I had a conversation the other day with a business owner who had decided to sell his company. After over 30 years in business, his children didn’t want the company. They had chosen to work in other professions. He had not developed a pipeline of management leadership within the company that could operate the business without his continual presence either. He was tired, and frankly wanted to enjoy driving his motor home across the country. But despite having clarity in his decision to sell, he hadn’t thought through all of the issues associated with selling. He needed to ask himself the right questions.
Ask the right questions before deciding to sell.
There are personal, financial and operational issues that need to be considered before embarking on a sales process. To begin to address these issues, business owners should ask the following questions:
Who is going to assist you with the sale?
It is possible to handle the sale without outside assistance, but in many cases, the fees associated with hiring a professional are justified by the incremental price received and the time saved. Remember that you still need to run your business during the sales process. Investment bankers, accountants, business brokers and business consultants are some of the professionals that work in this field.
What type of buyer is appropriate for your company?
Buyers fall into two categories: financial and strategic. Financial buyers see your company purely as an investment and will evaluate it as such. It’s a matter of cash flow and return on investment. Strategic buyers are typically in the same line of business as you – or want to enter your line of business – and see the acquisition of your company as an effective way to grow in the market. Each buyer has different motivations. Understanding them is critical because it will have a direct impact on the final sale price.
What is a realistic valuation of the business?
It’s a buyer’s market right now. It is difficult to obtain financing and the performance of many companies over the past few years has been poor, lowering the overall value of the business. It’s important to be flexible and within reasonable limits for your industry.
Is this the right time to sell?
Beyond the overall state of the economy, you need to determine where you are personally, and where the business lies in its stage of growth. If you are about to expand and have the resources, energy and desire to see it through, it’s much better to wait at the moment.
What are the tax consequences of selling?
This is extremely important and should be addressed before any steps are taken towards a sale. Mishandling the tax impact of a sale can be financially devastating. It’s best to hire a specialist to address this issue.
What role do I want to play in the business after the sale?
It’s important to be honest with yourself but also realistic. Many buyers will expect sellers to stay on for a determined period of time to ease them through the transition.
How and when will I let my employees know?
Selling a company can cause tremendous anxiety for employees. They simply won’t know what to expect. If you wait too long to tell them and word leaks out, it can generate mistrust and resentment among the very people that need to continue to perform so you can get a maximum price. Be prepared to address this early on in the process and in a way that reassures employees.
About the worst thing one can do is rush into the sale of the business. It’s important to take the necessary time to make an informed decision that you can live with for the rest of your life.
Mike Periu is the founder of EcoFin Media, LLC an independent producer of financial, economic and entrepreneurial content for television, radio, print and the internet. Over the past ten years he has started three companies and advised over 50 companies on financial strategies including fundraising. Mike also hosts regular small business webinars on a range of topics relevant to business owners.