When is the right time?
If you’ve been growing your small business, putting your blood, sweat, and tears into it for years, you might be starting to think about when would be the right time to sell. Maybe you’re nearing retirement, and you’re deciding how much longer you want to work, or perhaps you have another business idea you’d like to kick off and you’re looking to move on from the business you’ve built.
If you’re thinking about selling, ask yourself these questions:
- What will you do with your time after the sale is final? Have you thought through any hobbies, volunteering or other work?
- If you sell your company, what will your income look like? Will you need to find another job to make additional income, or do you plan on using the proceeds of the sale to start another business? If you’re retiring, will the proceeds from the sale combined with your set-aside retirement income be enough to live as you planned?
- Do you have a succession plan in place for your business? Whether it’s to be bought out from internal leadership or you’re hoping to sell to a financial buyer, putting the right management in place will be key.
- Are you still passionate about what you do? If you’re finding you’ve lost the spark to continue with gusto, it might not be a bad time to consider selling.
- Is your industry shifting, perhaps starting to decline or are there winds of change affecting the market? Passing the business on set up well for the future might be good timing.
If you’re thinking about selling, even in a few years, it’s a good idea to get in touch with a merger and acquisition advisor and an accountant to start the discussion and know what steps you should take to prepare. Getting a business in order can take months or years.
If you decide moving toward succession planning is the direction you want to head in, we’ve got some tips for you.
- Collect pertinent financial documents, including everything from inventory to tax returns and up-to-date financial records. This not only shows the strong history of your business but also makes it easier to transition leadership if something unexpected occurs.
- Complete a business valuation to find the value, which is likely between three and six times your current cash flow. Use a third-party valuator to get a precise figure, comparing sales, revenue, inventory, invoices and debts.
- Put together buy-sell agreements, which are legal documents to reallocate portions of a business. These can be used not only in the case of a sale but also if an owner passes away or becomes sick. They can formalize a sale price, values of different owners’ shares, and guidelines on who can be a buyer.
- Outline potential successors to help your business continue to flourish. You will need to spend time training the new owner.
- Have an exit strategy in place to ensure you have a plan for your involvement with the company once you sell.
When you’re in the throes of discussing sale terms, make sure you know who you’re dealing with and how serious they are. You shouldn’t be releasing information without a non-disclosure agreement in place. You can work with a sales broker to manage the sale process and work out a good deal for you. And of course, there should be a lawyer involved to finalize all the paperwork. Lastly, make sure you are paid up front as part of the agreement, to ensure you’re safeguarded to receive the value you built.
The details to selling a business are complex, but you’ve worked hard and deserve to get a fair price, knowing your company will thrive for more years to come.
