Selling a business takes strategy and timing
Would you believe that 45% of business owners spend more than 41 hours a week on their business? Are you one of them? When you started your business, you probably had dreams of financial and personal freedom, tropical vacations and a cushy retirement. To make those dreams come true, you need to know how to sell a business and develop an exit strategy.
Understanding when and how to sell a business can be overwhelming without the right resources. Yet as Tony Robbins says, “The purpose of a business is to build a system that can make money when you’re not there, and if done right, a business you can sell for a multiple.”
You’ve done just that: grown organically, scaled your company and perhaps even recovered from a financial loss. You’re ready to reap the rewards. You need an action plan for selling a company and a checklist of items to keep you on track.
Once you’ve sold your business, you’ll have the financial freedom – and the time – for the next phase of your life. Sounds great, right? Then why is it that 53% of business owners say they’ve given little to no thought to their transition plan? It’s probably because selling a company can seem overwhelming – but it doesn’t have to be.
Here’s how to sell a business and see massive results.
8 steps to selling a company
Selling a business is much like a Hollywood marriage: Without a solid prenuptial agreement (exit strategy), a divorce (business sale) can result in disaster (financial loss). Don’t let your business’ final days sneak up on you – include an exit strategy in your business plan. With the right strategy in place, you’ll have a specific goal (a certain profit margin or substantial growth in sales) to reach that will signal when it’s time to sell your business.
According to Tony, “Without an exit strategy, all you have is a job.” This means you need to stop thinking of your business as a day-to-day job and start thinking of it as an investment.
Step 1: Know your reason for selling
If you’re asking yourself, “Is it time to sell my business?” you probably have a reason why. You may be ready for retirement or want to move on to a new endeavor that combines passion and profit. You may want to take care of your or a loved one’s health or just want to move on to a new environment. Knowing why you want to sell will help you answer more important questions down the line, such as how much revenue you need to generate to move on to the next phase of your life.
Step 2: Determine when to sell
Understanding when to sell your business is critical for getting the best price. Don’t wait until your business is in decline to sell – the best time to sell a company is when it’s at its peak performance. Do it when you’re at the top of your game, and you will reap the benefits. You may also want to take a look at economic considerations – selling your business during a downturn or a recession will most likely not generate the same profit as it would in a robust economy.
Step 3: Get your paperwork in order
Financial records are a must. You need to have financial records from at least the past two years that cast your company in a positive light. This means revenues and profits that are steadily increasing – you don’t need to see big jumps, just a good performance that provides a solid foundation for the future.
You’ll also want a realistic business map to show the buyer how your company will keep growing. Finally, the most important thing about your financial records is honesty. Any serious buyer will do their due diligence and investigate every aspect of your business. Don’t let a good deal go south because you don’t have your paperwork in order or were not honest about something.
Step 4: Find a broker
Learning how to sell a business is a skill you can master. We’re willing to bet the person who can best market your business is you – and if you’re selling to a family member or a current employee, representing yourself can be a good choice. However, there are many situations where using a broker is helpful. If you’re trying to keep the sale quiet, brokers use their own network to find sales leads without letting the word out to your employees or other stakeholders. Brokers can also be a great option to involve in the sales process if your business has complicated financials or an exceptionally high value.
When you use a broker to sell your business, communication is key. Ensure they know your expectations, and that you know theirs regarding fees. Confirm they’re a Certified Business Intermediary (CBI), ask them to provide a portfolio of specific marketing tactics they have used for other companies and always get referrals.
Step 5: Get a business valuation
When selling a company, an accurate valuation is essential to pricing it correctly and selling it quickly. You won’t know what to sell your business for if you’re not sure what it’s worth. Pricing a business too high or too low can result in losing out on money or not selling it at all. Find a business appraiser who can create a detailed documentation of its worth; your business broker will be able to refer you to an appraiser if they do not have one in-house.
Step 6: Choose your buyer
If you’ve chosen the right time and properly prepared to sell your business, you may have several buyers to choose from. When you’re choosing your best buyer, there are several things to look at beyond the offer price. First, make sure the buyer can back up their offer with financing. If they’re using third-party loans, always pre-qualify them. If they have private investors or other sources of funds, carefully review all documentation, including past legal judgments.
Also consider the type of transaction – certain structures may have transitional requirements, higher taxes or less cash at closing time. You’ll want to hire a lawyer to help with vetting buyers and setting up the transaction itself.
Look at culture fit. Check out the buyer’s prior acquisitions and see where they ended up. If the buyer is another company, ensure your cultures are compatible. And trust your gut – it’s what helped start your business, and when you’ve thought everything out and have two final buyers in mind, it’s what can be tapped into to make the final decision.
Step 7: Decide what to do with the profits
After selling your business, you need to determine what to do with the profits. If you are selling a company to fund retirement, you’ll work with your fiduciary advisor to decide if and where the money is invested. If you intend to buy or start another business, you can use the profit as a down payment or to make other necessary arrangements.
Step 8: Relax and enjoy the next phase of your life
If you catch yourself wondering, “What do I do with myself after I sell my business?” remember that you built your business to pursue something new. Whether your next phase involves a new endeavor or much-needed peace and quiet with family, you’ve earned the right to enjoy it.
Frequently asked questions about selling a company
How do I sell a struggling business?
Keep the business in operation to show prospective buyers it has potential and keep all your financial paperwork in order. A broker is an asset in this scenario, as they can keep the search confidential and help you decide on a price that will be attractive to buyers but still net you some profit.
Do I pay taxes when I sell a company?
Yes. The taxes you pay will depend on the assets your business owns. The best way to handle this is to work with an experienced business broker or attorney who can help you minimize your tax burden.
How long does it take to sell a business?
This is an answer heavily influenced by your industry, how your business is priced and how aggressively you’re marketing it. The length of time it takes to sell a business is often contingent on the economy. On average, it takes around 180 days to sell a business; yours may take more or less time, depending on the previously mentioned factors.
How do I sell my business quickly?
You can increase your chances for success by working with professionals who can help you price your business competitively and market it to the right people. Still, there is no magic potion for selling a company quickly.
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