4 ways to think about before you sell your business
Was your goal always to build a thriving brand to eventually sell your business for a tidy sum? Or maybe for other personal reasons it’s best to sell your business sooner rather than later.
No matter what the reason is to want to sell your business, experts agree: it’s best to be prepared well in advance as it can take months (sometimes years) to complete a successful sale.
These four tips will help you give you a head start on making your business attractive to buyers for the day you’re ready to sell.
1.Get a business valuation
Even if a business sale isn’t imminent for the next five years, it isn’t too early to meet with an appraiser. A valuation will give you a realistic picture of what your business is worth right now, and invaluable information on what you can do to improve its value.
We see many small businesses try to minimise profit in the early years for a tax minimisation strategy, but minimal profits could be seen as a negative thing when valuing a business. So always have your end goal in mind.
When you’re ready to sell, having the details of your valuation shows transparency, creating trust and building credibility—while saving a buyer the expense of getting one done themselves.
Remember that timing is often everything with a business sale. Once you know what your business is worth, you can decide whether it’s best to move forward—or wait for a growth phase or improved economic conditions.
2.What is your exit strategy?
Every business, large or small, needs a succession plan. And when you’re ready to sell, having an exit strategy in place will put a buyer’s mind at ease because you’ll have already ironed out a smooth transition for you and the new owner.
“As a potential buyer, I would need to know the business can run without the former owner. That is vital for me. A smooth transition means profits won’t take a dive as soon as I buy.”
A succession plan should include both the human resources aspect (e.g. a training plan for the new owner and any employees that stay on when ownership is transferred), as well as the management of any financial, legal, or tax issues.
Once you’ve made all the hard decisions about how the business will run without you, be sure to review it once a year to make sure it’s always up to date.
3. Tidy up your financials (hell yes)
The biggest red flag for anyone considering a business deal has to be dis-organised or incomplete financial records.
A potential buyer will want to see your tax returns for the last three to five years, as well as Balance Sheets and your Profit and Loss statements. You may also be asked to share accurate sales and marketing data, the value of your assets and any outstanding liabilities – as well as your plans to resolve them.
“Full financial reports show me nothing is hiding, and gives me an idea of true business performance. Never take someone’s word for it when buying a business!”
4. Hire a business broker
Hiring a business broker with a proven track record can really simplify the sales process—especially if you’re too busy to look for an interested buyer or need professional expertise to get your business in order to sell on your preferred timeline.
Look for someone with experience selling businesses in your industry, a large database of interested buyers, and an impressive closing ratio.
When you interview a broker ask for testimonials and info on the strategies they’ll use to market and sell your business. Reach out to your network for referrals—as with any professional service, when it comes to business brokers an honest recommendation can help you find a winner.
Selling a business is not a wishing game. There are various Capital Gains Tax implications to consider and finding the right buyer is paramount.
Your broker or tax agent should be able to advise the best way to structure your business sale for the best return. If you’ve built up some solid equity it may be wise to offer a buyer a gradual sale. In addition to a continued income stream for you, this type of arrangement can help make the deal attractive by reducing the new owner’s financial burden.