospective buyers of your business and helping you navigate the sales process.
- A lawyer can draw up and review the documents necessary to sell your business, such as the document that summarizes your business for prospective buyers and the purchase and sales agreement.
One Last Tip
Selling a business is a serious business, so you want to make sure you take the time and trouble to do it right. Careful preparation and using the professional resources available are the keys to getting as good a price as possible when selling your company—and the keys to seeing your business realistically and setting a fair price for it.