What do you need to think about and do before you sell your business?

Selling your business is a process, not a single event.? It takes intention, careful planning, and a team of professionals to work with you throughout the entire process.? Selling your business does not have to be all or nothing, either.?? You can sell a minority share of your business to generate capital while you maintain control.? You can also sell a majority interest where you hand over the day-to-day operation of the business and then sit back as a “silent partner” who continues to receive revenue from the venture that they created.? What do you need to think about, what information do you need to collect, and what steps do you need to take to prepare for selling your business?

1. Financial information: Collect all financial statements, including income statements, balance sheets, cash flow statements, and tax returns for the past three to five years. This will help potential buyers assess the financial health of your business.? The upside to having a CPA or a bookkeeping application is that these should be easy reports to gather.? If they are not easy to gather, then you probably have some clean-up work to do at your desk.? Your books must be in order if you are going to sell your business.
2. Legal documentation: Gather any legal documents related to your business, such as incorporation documents, leases, contracts, permits, licenses, and intellectual property rights. This will help verify the legitimacy and ownership of your business.? If you cannot easily produce these documents, then getting them together needs to be a high priority.
3. Operations and processes: Document your business operations and processes, including key personnel, suppliers, customers, and any proprietary systems or technologies. This will help potential buyers understand how your business operates and its value proposition.? A business development consultant is a good partner to consider for this.? Part of the documentation process should also be an opportunity to identify gaps in processes, unnecessary risks and ways to improve your efficiency while cutting costs.? All of these things will make your business more attractive to a potential buyer.
4. Market analysis: Research the industry and market trends to understand the current competitive landscape and demand for your business. This will help you position your business for sale and identify potential buyers.? This is something that a professional M&A intermediary will be able to help you with.? Most intermediaries and brokers will offer a free and (more importantly) confidential discussion with you about your many potential options in this process.
5. Valuation: Obtain a professional business valuation to determine the fair market value of your business. This will help you set a realistic asking price for negotiating with potential buyers.? Business valuation is a process and there are many variables to consider.? Yes, your business’s value will depend heavily on things like revenue stream, EBITDA/profits, customer base, inventory and liabilities.? There are also intangibles that need to be considered.? It is an interesting statistic that most sellers, especially first-time sellers, tend to under-value their business.?? You may be surprised to learn that your business is worth more than you think.
6. Consider hiring a business broker or intermediary to assist with the sales process. They can help identify potential buyers, negotiate terms, and facilitate the transaction.? ?Don’t just talk to your banker or your financial advisor, (yes, their opinions are important) but a professional M&A Intermediary will understand the specifics of your business model and how your business compares to others in the marketplace.? DO NOT PAY A RETAINER FEE TO LIST YOUR BUSINESS.? A professional intermediary or broker should not get paid a dime until they close the sale of your business.? Intermediaries and brokers who charge upfront fees and monthly “progress” payments to list your business, are simply not incented to sell your business quickly or in your best interests.
7. Prepare a confidential information memorandum (CIM) that provides detailed information about your business, including its history, mission/goals, operations, financial performance, and growth potential. This document will be shared with potential buyers to gauge their interest and assess their suitability.? Think of it as the brochure for selling your business.? Again, a professional intermediary can help you with this.
8. Create a marketing strategy to promote your business and attract potential buyers. This may include advertising through online platforms, networking with industry contacts, and attending industry events. ?A professional intermediary can help you with this as well.
9. Develop a transition plan to ensure a smooth transfer of ownership to the new owner. This may involve training and support for the buyer, as well as addressing any legal or regulatory requirements that may arise.? This will come up as part of the negotiation with a potential buyer, and many entrepreneurs agree to stick around for a specified time (and get paid for it) to ensure the transition is smooth.? There are also consultants who specialize in post-sale transitions and integrations that can help you.
10. Seek professional advice from lawyers, accountants, and financial advisors to ensure all legal and financial aspects of the sale are properly handled. It's important to consult with experts to avoid any potential pitfalls and to navigate the sales process effectively.? Legal liabilities, risk management and planning where you will be financially after the sale are all important things to consider.? The key here is to talk to multiple professionals to ensure you are considering the sales process from different perspectives.

Another important thing to consider is the emotional factor.? For most entrepreneurs, the business is “their baby”.? It is certainly the product of your hard work, blood, sweat and tears and you need to start preparing for what your life will be like after the business is no longer yours.? Many entrepreneurs suddenly discover just how emotionally attached they are when the discussion of selling the business comes up.? Others are so attached that they cannot even imagine giving up control of their business.? A good strategy here is to go back to your “why.”? When you first started the business what was the reason why you did it?? If the reason was “to make a bunch of money and retire,” then start imagining your retirement.?? Many entrepreneurs build a business for their children’s future wealth and success. They build the business, use their success to put the kids through college, and find out that none of their adult children have a desire to take over the business.? Have you not achieved your goal at that point?? Could your equity in the business be directed towards a new purpose?? Another thing to think of is the springboard.? If you were to sell your business, could you use the proceeds to buy or create a different, bigger and better business?? Perhaps you would like to turn your success into the non-profit foundation that you have always dreamed of.

Confidentiality is another thing you need to consider.? For whatever reason, most entrepreneurs sell their businesses confidentially.? Who you talk to about selling your business needs to take your confidentiality into consideration and they need to be committed to keeping your confidential information confidential.

Regardless of whether you sell your business next month or in 5-10 years, you need to develop an exit plan.? First of all, this is prudent risk management.? If something were to happen to you or if a catastrophic event were to impact your business, who will make the critical decisions and have you written down what your wishes are if you were not in the picture.? A confidential discussion with a business development consultant is a great way to consider your many options.? Considering your exit plan will also help you be much be better prepared for your retirement when you make that decision.