How do you know the right time to sell your business? How should you prepare for the sale and make your company seem as valuable as possible?
Selling a business is one of the most complex projects of entrepreneurial life. Therefore, the seller should acquire a basic understanding of it before starting. During the process, the seller may consult a broker or successor advisor, an auditor or lawyer, as well as a tax advisor. Regardless, seek professionals who specialize in corporate sales.
Success and profit when selling a company depend on timing, time available to sell, the reason for selling, profitability, and structure. If you consider the following points, you have a solid overview. Selling your own company is always a highly emotionalÂ experience, too.
Preparing the company for sale generally takes a year or more. This checklist for selling your business will help you stay on track.
Identify the Why
“The goal for us as individuals is to know our WHY so that we can more easily find the right tree and the right nest.”Simon Sinek
Why are you selling? Why is now the right time? You need to answer these questions with a strong statement. You also want to get the timing right. These questions indicate that selling one’s business isn’t necessarily easy.
When you sell a company, you naturally want to get the maximum price. After all, you have invested a lot of effort and time into the company. Your business sale process will become meaningful, targeted, and controlled once you have solid answers to all the “why” questions.
Determine the Value
Can you justify the price you want for your company?
Valuing a company is a difficult task. Most entrepreneurs see their businesses as their life’s work and try to sell it for exactly that value. Company valuation includes different methods that measure the value of a company. Various valuation methods result in different values. It is essential to understand that there is no such thing as one right and actual value; the selling price arises from comparing values.
The industry also plays a role. For example, anyone selling an IT consulting company may use a high EBIT factor because the positive industry is developing. The situation differs for the catering industry, which must consider rising costs today and in the future. Ultimately, the market also decides.
The corporate sale often finances the entrepreneur’s retirement. Therefore, money is needed to fund a livelihood.
Organize Your Financial Records Now
Before you start looking for interested parties, your company’s information should be presented. You don’t want to put yourself in the position of scrambling for needed financials at the last second. Be proactive. To do this, compile all the information that may interest a buyer, for example:
- Shareholder agreements
- Employment contracts
- Information on staff qualifications and professional development
- Contracts with suppliers and customers
- Company key figures
- Rental and lease agreements.
Develop a company synopsis that provides the most critical data at a glance. In addition, determine the factors that may affect the purchase price, for example, profit, net sales, equity ratio/amount, company size, and industry. Taxes, revenue, assets, and even employee handbooks and office policy documents are crucial for selling your business.
Don’t Spend All Your Profit
Before kicking off the sales process, decide what to do with the profits from selling the company. Talk with your financial advisor about your future goals or any investments you want to make before the sale to set yourself up for future success. A good financial advisor will help you invest your money in the right places. Sustainability is booming in many areas of life—including investments. People who want to invest their proceeds have more than an attractive return in mind. You want to invest sensibly, not only for yourself but also for your family.
Sometimes, the washing machine breaks, or the car has to go to the workshop. Sometimes, it is just old age with the customary health issues. Other times, it’s just the desire to maintain a specific lifestyle. With a high enough reserve, you can avoid overdrafts and expensive loans. It is crucial that you feel comfortable that your reserves can accommodate unforeseen expenses.
If you have debts, the interest on them is usually higher than the return achieved with investments. This explains why paying back debts is usually an excellent investment.
Do You Need a Broker?
Are you selling the business to a family member or a trusted employee? If so, a broker will not be necessary. If not, then you have good reason to use the services of a broker. A good broker is your advocate. They save you time and energy and are often able to negotiate a higher price for your business.
You now know that selling a company is a far-reaching and complicated project requiring specialist knowledge and expertise. There are several things to consider in a task of this magnitude, different phases to look at, and many complex steps to be taken.
As a seller, you want to get the best price for your business. The most common mistakes made by sellers concern the asking price. A detailed, professional market analysis is essential. A large part of your wealth is at stake, and a broker will help you realize the actual value of it.
Finding a prospect does not equal a completed transaction. Before celebrating the sale of your company, answer the following questions. Is the bank’s financing commitment sufficient? Is the purchase price payment guaranteed? Does an installment have an impact on sales? What has to be considered in the contract? A broker knows the legal issues that need to be considered now to avoid a rude awakening later. Trusting your broker helps to overcome these barriers.
Understand Your Business’ True Profitability
Profitability is an essential metric for assessing companies in the course of their business operations. It indicates the relationship between profit and capital. Analysts use the key profitability figure to evaluate a company’s financial success (i.e., profit). In this context, a distinction is made between the following three variants of profitability:
- Return on investment
- Return on equity
- Return on sales.
Based on the ratio of profit to capital employed, the profitability indicator may be used to assess how successful a company is in the market.
Does your company have true staying power? What expenses cut into your profits? Knowing the answers to these questions is vital when potential buyers start asking.
Find the Right Buyer
You want to sell your company, but to whom? Are you afraid of being ripped off by a buyer? Would you rather sell your company to a responsible successor or an evil financial shark?
Don’t worry; you are not alone in these worries. Many entrepreneurs fear making a severe mistake shortly before exiting their businesses. After all, you are selling your company and financing the rest of your life with the price achieved. Choosing the right buyer, therefore, plays an important role.
Finding the right buyer can take a while, so it’s a good idea to keep a shortlist of potential buyers. Should a deal falls through, you have a contingency. Without that backup plan, you’re back at square one.
If you’re spending some advertising dollars here, don’t be stingy. Increasing your ad spend will help you attract multiple good-fit buyers. If you’re doing it without a broker, the U.S. Small Business Association website offers some helpful tools. You can prequalify potential buyers there, too.
Streamline the Process
Breaking down the complex process of selling a company into achievable steps streamlines a large, complicated project affected by many legal details. This applies even to small companies.
Therefore, thorough preparation is vital. Make sure that the business is independent of you as the owner. Engage in practices that favor stable and predictable business development. Focus on the core business and hire an experienced M&A consultant.
Are you looking for a buyer or successor for your company?
With Quantive, you have an experienced consulting partner at your side who supports your company’s sales process with professional advice and facilitates a smooth transition to new management. We are happy to answer your questions about selling your company and are at your side when you are in need.
Don’t hesitate. Contact our team of experts today.