Are you thinking about selling your business? It does not happen overnight and the first thing you must do is discuss the steps required in embarking on this transition. It may take time to sell so don’t start packing your suitcases for that tropical island just yet.
Toews Law Group, Inc., the business and tax attorneys in San Luis Obispo, recommend that the first thing to do is discuss your plans and proposed timeline with your attorney and your accountant. An attorney can help you create a realistic timeline for making all the legal, tax, and business preparations that are necessary before putting your business on the market.
Preparations to consider
- Why are you selling?
- What is your business worth?
- Get your books in order
- Determine the true profitability of your business
- Get all legal paperwork in order
- Resolve any outstanding legal matters
- Organize a transition team
- Find an experienced business broker
- Keep your business in good standing
These basic steps are going to help you prepare your business for sale and be ready with answers for potential buyers.
Why are you selling?
There are several reasons people think about selling their business. Being clear about why you are selling and what you plan to do with the sale proceeds is critical for your future tax planning.
Are you planning to retire and when? Are you planning to invest a new business? Would you like to partially retire and work part time in your old business? Has someone come to you with an unexpected offer? Are you selling for health reasons? Would your goals be better served by taking on a partner?
Not only is being clear about your reasons for selling of value to you, personally, buyers often want to know why you are selling.
What is your business worth?
A professional evaluation gives you an idea of what your business is worth, what you can expect to net from the sale. The valuation also reveals your business’s market position strengths and any weaknesses, giving you time to make marketplace corrections before listing the sale.
Valuations can be obtained from accounting firms, business brokers, or investment banking firms. Do some research into valuation firms before making your final choice.
Be sure the books are in order
Make sure your books are up to date and keep them current. Conduct an audit, if necessary, to prepare the correct financial statements. Buyers may require a certain number of years’ worth of financial information.
Accuracy is critical and professional preparation and appearance is also critical. Tax returns alone might satisfy some buyers, but be prepared with an accurate, professionally prepared financial portfolio.
Determine the true profitability of your business
Most privately held businesses claim a variety of expenses that, while allowed, are not critical to the business’s operation. There may also be one-time large expenses incurred, such as expense related to moving to a larger facility or purchasing new equipment.
Make sure all expenses are accounted for and declared in a way that provides an accurate picture of your business’s true profitability. For example, you may be taking over an auto lease when the business is sold and that expense will not be part of the business expenses.
Get all legal paperwork in order
Review your incorporation documents, leases, customer and vendor contracts, permits and licenses to make sure they are current. Find out about any pending legislation that might change license and permit requirements.
Resolve any outstanding legal matters
Resolve pending legal actions, debt collections, employee disputes, and other matters.
Organize a transition team
Your transition team includes your attorney who is going to represent your interests during sales negotiations, your accountant, yourself and perhaps a team of your staff who can help the new owners settle into their new business.
Along with you, key staff members would include supervisors, managers and other employees with specialized knowledge of business operations.
Find an experienced business broker
Find a broker who has experience selling your type and size of business. A broker who specializes in machine manufacturing may not have the experience and contacts needed to sell a home goods retail business. Even a broker who specializes in retail businesses may not be the best to represent you, depending on the size of your business, your merchandise specialty, or even the geographical area.
Keep your business in good standing
Once everything is in place to put your business on the market, make the extra effort to keep your business in good standing. Keep an eye on daily business to avoid surprises. Make sure the books remain current and any potential legal matters are addressed immediately.