Selling a business successfully is dependent on a variety of factors. The market in which the business operates is certainly important, but even more critical is what the owner expects from the sale. To handle a sale well, the owner needs to begin by defining what their goals are and work out a plan to achieve those goals.
Planning the Sale
Know your desired outcome before you begin the process of selling your business. Some of the issues you need to consider in your planning are:
What you want from the sale?
- Do you want an all-cash deal, so that you can invest in something else?
- Or, would you be willing to finance part of the sales price?
- Is it important to you that your employees remain with the business?
- Are you looking for a buyer who'll continue your business traditions?
- Do you want certain tax advantages in exchange for a lower purchase price?
- Is there a minimum price that you must get in order to be happy?
On average, once your business is on the market, it will take about a year to find a buyer and complete the deal. If you are planning to sell to family members or key employees, there are special opportunities to save money and taxes, but many of the more creative methods can take three to five years to put into place. If you know you'll want to sell by a certain point in time, you should start planning for it at least a couple of years in advance, especially since you may want to do some "sprucing up" of the business to make it more attractive to buyers.
Alternative Sales Options
With as much as 90% of small business sales involving at least some seller financing, it may be unrealistic to expect to receive a lump sum payment. But financing can be tricky, as agreeing to a long period of payments entails the same type of risk as owning the business and depends on the business' future success. Alternatives may include getting the buyer to use non-business assets as security for the loan.
Employee Stock Ownership Plans (ESOPs)
One way to sell the business to your employees is through an Employee Stock Ownership Plan (ESOP). ESOPs are tax-qualified employee benefit plans that invest primarily in stock of the employer. Significant tax advantages may be available to both an individual selling the business to an ESOP and the employees participating in the plan. The many tax incentives and benefits of employees having ownership in the business make such plans attractive even when business owners wish to sell only part of their businesses.
Selling to the Public: IPOs and DPOs
Primarily used to raise investment capital, Initial Public Offerings (IPOs) and the simpler Direct Public Offerings (DPOs) through small company offering registration (SCOR), may be a way of maximizing the return from the sale of your business. If the business is simply trying to obtain financing, there are many other options that should be considered
Depending upon the type of sale, you may want to use the services of an accountant, lawyer, business broker, appraiser, tax expert, and/or a banker. As you develop your plan, professional help can make a substantial difference in the ease and legality of the transaction.
Determining Market Value
Of primary importance is to make certain you get a good business valuation done to make certain that you are aware of the true value of your business. A business valuation can also point out to you areas of your business that you may be able to easily improve that will add to the overall worth of your business. Valuing a business is similar to valuing real estate -- have everything in order will make it more attractive to potential investors.
Every business needs an exit strategy, even if things are going fine and you have no intention of giving it up. Life changes. Having a plan for exit ahead of time gives you an opportunity to think through what your needs might be in a clear, unhurried manner.