Sell Your Business
Over the past few weeks, we’ve posted about how active the market for buying and selling businesses has been over the past year or so; the types of buyers that are actively hunting, the capital that is available to buyers and some of the reasons that make this one of the best times in recent history to sell your business. If you want to sell your business, though the current economic environment provides plenty of opportunities to find buyers – multiple buyers in many cases – selling a business is not for the faint of heart.
There are many important aspects of the process that must be considered to complete a successful ownership transition and assure that you walk away with the best possible deal.
And by “best possible deal”, I don’t mean the biggest pile of hundreds. The terms of the sale – how you get paid, when you get paid, how much time you’re required to stay involved, the tax consequences, etc – will impact the level of “success” you feel when it’s all over.
Getting the numerous key aspects of a successful transition to line up is a monumental task and one that very few business owners have any experience doing. Successfully selling a business requires certain specialized talents and finding the right players to build out your team is essential.
You need legal talent to help structure the deal and for any complex documentation; tax knowledge to help structure the deal to assure that you pay no more to the tax man than is absolutely necessary; accounting talent so that the books are clean, transparent and comprehensible; brokerage talent to value your business and negotiate with the buyers. But as important as it is to assemble the right team, it is equally important to understand and avoid some of the potential pitfalls.
No matter where you are, taxes are complicated. In the United States, the new tax law will impact buyers and sellers in different ways. In other countries, debates are raging about how to respond to the new U.S. law and tax rules in many countries will likely change to stay competitive.
How certain assets are allocated in a sale will impact the seller’s tax liability now and the buyer’s tax liability years later when the business is again transferred. How the sales proceeds are paid out will definitely impact the seller’s net result.
The interplay between ordinary tax rates and capital gain taxes means you will need to be an educated seller with advisors who can determine the tax consequences of various sale allocations and structures. Don’t scrimp on this. The right talent will save you far more than that talent will cost.
Do you have any idea what your business is worth? Do you know how to determine value?
We get sellers all the time that have an unrealistic idea of their business’ value. There is an emotional attachment to a business that you started or have grown over the years that is deeper and more meaningful than you will likely feel toward any other inanimate object. You’ve invested blood, sweat and tears – to say nothing of years of your time and loads of your money – into what is essentially your “baby”. While this emotional attachment is understandable, it’s not uncommon for owners to think their businesses are worth more than they actually are.
Before bringing your business to market, it is critical to know what it’s value is from the standpoint of the market. You may disagree with what the market says the value is but knowing that number will go a long way toward reducing the surprises that legitimate offers are sure to cause. Knowing the value of your business may also change your mind about selling at the moment so that you can continue to build the business and its value.
A professional business broker can tell you what your business is worth. But if you want to see how we get started on that process, we’ve put together a checklist for business brokers that lists some of the documents that they need to develop a business valuation. You’ll need the same list to start valuing your business and you can download it here for free.
Preparing the Business for a Sale
It probably comes as no surprise that, in order to get the highest valuation, you have to prepare your business to warrant it. This is a topic that I’ve written and talked about in the past and is probably the biggest issue owners must come to grips with.
You need a plan. Even if you aren’t interested in selling at the moment, the market is such that an offer may come your way. If you have not planned for that possibility, it will likely surprise the heck out of you when it happens. An offer may be presented at some point and it’s worth being able to tell if the offer is low, fair or high.
In one facet of our business we act as buyer’s brokers wherein we provide services to buyers that engage us to find a business that meets the buyers’ criteria. We – or others like us – might show up at your door one day with an offer. If that happens, will you have any idea how to respond? Unless you’ve given this some thought and developed a plan, probably not.
Preparing Yourself for a Sale
Have you thought about what you’re going to do once your business is sold? If not, you should start now. Why? Because not having a personal plan for the post-sale period could result in a very unsettled time for you emotionally and psychologically. I’ve been there.
In the late ’90s, I sold a business that was not for sale. I had not planned for that eventuality and by about 10.00 AM the next day I started to feel lost.
Like most business owners, I self-identified with my business and most of my friends and acquaintances identified me with my business. I found myself in the grocery store at two in the afternoon wondering what I was looking for. I’d run into friends at events who would ask how things were going and I didn’t know quite how to answer. It was a very unsettling time for me and I solved it only by buying a plane ticket to Paris a month later, leasing a car and wandering around much of Europe for a good portion of the next four years.
Granted most people don’t have that option – I was single, no kids and no real ties or responsibilities to anyone or anywhere. But if that does not describe you, get to work on a plan. (Let me know if I can help.)
That experience, still vivid in my memory, has informed the business brokering courses that we offer. Our brokers – and the independent brokers we teach – are advised to have this conversation with every business owner they speak with.
As I write this, my office is negotiating the sale of a 15 year-old wholesale and distribution company that was founded and is still run by a husband and wife team that has grown the business’ revenue to multiple millions of dollars. I had “the conversation” with them during our initial meeting many months ago but we now have a strong buyer entering the due diligence period and the possibility that the owners’ baby may actually be sold shortly has gotten real – and has begun to impact one of the owners.
These emotions are real. Even if you have a plan, this is, in many cases, a difficult transition for most sellers. Without a plan, it can be an emotional setback of significant proportion.
Take the First Step
Getting a team in place allows you to develop a plan for when the need arises. Key players include:
- Accounting firm, law firm and financial advisers familiar with your business and goals.
- A mergers and acquisitions adviser to help facilitate the process and guide you through the myriad decisions and negotiations.
- Specialists who deal with business acquisitions. For instance, your personal tax adviser may not be able to offer the advice you need to understand the tax implications of selling your business.
Don’t delay. Get planning now while there is no pressure. Now is an excellent time to bring your business to market and there’s no telling how long this favorable economic environment will last. After all, with legislatures around the world in session, the odds of some economic morons screwing this up are significant!
If you have any questions, comments or feedback on this topic – or any topic related to business – I want to hear from you. Put them in the Comments box below. For example, if you’re a business owner, what is your biggest concern about the thought or process of selling your business? If you’d like to become a professional business broker, what are your biggest concerns or questions about that process? Let me know. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a profitable week!