Five considerations for
selling your business

Don’t shortcut this most important process; start your planning now, and do it right

When you started your business, you probably weren’t thinking ahead to the day you would sell it. But after years of hard work spent building your enterprise into a success, perhaps that time has arrived.

You’d like to cash out and move on to the next phase of your life.

For many owners, selling the business is a one-time event. Unless you start and sell several businesses over the course of your career, you’re probably not going to have the benefit of experience to guide you.

Regardless of the type of business you own, there are fundamental issues you’ll have to deal with when selling out. Here’s a look at some of these issues, with tips on how to confront them.

Price. One of the first steps in selling a business is determining what it’s actually worth. To value a business is to develop an informed estimate of the value of the business as a whole. A value may also be developed for a segment or share of the business.

As in other types of valuation, the valuation of a closely held business is not an exact science. It is, at least to a certain extent, an art based on the professional experience and informed judgment of the valuation professional.

The valuation process involves many factors, ranging from standards set by certification authorities, to IRS pronouncements, to common sense. Outside factors, including market forces, affect each valuation to such an extent that any of three valuation approaches -- asset approach, income approach and market approach -- may apply. Each approach includes a number of valuation methods that have been developed over the years.

Terms. You may find a cash buyer, but it is not uncommon for entrepreneurs to finance the sale of their companies. Terms vary, but many owners and buyers agree on payoff periods of as few as two or three years and as many as 10 to 20.

Part of the process will involve getting information on the buyer’s financial records and background, just as the buyer will need information on your business’s history.

Keeping the lid on. From a marketability standpoint, there is often an inverse relationship between the number of people who know that a company is for sale and the price that buyers are willing to pay.

Letting employees, competitors and too many suitors know that your business may be for sale can be a disastrous mistake.

Further, we know of cases in which lenders, having heard that a borrower is planning to sell, have pulled lines of credit, and suppliers have converted historically prompt payers to COD.

Outside muscle. If you want to get top dollar for your business, don’t try to do it by yourself, and don’t count on a garden-variety business broker. Effective use of an investment banker is often the way to go, even for owners of relatively small businesses.

An investment banker can identify and qualify appropriate buyers, put together a sales prospectus, negotiate terms of a sale, and maintain your business confidentiality so that only prospective purchasers know your business is on the block.

No short cuts. You’ve put your heart and soul – and perhaps the better part of your anticipated lifespan – into building your business to what it is today.

This is not the time to look for shortcuts. Take every aspect of the selling process seriously, and whether you want to sell tomorrow or in ten years, start your planning now.

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