Five Things to Do When Selling a Business
Thinking of selling a business? Give yourself, your family and your advisers plenty of time to get everything from financial records to future work and life plans in order before you sell. Whether you have a small operation that the whole family takes part in—the kids stock shelves on the weekend—or you’ve built a company that employs hundreds, selling requires careful advance planning. Read on to learn about five things you should do to ensure you receive the maximum profit from the sale of your business.
Do Hire a CPA
Most prospective buyers come into the due diligence process with extreme caution. Therefore, hire a CPA or speak to your accountant at least two or three years before you anticipate selling. The entire process of selling a business hinges on the financials, so make sure they are reliable and accurate. For example, you don’t want a buyer to see tax returns that have no resemblance to the financials presented in the offering package. Tax returns can include a myriad of personal expenses including cars, travel, meals or even country club expenses as tax write-offs. Change your focus from lowering taxes to showing maximum profitability. Not only will a higher profit allow you to get your money back on a sale, but also you won’t raise red flags with potential buyers who will notice the discrepancy between your returns and your financials.
Do Sell on Time
Branch Rickey, the famous baseball executive elected to the Baseball Hall of Fame, once said, “Trade a player a year too early rather than a year too late.” In other words, a team was better off trading even a star player while he had value rather than waiting for that value to decline. Selling a business should similarly happen when you’re at the top of your game. When business is good, don’t forget that a lot of things can happen and some of them may have a negative impact. Don’t try to predict what the market or the economy will do and don’t wait for interest rates to go up. If you receive the fair value for your business, then don’t fret if the buyer has a year or two of growth and prosperity that could have been yours.
Buyers are looking for diversified companies with multiple income sources, a customer base that is diversified across both industry and geography and diversified management that extends beyond the ownership. Non-diversification can put your business at risk and turn away potential buyers. True story: a company produced corn tortillas for a single chain of restaurants. Not flour, only corn, and there was no contract. The owners went to work every day knowing that a single phone call could put them out of business. Furthermore, because of this risk, there were very few buyers when the time came to sell and the return to the eventual buyer was enormous. Appeal to buyers and increase your profit from the sale with a business that is well diversified.
Do Sell on Your Terms
An orderly and controlled sale is far preferable to one that happens under distressing circumstances. As a business owner, you simply cannot predict the future with 100 percent accuracy. Unforeseen trouble such as disagreement between partners, serious illness, or even the death of a business founder may indicate to buyers that this is a desperation sale. Therefore, selling when everything is going smoothly for you and your business may result in the best outcome.
Do Get Multiple Offers When Selling a Business
If you want to achieve all of the goals you have in mind for the sale of your business, then seek offers from multiple buyers. Different buyers are likely to have different ideas about the value of your company. This in turn will probably result in divergent offers. You can improve your chances of getting a superior price by talking to several possible buyers concurrently.
The information contained in this article is general in nature and should not be construed as financial, tax or legal advice. As with any financial or legal matter, consult your tax advisor and legal counsel.