How to Sell Your Business
Every business owner should have an eventual exit strategy for their business. Often this exit strategy involves selling the business or its assets when the owner decides to retire or move on. While selling a business can be straightforward and simple, there are several steps every business owner seeking to sell should take to ensure a smooth transition process and easy sale. This will require starting early and careful planning. The basic steps every business owner seeking to sell should take are: clean up the financials, set a value, prepare your exit strategy, retain counsel, and clean up the business contracts.
The first step should be to clean up the financials of the business. This could be a major undertaking if your business has neglected and may require the assistance of a CPA. The financials are one of the first pieces of information about your business that any potential buyer will want to see. You should make sure that personal and business assets have not been co-mingled in accounts or ownership, as this will create a red flag to buyers. Typically, buyers will want to see basic business financials going back three years. If you are hesitant about the particulars of your financials being used by competitors, be sure to have your counsel prepare an NDA or other confidentiality agreements with potential buyers. This is standard and should not raise red flags to potential buyers.
Cleaning up the financials will allow you to better determine the value of your company which is the basic starting point for any negotiation to sell a business. Sometimes you will already have a good idea of what you want to get out of the business sale but after reviewing the financials you can be better armed to command the right price for your business. Certain industries will generally use a multiplier of revenue or sales to determine a sales price, this is accepted as a very general guide for small businesses. Although it may make sense to bring in a qualified third party to determine the value if there are certain assets which are more difficult to quantify which may include intellectual property, outstanding receivables, long term contracts in place, or even the market conditions for the particular industry or region.
Having a basic exit strategy prepared can help prevent unexpected circumstances like a prolonged illness, death, or other serious issue. While this may not be a necessary step if you are well on your way to sell your business, if you are a few years out from selling take time to outline your plans should there be a major roadblock before then. There will be many factors to consider when putting together an exit strategy some include the number of owners/investors, other contractual agreements (franchise agreements, licenses, etc.), wills, trusts, and even employees who could be in a strategic position to acquire the company.
Some business sales are straight forward with little need for certain counsel. But typically a business broker or attorney will be a very valuable asset for any business owner seeking to sell. The expertise they can bring to the table include sales, valuations, contract drafting, deal structuring, and in some cases even finance structuring. Depending on the size of your deal and the type of counsel you seek either a business broker or an attorney, or both will be a great asset to your sale. Counsel during a business sale will also help you identify any potential red flags to buyers and help present the information in a truthful but flattering perspective.
Cleaning up your business contracts is an oft-forgot but essential piece of any business or asset sale. These can be anything from the cleaning or maintenance contracts to major utility or materials contracts. A thorough review of these will give you a better idea of how to cancel or assign these to the new owner of the business. If the contracts are essential to the business, then a care review and transition will be imperative. Sometimes these contracts will include employees which will require a keen eye and well drafted contracts to ensure that liability for the employees and accrued benefits are transitioned correctly.
If you are considering selling your business, call Reidel Law Firm to find out how we can help make the transfer seamless and transparent while protecting your interests. Reach us by the email button below or by calling us at +1(832)510-3292.
