Making the decision to sell your own business is one of the most important decisions an owner can make. According to the Exit Planning Institute’s State of Owner Readiness Survey, however, 49% of owners have done no succession planning at all. Moving through the following process will ensure you receive maximum value for your business and that the transition is a successful one.
- Assessing and Understanding your Business
First things first: is your business ready? This is determined by evaluating relationships with customers, measuring the company’s culture, valuing your talent, and assessing the structural features (i.e., processes, equipment) in place. If aspects of the business need addressing, now is the time to create an action plan to improve your value proposition to potential buyers.
- Gather Financials
Interested parties are going to request materials necessary to evaluate the strengths and weaknesses of the company. Financials that are done for tax purposes are likely to look different from financials that are recast for business sale purposes. Properly organizing and documenting company records and facts can have a significant impact on how potential buyers evaluate your business.
- Exit Option Analysis
Potential buyers fall into one of the following categories: inside or outside. Inside options include intergenerational transfer, management buyout and sale to employees (ESOP). Outside options include sales to a third party, and recapitalization. It is important to pre-qualify the interested parties so as not to waste time in negotiations down the road.
There are many different approaches on how to run a negotiation – whether you negotiate with one highly targeted buyer or with multiple qualified buyers. Understand that the purchase price is just one aspect of the deal. Things such as timeframe, financing, and non-compete agreements can play a role in the final purchase agreement.
- Transition the Business
The purchase agreement often includes post-closing commitments such as transferring customer relationships and explaining proprietary information to the new owners. As a result, the final stage often involves the seller working closely with the buyer to ease the transition from one party to the other.
The team at Trost Financial specializes in working with business owners to navigate the financial complexities of business ownership. You can schedule a meeting to discuss your individual business needs here.