Selling your business requires serious preparation—because, ultimately, it can change your life. You need to ask yourself several questions to ensure that you are 100% satisfied with a deal offered to you by potential buyers.
To make the selling process more manageable, you need to prioritize the questions in order of importance in order to ensure that nothing is missed before the deal is done.
The biggest concerns when selling a business are the current state of the business, values, and the seller’s readiness to go ahead with the deal.
Here are five key things to consider before selling your business:
1. What is the Company’s Value?
There are different methods on how to value a business. Come up with three numbers and pick the highest, then consider the profit. For the first number, add up the liabilities and assets of your business. The second number is looking at the income stream of your business and its current net worth.Finally, research the value of similar companies and how much they have been sold for.
To understand the profitability of the business, compare the annual revenue with the monthly profits, and examine how tax returns affect your earnings.
To determine the selling price of your business, look at the potential growth, annual earnings, and assets. If you bought the business equipment and other credit items, decide whether you should sell them separately to pay off any outstanding debt.
Hire a tax consultant to analyze and help you determine the amount of taxes to be paid when you sell your business. Taxes can reduce your profits, and a tax consultant can determine how the profits are increased, and the taxes are decreased in the event of a sale.
2. Is it the Right Time?
It may not be the right time to sell your business if it is on the decline. Most business experts recommend that you sell your business when it is in its prime. To know whether your business has reached its peak, review the profits over the last three years.
Generally, the state of the overall economy is as important as the state of your industry. High-performing stocks and low-interest rates can easily overshadow an industry that is not performing well.
It is even more impressive if your business is doing well, if the industry is not. Money should not be the primary reason for selling your business.
3. Are You Ready to Answer Questions?
Potential buyers expect you to answer several questions, even those they can find easily by simply looking at a sheet of paper. They will want to know how you calculated the company’s value, the business history, the type of partnerships the business has, and the reason(s) for selling the business.
Other questions may include: can the business prosper without you? Is the business ready to adapt to the new changes? Is a single client or customer responsible for a huge part of your income, and will the relationship be jeopardized if you leave?
If you sell the business, what will happen to your employees? If the company has more long-term employees, you may want to offer them job security when you sell the business.
4. Do You Have a Plan?
The most sensible reason for selling a business is not getting rich, but starting a new lifestyle that is fulfilling, if not more, than operating your business. However, a new lifestyle does not necessarily mean spending more time with family or enjoying retirement.
As a business owner, you should know that the future will be less intimidating if you have a clear set of financial and personal goals. Your life after being a business owner can be miserable if you do not have a concrete plan. Seek advice from an expert to ensure that the sale of your business will give you enough money if your plan is to retire.
Some business owners may want to stay in business on a consultancy basis to ensure that the company sticks to the original vision and to help with the transition.If you want to be a consultant, decide whether you will earn a salary or do it for free. Come up with an agreement including these terms in the event of the sale.
Some buyers may want you to sign a non-competition agreement to not work for a competing business or start a competing business after selling yours. Ensure that you agree with all these terms and that they are part of your plan before selling the business.
5. Are You Ready Emotionally?
You may be ready to sell your business, but you may not be emotionally prepared for the process involved in selling a business. Sometimes it may take a whole year to spend time with the buyer and their team working through the sale.
It can be emotionally draining to work with strangers for a long time, especially if you are not sure if they are the right buyers or you are burned out. You should not sell the business solely because you are tired, as lack of focus and energy increases the risk of you making bad decisions.
You should be honest with yourself and about the business throughout the entire process, to make sure you are ready to sell the business.
Invest Before You Sell
It takes energy, time, and even a bit of your soul to grow a business from a humble start to the point where it is valuable. For some business owners, selling their business is like selling a part of themselves. It’s essential to analyze the different factors when selling a business to ensure that you are making the right decision and that you get the right value for your business.