Selling a business can be a complex process. Preparing, planning, taking your business to market, negotiating, and closing the deal can take a long time, sometimes up to 12 to 24 months. Getting your affairs in order will certainly speed up the process, and can also help ensure a successful sale at an optimal price.
Preparing a Company for Sale
Should I use a broker?
The question of whether or not to hire outside help is one that every seller will have to answer, and how you answer it will depend on your priorities and your comfort level.
Finding and using a good business broker, for example, can have its advantages. Using a broker allows you to focus on running your business at peak performance. For larger businesses or more complicated transactions, a good broker will also be able to provide expertise, leadership, and advice to help ease the sale process. Brokers, too, often have access to a variety of buyers in the marketplace.
For many business owners looking to sell, the decision whether or not to use a broker comes down to comfort and cost. Broker fees vary slightly, but they are primarily commission-based, and most brokers will typically charge around 10 to 15% of the total transaction.
It is not uncommon for a broker to request a non-refundable upfront fee or retainer anywhere from $10,000 to $50,000, depending on the size of the deal. Brokers also typically require exclusivity agreements, meaning you’re locked in for a potentially long representation time (ranging from one to five years) and can only sell through the broker.
Technology has leveled the playing field in this area considerably in recent years. Most brokers will market online, which is now something that you can effectively do yourself. Online business listing websites, articles, and advisories give you the tools to handle the sale transaction yourself, should you wish. There is an abundance of online resources available to make the process of marketing your own business for sale much easier than ever before.
Whether you opt to sell through a broker or handle the sale yourself, it’s important to make the decision that works best for you, and for your business.
Get advice early and often
You will, most likely, only sell your business once. Consult with trusted parties to discuss the future sale of your company. Speak to your spouse, Board of Directors, lawyer, and accountant.
You may also wish to consult trusted management within your company. Do this while keeping confidentiality in mind: you don’t want to tell just anyone at this stage. Discuss only with those you trust and whose opinion you value.
When preparing a company for sale, if you are in a position to communicate more widely to your team about your interest in selling the company, ensure that you have a strategy in place to do so. You don’t have to announce the decision to sell publicly—you should do so only at your own discretion and when the timing is right. Disclosing this information too early can cause fear and uncertainty among your employees.
Consider starting with those who are vital to the organization. Communicate your intent to sell, your reasoning, your plan during and after the process (e.g., your involvement in the transfer of ownership: will you be staying on in a leadership or advisory capacity?), and address their positions and job security.
Read more about why confidentiality is important, and how you can protect it.
Research and analyze
Take some time to research, analyze, and understand the business opportunity you are looking to sell, and the market and industry you are planning to sell in. What is your competitive advantage, and how can it be used and highlighted to increase value to a buyer? What does the selling environment look like at the present moment? Is it a good time to sell, or should you focus on optimizing your business operations until a more favorable outlook is in place?
As you analyze your business and the marketplace, also consider any small changes or adjustments that you can make in the next while to increase the attractiveness of your company to potential buyers. A deep knowledge of the market and your business’ place in that market will help guide you in the successful sale of your business.
At this point, you should also familiarize yourself with the rules of being a business owner in your state and what needs to happen when your business is sold (e.g., What are the tax implications of selling your business?). Being prepared and knowing what needs to be done will help ensure there aren’t any surprises for you along the way and ease the closing process.
At this point in preparing a company for sale, you’ll want to consider how to create an appealing sales pitch and how to present this information early on. What will you tell buyers about your business? Drafting a short and simple statement detailing how you got into this business in the first place, your reason for exiting, and spelling out what you want to achieve—beyond just a price—-will help to guide your performance. Ultimately, you are the best person to tell the story of your business.
Update your business information
Having clear, accurate, and up-to-date information for and about your business is one of the most helpful things you can do to aid in the successful sale of your business. Consider the following aspects of your business and how you can ensure they are as updated and presentable as possible.
- Sales and marketing materials: ensure these are not outdated, and that they reflect the current and future operations of your company.
- Government tax returns: have at least the last three years of tax returns completed and filed.
- Supplier contracts: ensure that longstanding agreements are underwritten contracts to make the transfer more seamless for the future owner.
- Technology: severely outdated technology and processes can decrease the value of your business.
- Your brand: consider the appearance and visibility of your brand both online and offline.
- For instance, if a Google search of your company name results in the name of your competitor as the first option you may want to consider looking at ways to optimize your search engine optimization (SEO) practices prior to going to market.
- If an online search of your company name brings up any scandalous headlines, class action lawsuits, or scams, you will likely experience some difficulty selling your business. You’ll want to focus on clearing up these issues prior to selling, or you may forfeit the true value of your business.
- Identify if there are any outstanding tax, legal, banking, or financial issues that could hinder the completion of a deal.
Prepare for buyer due diligence
Before you market your business to sell, you’ll need to make sure you have all the necessary documents, data, and financials accurately prepared and ready to present. Failure to provide this information to a prospective buyer in a timely manner can stall, delay, or even kill a deal. But having well-prepared and organized business information at the ready makes buyers far more comfortable and confident in moving forward with a sale.
Deciding to sell your business is a big decision, and understanding what you want to achieve from the sale—beyond just a dollar figure—will help you market your business more effectively and keep your goals at the forefront of your mind throughout the process.
- Flexibility: How willing are you to be flexible and make concessions in the selling process? Knowing your limits will help minimize tire-kicking and delays during the process.
- Price: Price your business realistically
- Financing: Willingness to finance (Read more about seller financing)
- Timeline: What is the selling timeline that you’re comfortable with and what works best for you and your business.
- Closing timeline: Once an offer is accepted, some amount of time allows the buyer to perform due diligence; but beware, as too much time can stall a deal, as it gives a buyer more opportunity to drag their feet, or to uncover issues (if there are any) and ask for concessions.
- Transition: What does your ideal role look like after the sale? Do you plan to stay on and help with the transition, or to remain in an advisory role? Or would you prefer to make a clean break and have no further involvement with the company?
- Ideal buyer: Think of what an ideal buyer would look like for you. Doing so may help you consider new areas in which to market your business for sale.
While preparing for the sale of your business, as well as navigating the sales process and negotiations, it is of utmost importance that you continue to operate your business at peak performance. Stay focused on your business’ performance so that you don’t forfeit sale revenue due to declining financials. Keep the momentum going to ensure your business sale is as profitable as possible.