5 things to do before you sell your business
Selling a business is a lot like selling house – only it’s more complex. It usually also requires a greater investment of time, preparation and explanation.
You’d typically want to use a real estate agent for selling a home; and, similarly, you’ll probably also want to use a business broker if you’re serious about finding the broadest possible pool of potential buyers for your business. More potential buyers can result in a better selling price.
Before you discuss the sale of the business with a broker though, here’s a checklist of 5 things you’ll want to consider taking care of first:
1. Think carefully about whether selling is truly the best way forward
Before you take definitive steps to sell your business, the experts at the Small Business Development Corporation recommend taking the time to determine whether selling is truly the best option for you. They urge you to consider all your options. If you take the time to think it through carefully, you may determine that taking a break from your business or bringing in outside management could be workable solutions instead of selling.
Only proceed with the rest of the items on the list after you’ve reflected enough and feel positive it’s time to sell.
2. Obtain an estimate of your business’ valuation
When you sell any high-value asset such as a business, it’s important to understand the value of that asset. There are several methods people use to perform asset valuation calculations. Usually, a valuation should take into account the business’s assets, earnings and profitability. It can sometimes be more difficult to arrive at a value for a business’s intangible assets such as goodwill, branding and intellectual property; nevertheless, the experts at business.gov.au recommend including the value of intangible assets such as these in your business’s valuation.
For service-based businesses, the market valuation method is often used. The formula for calculating the value of this type of business is:
sale price = turnover x industry multiple
3. Prepare yourself and your business for the sale
The sooner you can emotionally let go of the business, the easier it will be to forge ahead along the path to selling it. This is not easy for most entrepreneurs to do – but it is important to recognise it needs to be done as soon as possible.
After you’ve emotionally readied yourself to let go of your business, it’s time to prepare your exit strategy:
- Ensure the business can successfully continue without you. If you played a key role in the business operations, you’ll want to consider how to fill the gap you’ll be leaving. You might want to train and promote a current employee.
- Review the employment contracts of all your key executives and staff members. Evaluate whether your best employees can be counted on to cooperate with the sale.
- Prepare your financial statements to endure massive scrutiny.
4. Consider a Confidentiality Agreement for potential buyers
Depending on the nature of your business, your assets might include trade secrets or other sensitive information that is not commonly known. It’s beneficial to protect the secrecy of your intellectual property from non-genuine buyers. A confidentiality agreement protects your future buyer’s interests, and it also protects your own interests – particularly if it turns out in the end you are unsuccessful in selling the business.
5. Assemble a reliable business sales team
As mentioned above, working with a business broker is an excellent option for selling your business. You’re also likely to need other team members including an attorney and accountant on board to help you sell your business. Your current accountant and attorney might not be the best individuals for the job, it depends entirely on if they have experience with a business sale of this magnitude. If they’re not experienced enough to handle all the challenges associated with selling a business, it would be wise to consider bringing in additional help.
Avoid the urge to micromanage your team after you have selected them. Get out of their way and allow them to excel at the jobs you hired them to do. It is common for entrepreneurs to accidentally sabotage the sales of their own businesses by dominating the proceedings. You’ll be better served by letting your team take charge.
There you have it – the five important things that you will want to consider taking care of before you sell your business. This is a time-consuming task list, so you should expect it to take some time to work your way through the list- it isn’t uncommon for a business sale to take one year or more. Taking adequate care with your preparations will increase your likelihood of enjoying the best possible outcome from the sale of your business.