How to Prepare to Sell Your Business
Preparing to sell a business can be both an exciting and a stressful time in your entrepreneurial journey as a business owner. You have shown years, maybe decades, of dedication to growing your business. Now the time has come to reap the fruits of your labor. How to prepare to sell your business can be broken down a bit by considering how to sell your business to a competitor. Considering competitors as the most qualified potential buyers can help make the process more manageable. Regardless, however, there is a lot at stake when the time comes to sell your business. You only get one chance to get it right. The best route you can take is to tackle the challenge with a team of professionals to help you reach your goals upon closing the sale of your business. Starting early and getting your ducks in a row will set you up for a successful transition into whatever comes next.
How to Prepare to Sell Your Business
Upon considering how to prepare to sell your business, take a proactive approach. Ideally, you start preparations early. Once you have decided it is time to move on from your company to whatever comes next, the process can be lengthy, sometimes taking a year or more to close a sale. It is best to start preparing to sell as early as two to three years in advance to allow time to plan, organize documents, optimize operations, identify potential buyers, and drive negotiations through the due diligence process and closing.
Your first steps should include clarifying your reasons for selling your business. Whether your reasons involve retirement, a desire for a new challenge, or anything else, potential buyers will want to know why you are deciding to step away from your business. It is also helpful for you to be clear on your reasons for selling as a way to direct your goals.
Most important for a smooth and successful business sale is selecting a team of professionals to assist you. Who you appoint will depend on your business and your needs, but may include a business broker, coach, accountant, and attorney. Your team will assist in considering the legal and tax implications of a business sale, getting a business valuation, taking steps to reach financial and personal goals, and finding the most qualified buyers. Beyond these base functions, your team will help you work through any additional challenges and emotional pressures that arise throughout the process.
Preparing to Sell a Business
There are some necessary documents that you and your team will need in hand before engaging with potential buyers. These documents will assist in getting an accurate and complete business valuation. They will also aid your business broker in putting together an informational teaser to present to potential buyers as well as a complete market portfolio to deliver to serious buyers later in the process.
Documents you and your team will need before engaging with potential buyers:
Financial statements for the past two to three years
Tax returns for the past two to three years
A list of tangible and intangible assets and value details
Supplier and distributor contracts
Client list and client contracts
Staff list, including hire dates, salaries, and employment agreements
Business formation documents
Any relevant licenses, certifications, and registrations
Your business plan
And anything else unique to your business
Beyond organizing these documents, you'll need to focus on steps you can take to increase the profitability of your business and make it more attractive to potential buyers. How much does your company currently rely on you to operate? Do you have reliable management and adequate staff in place? These and other questions your business coach and broker can help you answer will help you take action to increase your business multiple.
With the stress of preparing your business for sale, take care not to neglect the needs of the business's daily operations; this is a huge benefit and reason for hiring a team of professionals rather than trying to tackle the business sale on your own. The cost of hiring a team may make it tempting to try to go it alone, but the benefits of working with experienced professionals far outweigh the expense. Working with your appointed team reduces stress, increases your sale price, and ensures you leave no box unchecked on the long list of requirements leading up to and following a business sale.
Mentally Preparing to Sell Your Business
Mentally preparing to sell your business is one of the most often overlooked parts of the selling process. Unfortunately, when a business owner does not take steps to prepare themselves mentally, they may face difficult emotions late in the process that can cause a deal to fall through. When this occurs, they may face difficulty securing a buyer when they do later feel mentally prepared to part with their business. If you worry about selling your business and do not feel ready, but logic tells you the time has come, take time to dive deep into the range of emotions you may face throughout the process. Consider how you can address those emotions as they arise.
Asking others who have been through the process of selling their business can enlighten you about the emotions you may encounter. It is common for business owners to experience excitement about new opportunities, pride in attracting buyers, self-doubt and worries about whether or not they are making the right decision, and grief over the feeling of loss. You may hold a sense of identity wrapped up in your business. How can these emotions be dealt with as they arise?
Working with a business coach can be one of the best things to do for individualized support. A coach is someone in your corner who is not only focused on the health and well-being of your business as you ready it for sale but also someone who can help you prepare individually for your next steps. Your business coach can serve as a sounding board for your concerns while helping you navigate the process. They can also help you create a game plan for the months following the sale of your business, thus getting ahead of much of the self-doubt and grief that can creep up on you.
Do not overlook the importance of leaning on family, friends, and trusted colleagues during this time. They are an essential part of your team, as much as your financial and legal advisors. Remain as objective as possible while addressing your emotions as they arise by relying on your team.
Get a Business Valuation
A business valuation is an important step that will give you a basis for judging offers from potential buyers. Even before receiving offers, a business valuation will provide insight into the health of your business and direct necessary steps to improve profitability and your business multiple. When selling your business, it is crucial to seek help from a professional specialized in business valuations. For legal reasons and the most accurate picture of your company's value, a professional will be able to conduct a valuation of your business without bias.
A complete valuation conducted by your business broker, business coach, CPA, or another professional will shed light on your business's position in the market, financial health, strengths, and weaknesses. From there, you can use your valuation as a guide during the negotiations of your business sale.
Identifying Potential Buyers
Identifying potential buyers can be a difficult and time-consuming task. This process of identifying qualified potential buyers is where your business broker can prove extremely valuable. Your business broker will compile a list of competitors and other qualified buyers who are likely to be interested in buying your business. They will provide these potential buyers with a one-page teaser highlighting your business. Competitors are most likely to be qualified and interested in acquiring your company because they not only already have the knowledge and infrastructure but also receive an instant boost in business by taking on your existing customers. This boost makes them most likely to pay top dollar for your business.
After your broker receives responses of interest following distributing the one-page teaser, they will have those interested sign a Non-Disclosure Agreement (NDA). An NDA will protect your private information should a deal fall through during negotiations.
Getting Your First Offer
Your business broker will continue to take a leading role as you start to receive offers. With NDAs signed, the next step they will direct is to obtain Indications of Interest (IOI) which will include proposals for acquisition structure, approvals needed, value range, and anticipated time frame for completion of due diligence. Your broker will then facilitate meetings between you and interested buyers to determine any interest in moving forward. After identifying a good fit, your broker will obtain a firm Letter of Intent (LOI). This LOI will include a formal proposal of the purchase price, the sale structure, and outline any special terms and conditions. The LOI also triggers the due diligence process where your broker will facilitate final negotiations, provide the buyer with a full market portfolio, and cease all other marketing efforts.
With the length of the process and potential complications that can arise, it is easy to see why hiring a business broker can be worth far more than the cost of working with them. Your business broker will further assist in closing the sale and aid in transitions to new ownership.
Preparing a Business for Sale with Coachwell
The level of risk and high stress that can accompany selling a business deserves the assistance of experienced professionals who know how to help you grow, sell, and transition to whatever you have planned next. Allow Coachwell to serve as your business broker and coach, from valuing your business to addressing your individual goals and concerns through the process. We have a proven track record as Mergers and Acquisitions experts that will help you achieve your goals and shift seamlessly to your next challenge or adventure. At Coachwell, we will help you develop your exit plan, maximize your company's value, and transition with no regrets. Schedule a complimentary discovery call with us today and learn more about how we can assist in preparing a business for sale.
