Selling your business is one of the greatest challenges you will face as a small business owner. You have worked hard your entire life growing your business into a successful enterprise, and now you plan on slowing down and enjoying the fruits of your labor. However, selling your business requires a whole new set of skills.
Self-assessing. First, you must have a clear reason for selling your business. Your reason for selling your will affect your exit plan and your approach to potential buyers. Consider succession plans and who in your family—or in your business— might be interested in taking the reins. Also, you should at least consider franchising, merging, or going public. Another path that is often not considered is continuing ownership in absentia. Other options to consider when transferring the business are an outright sale, a long-term lease, or a gradual sale. Again, know why you are selling and have an idea as to how you will transfer ownership.
Getting your business in order. When you sell your home and have an open house, you fix the obvious problems and clean the place up. The same procedure is mandatory for your business; update the financial statements and restructure them for easy reading. You should have the past three years of your tax returns to accompany your “clean” financial statements. Accelerate collection of your accounts receivables and clean up any old outstanding issues with the IRS, lenders, suppliers and creditors. Recast your financial statements so your cash flows are clear and easy to understand. Delineate and separate personal and unnecessary expenses that might muddle the financial picture of your business. Now that your business is crisp, clean, and ready for presentation you can charter a realistic exit strategy.
Building a business exit plan. Build an exit plan that tells a story about your success. Your historical financials, sales, market conditions, employee and customer longevity all help to tell a story that will build value. Include key historical events that contributed to the growth of the business and potential for continued growth. Also address why you are exiting from the industry. Also identify weaknesses that could be easily corrected with the right capital and talent. After you have built your exit plan you should prepare for knowing your worth.
Business valuing. Valuing your business should be left to the professionals. Of course, your support team should include your lawyer and your accountant; but you should consider adding a business broker to the mix. Pricing a small business can include valuation methods that require a great deal of research. A certified business broker is trained in these methods, allowing the business broker to do the valuation while you stay focused on running your business.
The broker will save you time and stress by providing the following services:
• Providing a certified appraisal
• Sharing market knowledge
• Advertising—with access to multiple listing services
• Pre-screening of potential buyers
• Helping to ensure confidentiality
• Conducting buyer research
• Evaluating the final qualifications of the buyer
• Coordinating the buyer visits
• Coordinating and facilitating negotiations
• Negotiating pricing and leases
• Negotiating the letter of intent
• Coordinating due diligence, final contract, and conveyance.
The Small Business Administration (SBA) has several strict guidelines concerning the change in ownership. Business brokers are familiar with these guidelines and can pre-qualify buyers for SBA financing.
Actual sale of the business. Because many business shoppers will inquire and waste your time, let the business broker weed out the serious business offers from the curiosity shoppers. While the broker is busy selling your business, you should be focused on doing your daily business and creating value.
After a period of due diligence, your broker will coordinate with your lawyer and your accountant and will finalize the deal.
All you have left is to sign the papers and start enjoying retirement, embarking on a new adventure—or both.
James Ellis is an assistant professor in the business department of Central Oregon Community College. He can be reached at 541-383-7718.