Thinking about selling your company? Many business owners will one day find themselves at the intersection of “to sell or not to sell.” On one hand, selling seems like a good idea but, on the other hand, you don’t have the certainty you need in order to proceed. Whatever your reasons, there are certain things you need to do to be prepared and to maximize the value of your company. If you are considering selling your business but aren’t sure where to start, take some time to think through the following questions to help you decide if it is time to sell.
1. Do you have at least two years of accurate financial statements and tax returns? If you have been in business for less than two or three years, you will likely have trouble getting a buyer to pay the best price. Potential buyers want to make sure that the business can generate the type of cash flow that they need.
2. Have you lost your enthusiasm? If so, do you think it would return if you took an extended vacation or hired additional help? Sometimes, running a business can take a toll on your energy and creativity, both personally and professionally. An unintentional consequence of this sort of burnout may result in strained relationships with friends and family members, a decline in health, and a lack of enthusiasm as the work you were once passionate about turns into a monotonous grind. Hiring someone to take over some of your management chores or just simply taking a break might help you refocus and recharge your batteries so that you can return to the helm with a renewed sense of purpose and vigor. If that doesn’t help, it may mean it’s time to pursue new opportunities.
3. Is this the best time to sell? It is common for people to wait until their business is struggling to sell. If your financial records show a constant downturn, buyers are going to be less interested. On the other hand, if your business is successful and growing, it will be easier to get the price you want. Market conditions must also be evaluated to see if the time is right for you to sell. For example, after the 2008 housing crisis, many homeowners found that they owed more than their homes were worth. As a result, many people who owned companies that installed swimming pools, siding, flooring and other upgrades found that potential buyers were offering as much as 75 percent less than they had offered before the downturn.
4. Will buyers consider the business to be as valuable as you do? Cash flow is only one area that potential buyers will evaluate. If the success of your business relies on just one or two customers, or key employees will be leaving with you, or you have pending litigations, or your business model limits growth, buyers may be reluctant to make an offer.
5. Do you have a team of professionals you can turn to for guidance? An attorney, chief financial officer, banker or certified public accountant can view your company from a different, more logical perspective. They can also provide you with information specific to your industry, economic conditions, legal requirements or other facts that you may need to consider.
6. How long would you be willing to stay with the company if the buyer asked you for a transition period? If your skills and knowledge are critical to the operation of the business, buyers might want you to stay on as a consultant for six months or even a year. Many buyers would feel that this reduces their risks, so they might be willing to pay a higher price for your business.
7. Which intellectual properties will transfer with the business? If you own patents, copyrights or trademarks, you will need to decide whether you want to transfer all rights or work out a licensing agreement with the new owner. Establishing a value for intellectual properties can be tricky, so you might want to consult a chief financial officer or an attorney for guidance.
8. What would you do if you decide against selling or cannot find a buyer? Would you be able to keep the company going, or would you have to close it down? If you need more personal time or less stress, could you afford to hire someone to take over some of your tasks, and if so, could you relinquish the appropriate amount of control? What are your plans after the sale? Will you start another business, go to work for someone else or retire?
9. If family members work in your business or have supported your efforts, how do they feel about the sale? Spouses who have invested time or money in your business, relatives who are also your employees and parents who offered financial support to launch your business may have strong feelings about your plan to sell. Although the final decision should be yours, keep in mind that many entrepreneurs have harmed family relationships by not even discussing a possible sale with their loved ones.
Selling your company can be a complex and stressful process, but you don’t have to navigate the decision alone. There are many factors to consider before you make this important decision. A financial professional is one of the people who can help guide you through this process. Hopefully these questions give you a good starting point as you begin your process. If you would like to learn more, please contact me by submitting the online form or calling (901) 277-6165.