You’ve worked hard. Starting a business is a passion project and a lot of work. If you’re now transitioning to retirement or want to sell your business, it’s a big step you can’t take lightly.
And if you’re like 80% – 90% of owners, you have wealth tied up in your company.
Your decision to sell is personal, but you need to answer a few questions before selling, too. If you answer these questions, you’ll have a clearer picture of:
- When you want to sell
- What you really need from the sale
- How to best navigate the sale
Before you sell your business, work through the following questions to make the transition as stress-free and streamlined as possible.
1. When Do You Want To Sell Your Business?
If you want to sell immediately, you’ll be at a disadvantage. Owners are often advised to begin planning the sale at least five years in advance.
Why?
You want to maximize the sale of your company. If you only give yourself a year before selling, it will likely be difficult to make some of the integral changes necessary to maximize the value of your business.
Planning and changes may be required to make your business more attractive.
It’s common for buyers to look back five years to analyze:
- Trends
- Growth
- Opportunities
- What the business is truly worth
If you take the right steps to boost revenue, profits, and operations now, it will allow you to have five years of financials to show prospective buyers how your company has grown and its true value. Selling in a rush, especially during a down year, may lead to a lower sales value.
2. How Much Do You Need From The Sale?
And speaking of sales value, how much do you need from your business? If you’re an owner, there are always some owner-related valuation difficulties to overcome, which the Library of Congress’ Small Business Hub explains very well.
What you should do is ask yourself:
- What is the amount of money you need from the sale?
- What will you do with the money from the sale?
If you need $2 million from the sale (or any number), what changes will you need to make to reach this value? If your business isn’t at the value you need, you need to consider what changes you should make now and in the future to make your company more valuable.
A few changes you may need to make are:
- Hiring more staff to reach growth goals
- Investing in more marketing to fill lead or sales pipelines
- Increasing profitability through higher prices or cost-cutting measures
One major thing to consider is the business’s reliance on you – the owner – to operate. If you’re integral to the company’s success, it’s a good time to start creating standard operating procedures and offload some of the tasks that you perform.
And one last thing to consider: what will you do with the money from the sale? You want to make the profits from the sale to help you reach your after-sale goals. Financial planners are crucial at this step because whether you want to use the money for your kids, charity, travel or anything else, they can help you create and implement a plan to reach your goals.
Once you have an idea of the amount you need from the sale and what you plan on doing with the money figured out, you have another important question to answer.
3. Who Do You Want To Sell To?
You know when you want to sell and for how much, but who will you sell your business to? You’ve put so much of yourself into your business. You want to ensure that you’re handing it over to the right person.
Do you want to sell to:
- Family?
- An employee?
- A competitor?
- A customer?
- A supplier?
- A third party?
All require different avenues.
- If you’re selling to employees, when will you start talking to them about the sale? How do you approach this important conversation?
- Will they need to finance the sale?
Also, consider how your buyer will affect the sale price. For example, if you’re selling to a family member, you may consider selling your business for less than full value and/or financing the deal at favorable terms.
When you’re preparing for the sale, make sure that you keep a tight lid on the plan. If you’re selling to an employee, for example, it’s important to time your conversation carefully and ensure that they keep the details of the sale confidential.
If the potential buyer starts spreading the word that you’re selling the business, key employees may start leaving and take their knowledge or key customers with them.
Timing and discretion will be crucial in ensuring that the sale goes smoothly.
4. What Are You Going To Do After You Sell?
Having a plan to sell the business is crucial, but the planning shouldn’t stop there. Once it’s sold, what will you do? What’s the plan for the next chapter of your life?
It’s important to have an end goal, so you can better prepare for the sale and continue living the life you want.
Traveling is great and a common goal for many business owners, but you may eventually become bored with it.
You want something that will give you purpose.
- Maybe you want to spend time mentoring other businesses, helping them build a healthy work culture and grow their operations.
- Maybe you prefer to spend your time volunteering to give back to the community and help others.
There’s no right or wrong answer here. The most important thing is to have a plan and ensure that your plan includes purposeful activities.
Conclusion
You’ve put blood, sweat and tears into building your business. Making the decision to sell it isn’t an easy one to make. That’s why it’s so crucial to have a solid plan in place to ensure the sale goes as smoothly as possible and helps you reach your end goals.
Knowing when you want to sell and for how much is a great place to start. Identifying your ideal buyer and having a plan for your next life chapter will give you peace of mind.
To learn more about selling your business or to schedule an appointment, click here.