So you want to sell your business, but you don’t want to lose your sanity. The process may seem overwhelming, and it is one of the biggest financial transactions you’ll ever make. Here are 5 questions to answer before you sell your business:
1. Why are you selling? For many small-business owners, the business is a piece of themselves. The process of selling can be wrought with emotions. It can be tempting to sell during tough times, but that is not necessarily the best option. If the business is just draining you physically and financially, you might want to break free as soon as possible. Another scenario is if you are considering a new start-up. However, haste often results in poor financial decisions. On the other hand, if you’re only thinking about selling because you want to retire, but you still enjoy your work, you might be too leisurely to act when a great opportunity comes around.
2. What is your timeline for the process of selling? The process of selling your business can be long and arduous. Plan how long you will ideally spend on this. Be aware that there are many contributing factors that may mess up your timeline, but try to keep to the plan as much as possible, to prevent being too slow.
3. How much is your business actually worth? You’ll need to get help from your account on this one. Know how much you’ll need to earn to finish debt-free. Also, understand the tax implications of a business sale. Business brokers: Has he or she run a small business before? Does the broker have a basic understanding of accounting? Does the broker have a year’s experience? Does he or she have a track record with references?
There are many possible approaches to business valuation, but here are 3 common ones.
Capitalized Earnings Method: Demonstrates expected earnings as a return on investment.
Cash Flow Method: Analyzes the size of a loan that the cash flow from a business can support.
Balance Sheet Method: assesses the value of a business’s tangible assets to determine worth.
Ultimately, the business is worth only what a buyer is willing to pay for it.
Who might want to buy your business? Make sure your business plan is updated, and head out looking! Related businesses or competitors may want to buy. Don’t limit yourself to companies in your area; business elsewhere may be looking to expand
4. What is your offer? Write an overview of your offer. Try to answer any questions that a potential buyer might have.
5. Are prospective buyers a good fit? Interview the interested potential buyers to evaluate their compatibility with the company. This is particularly important if you or your employees will be working with the new owner.
Negotiate with qualified buyers. Don’t just accept the first offer blindly. You should find an attorney who specializes in business sales and talk with him or her.
One tip that I always suggest: treat yourself. After all the documents have been signed and the money has changed hands, take a vacation (or do something else purely for relaxation). Even if you are excited for your plans after selling the business, take some time to decompress. Emotions can run high during this time, so plan accordingly.