Key questions to ask yourself if you are considering selling your business

Sudden Wealth

Key questions to ask yourself if you are considering selling your business

Key questions to ask yourself if you are considering selling your businessIf you’re thinking about selling your business, please think twice. Selling a business should never be a spur-of-the-moment decision.

You need to first decide if you should sell, and then, when is the best time for you to sell.
 
 

There are many things to consider. Here are some key questions to help you decide:

If given the opportunity to choose, when is it the right time for me to sell?

You will need at least two years of preparation before putting your business on the market. Make sure you can produce two to three years of tax returns that are accurate, and show maximum profitability, in order to get the best price possible for your business. Warning – you can’t start putting things together the month before you sell.

Can my business thrive without me or without a key customer?

If a buyer is concerned that a business is too dependent on the owner or a single customer, he may not make an offer. A good business must have revenue diversification, and can operate smoothly when the owner is on vacation. No one customer should represent more than five percent of the business.

Who should be on my advisory team when I sell?

It’s important for entrepreneurs to figure out whose services will bring them through the sales process, and help them get the best price for their business. Do you need an accountant? How about an appraiser, attorney, consultant, or business broker? The buyer is typically going to have a good team to go over your business, so you should too.

Is the market right, or should I consider alternatives to an outright sale?

Before selling, look at current market conditions for your industry. Selling a home improvement business in 2006 showed a pretty good return. Fast forward a couple of years and many roofing, siding, home financing, and other housing-related companies had lost a big chunk of their value. If you can, wait until market conditions are better to sell.

If an outright sale isn’t right for you, a CPA or investment banker can help evaluate your other options. How about structuring a deal to pass on the ownership to employees through an Employee Stock Ownership Plan (ESOP)? Would you consider selling a percentage of the company to a private equity fund? Or, would you do a leveraged recapitalization – which is a loan that puts a portion of the proceeds in your pocket?

Is my business ready to sell?

Many people wait until their business is on the decline to sell. That’s the exact opposite of what you should do. You want to sell when you are at the top of your game – peaked out.

How is a buyer going to value my business?

Particularly with family ownership, companies sometimes run everything through the business, such as country club dues and car allowances. Loading the business with tax write-offs can make you appear less profitable and cause a buyer to undervalue your business.

How long would I be willing to stay on if the buyer wants me to?

Sometimes you can seal a deal by agreeing to stay on in a consulting role for a period of six months. But first, you need to determine whether it’s really worth it to you. If you’re willing to stay on, it might reduce the risk to the buyer and increase the value of the company.

Unresolved issues can rear their ugly heads and interfere with a sale, particularly in areas such as company ownership, accounting, and intellectual property rights. For example, an owner may have used a contractor to write software for the company without requiring him to assign his rights to the company. This can create questions about who possesses critical rights, which can scuttle the deal. Consider what your potential deal breakers are and try to resolve them before you’re near to closing a deal.