Five Key Things to Do Before Selling a Business
Selling a business for a price deemed fair and equitable to both parties — the seller and the buyer — can be a complicated negotiation. But following these five tips will put you on the right path toward a fair deal:
- Define your priorities. It's vital for you to sit down at the outset and do some serious thinking about exactly what you want from the sale. Do you want an all-cash deal or are you willing to finance part of the sale price? Are you looking for a buyer who'll continue your business traditions? Can you identify a minimum price you must get in order to be happy? Odds are you'll have to make some compromises. If you insist on a lump sum at closing, you'll almost surely have to compromise on price. On the other hand, if you're willing to finance part of the deal, you may get a higher offer. When you begin to think in these terms you'll start to realize that the more flexible you can be, the closer you'll come to realizing your business's top-dollar value.
- Time your decision to sell. You're most likely to receive the highest dollar value for your business when the national economy is strong and when your particular business is having its best year ever (with the next looking even better). However, history has shown that even the brightest economists can be wrong about where the economy is headed, and your industry's moment in the sun may have passed years ago. To get the best price for your business it pays to keep an eye on what Wall Street is doing and to be flexible about when you're willing to sell. Getting out earlier than you like is often preferable to getting out too late.
- Start planning early. Businesses on average require about a year to sell once they've been placed on the market. So start planning at least a of couple years in advance of when you anticipate wanting to sell. Much like selling real estate requires good curb appeal, selling a business requires attractive nuances for potential buyers, who may present themselves unsolicited. Make sure your business is attractive at all times so you don't feel pressured to dress it up at the last minute, when you'll be more likely to take the first offer you get, or to accept terms that are less than favorable to you. Worse yet, you may not find a qualified buyer at all.
- Renew leases and key contracts. When prospective buyers investigate the possibility of purchasing a business, they try to predict what they'll need to spend on rent, labor, supplies, etc. They don't want to immediately renegotiate key contracts or run the risk that a lease may not be renewable at all. Therefore, do your best to renegotiate all leases and key contracts early. Also, have your lawyer ensure that the contract is assumable by a new owner.
- Assemble your expert team. No matter how independent you are, selling your business isn't a job you should attempt alone. Even for a small business there are numerous federal, state, and local regulations to consider, not to mention tax issues. You need to spend your time running your business at the precise time you need it to run most successfully, so strongly consider filling these positions: accountant; lawyer; business broker; business appraiser/valuation expert; and tax expert.
