Selling a business is a major step in any mid-level market business owner’s life. It’s not just moving on from the thing that has probably been your primary focus for years or even decades; it’s the single largest transaction you’re ever going to make.
At least, it can be if you handle the sale properly.
How do you do that, though? How do you go from your general day-to-day operations to suddenly try to offload your business onto someone else while maximizing your profit at the end of the day?
Well, it’s a complicated process, but if you take the time to learn the details, and potentially get some help from professionals, it doesn’t have to be as big of a headache.
This ultimate Sell My Business guide will give you all the information you need to know about business sales.
Why Selling Your Business?
Selling your business is a very personal occasion, and there are a lot of reasons to do so.
Oftentimes, you may be getting older, and instead of dedicating your time to a business, you’d rather enjoy the wealth you’ve accumulated and spend time with loved ones.
There’s also a secondary facet to that. Perhaps you are ready to throw in the towel, and where many people would try to pass down the family company to a child, you don’t have children, or they’re not interested in taking over. At this point, selling is a more appropriate option.
Of course, you can also simply want to move on to your next big endeavor and cash in on the fruits of your labor first.
Regardless of the reasoning behind it, there’s one big reason we briefly mentioned earlier; it’s most likely the biggest earning event of your life. After you spend such a long time building your company up from nothing, earning a comfortable salary each year but never quite reaching that Highroller status of top-market business owners, the day you sell your business is your big “hoorah” moment that sets you up for immediate retirement.
When to Sell Your Business: Timing is Important
Before we get into the steps you’ll take to initiate the selling process, it’s important for you to understand how timing works with a business sale.
First, it’s not like selling a used car. You don’t slap a sign on the front door, wait a week, and then quickly transfer ownership. Selling a business is a years-long process most of the time, and that includes about two to three years of preparation before you ever try to find a buyer.
So, you obviously need to start thinking ahead whenever the idea of selling starts to come up. However, that’s not the only timing concern you should have.
With this being the biggest earning event of your life, you want to maximize the payout as much as possible. To do that, you need to not only put in the preparation time needed, but then you need to wait for the market to reach an acceptable selling point.
Searching for buyers when the market isn’t in your favor can lead to the loss of millions in potential profits. In contrast, selling when the market can be leveraged in your favor can net you a small fortune.
In the end, getting your timing right can mean the difference between retiring to a comfortable life of luxury, or wondering what all your hard work was for with a slightly better-than-average retirement.
How to Sell My Business and Get the Most for My Effort?
The question every business owner asks.
So, it’s time to get to the steps you need to take to sell your business. Keep in mind that this is a long and complicated process, and at several points, you’ll want professional help to ensure nothing goes wrong and ruins your earning potential.
When “Should I sell my business?” turns into “Let’s sell my business!”, first thing you need to do is to start with preparation. This includes two main steps that you’ll need to complete, and it often takes companies two to three years to do this.
Preparing the Records:
For both the second part of this step, and for when you start negotiating, you will need to have every record possible organized to a T. This includes all financial records, contracts, employee records, and pretty much everything else you’ve recorded over the years. These files should be organized in a way that makes them easy to sift through because there will be a lot of information that both you and potential buyers will need to reference frequently.
Since this information is going to be used for a relatively long period of time, make sure you regularly update it to prevent having to start over fresh or presenting your potential buyers with obsolete information.
You should also have a keen understanding of why you plan to sell your business. Any potential buyers you speak to will want to know why you no longer want the business. Is it underperforming? Are you trying to retire? Is it more work than it’s worth? It’s important to get this right and make sure it aligns with the records you’re keeping because it’s going to be a major determining factor in whether or not the buyer commits to the deal.
This is the second part of the preparation phase. You can’t just put the word out that your business is for sale with an arbitrary number attached to it. When an investor or fellow business professional comes to purchase your company, they want to know where every dollar you’re asking for is coming from.
Is there profit backing that asking price up? Is there market-based earning potential or near-guaranteed longevity on the table? Is the business a well-known brand with a stellar reputation and years of production under its belt? All of these things will factor into your asking price, and you’ll need to access the records you organized to determine a fair asking price.
You might also want to research similar sales in your industry. If you’re a retail establishment specializing in fishing gear, look for similar companies that have sold within the last few months or the last year. How much did they sell for? If they have public metrics, are they similar to your company’s metrics?
Sometimes, the outside information you need to determine your asking price simply isn’t available. Not every mid-market company is publicly traded. However, you can work alongside experienced M&A advisors who have facilitated such sales and use their knowledge to the same effect.
Regardless, your company’s value will more or less become your asking price, but you also need to factor in the current market. It can be useful to get a trained business valuation expert to perform this step for you; as it will take a lot of the burden of figuring this out off your shoulders.
2: Entering the Market
Now, assuming you’ve prepared all the necessary materials, determined a rough asking price, and waited for the opportune moment, you’re ready to enter the market.
This is the bulk of the process; as it deals with finding a buyer, negotiating the deal, and of course, completing the transaction. We’ll go over each step individually.
Finding a Buyer:
When you enter the market, you have two main options. You can use broker or M&A advisory services, or you can handle the sales process yourself. Both of these options have pros and cons.
First, hiring a M&A advisor to facilitate the rest of the sales process, including helping with finding a buyer, offers you a ton of benefits. They sell businesses for a living, and they know exactly how to do what’s best for your bottom line. Also, having professional help simply reduces a ton of the stress you’re likely to go through.
However, hiring a M&A advisor comes at a cost. As in, a financial cost that you’ll have to pay regardless of how much you make. How much this ends up costing depends largely on the M&A service, the payment method agreed upon, and various other factors. It may be worth it, or it might cut into your end-of-transaction profits far too much.
Then, you can handle it yourself. This isn’t recommended unless you know what you’re doing. Yes, you’ll save money by not having to pay for M&A services, but this leaves open a lot more room for error, and in the business selling world, errors are very costly.
Finally, once you’ve initiated this process, it might be a good idea to have your company’s value redetermined. It might be three whole years since you last evaluated it, and its value could have dropped or raised considerably.
Negotiating the Deal:
Negotiating the deal is the most difficult part. Once you have a buyer, you have to be able to negotiate a deal that not only maximizes your profits but also doesn’t scare off the buyer or leave them feeling ripped off.
You can utilize different transfer of ownership agreements, such as paying in milestones, lump-sum transfers, profit-based payouts, and various other options. Different agreements will work for different situations, and it’s best to have a professional on hand to determine a mutually beneficial sales method.
However, the price and the way it’s paid aren’t your only concerns around this time. You also need to consider all the relationships you’ve built. Here are the key points to consider that might come up during negotiations.
- Keep it quiet: You’re probably close to your employees and B2B partners, but this is your decision, and it’s your right to make it. If you tell everyone you’re selling, they might jump ship, stop caring, or otherwise damage the business. In the end, that hurts your sale. Keep the sale private.
- Consider past agreements: Just because it’s your right to sell your business doesn’t mean you get to forget about the promises and deals you’ve made. During negotiations, you should present any hand-shake deals such as promised promotions, raises, sourcing deals, or other things that you have committed to but won’t be able to fulfill. You can’t guarantee that the new owner will honor these deals, but you are ethically obligated to do your best.
- B2B partnerships: Before negotiations start, try to diversify your sources and minimize dependence on single entities. This reduces risk, and it can make negotiations go much more smoothly.
Complete the Transaction:
This is where you pass over ownership. At this point, it’s fair, and morally correct, to let your employees know what’s going on, speak to your B2B partners, and generally let the cat out of the bag. The transaction is complete, you’re in the process of transferring ownership, and those relationships deserve to know that big changes might come their way.
However, during the transitional days, and post-sale, it’s important to remember that you’re no longer in charge. It’s your right to sell your business, but the new owner may do things differently, or they might suddenly let all of your top employees go to move their own staff in. If they like how the company is performing, they might keep things how they are. Either way, it’s no longer up to you, and that’s the responsibility that comes with selling your business.
3: Post-Sale Responsibilities: “When I Sell My Business…”
Now, you have just made the largest transaction of your life, and you have earned a considerable profit. You don’t just get to take your money and start enjoying retirement or your next endeavor. You have to fulfill the same obligations you do with any other transaction but on a much larger scale.
Taxes are the main concern here, and they’ll be handled differently depending on how you formed the deal. If you opted for smaller payouts based on one of the various transaction models available, you’ll have lower tax liability; as your profits will be spread out over time. If you went with a lump sum payment, you’ll have a very large check to write to your local, state, and federal governments.
This is certainly a point where you want an accountant present. There are too many factors to cover everything here, and a single mistake can land you in serious legal trouble.
Contact Final Ascent to Streamline Your Mid-Market Business Sale
We hope this Sell My Business guide painted you a clearer picture of the business sale process. If all of that seemed like a lot, that’s because it is. Luckily, you don’t have to do it alone. Final Ascent specializes in helping facilitate the sale, from the preparation phase to the post-sale responsibilities, of mid-market companies.
If your company is worth between five million and ten million dollars, contact Final Ascent for an easy path to the largest earning event of your life.