In the coming decade, many businesses will change hands as baby boomers continue to retire and sell their businesses to new owners. Selling a company requires careful planning and a clear understanding of the market.
If you are considering selling your business, here are seven steps that can help make the sale of your business a success.
1. Value Your Company
Work with a third party to provide a realistic evaluation of what your business is worth. A qualified business valuation professional can review sales, receivables, inventories, and other assets, as well as outstanding debts or loans, to determine how much your business is worth. A business valuation professional will also analyze your business and its place in the competitive environment to identify threats and opportunities that will drive value.
2. Organize Your Financials
A prospective buyer will want as much transparency as possible. Expect a buyer to perform their due diligence, and work with an accountant to present clean and accurate financial statements and business tax returns for at least five years. Ensure that all income is accounted for, and consider reviewing discretionary expenses such as travel and entertainment expenses, the cost of business vehicles, memberships and subscriptions, and salaries and bonuses paid to family members.
3. Understand Tax Implications
Taxes will have a significant impact on the amount of money you will actually receive when you sell your business. Work with an experienced corporate lawyer and an accountant or other business expert to help you understand and minimize the tax consequences from the sale of a business.
The tax implications of selling a business are driven by two primary factors: (1) how the business is set up; and (2) whether you are selling the assets or the equity of the entity. The tax implications often drive the decision of what the structure of the transactions will be.
4. Plan Your Exit
When a business is sold because of something unexpected, such as an aging or ill owner, lack of interest in succession from other family members, or competition from a rival or larger player in the market, the result is almost always less than optimal.
By planning for the sale of your business before an emergency strikes, you place yourself in a better negotiating position, can personally and financially prepare for the sale of the business, and have the luxury of waiting for the right buyer who will purchase your business at the right price.
5. Increase EBITDA
A potential buyer is looking for a business with an upside. Eliminate extra inventory, update operating systems, and get rid of problem employees. Work to increase sales and strengthen your EBITDA (earnings before interest, taxes, depreciation, and amortization) before presenting your business to a potential buyer. You should also consider what liabilities your company has, and determine how to address those liabilities and risks.
6. Work with a Business Broker
A broker will often perform the business valuation, prepare a prospectus, list the business in a suitable marketplace, and work to get the best price. A broker may also be able to obtain financing for a potential buyer and help with due diligence. A business broker will charge a commission, but many times their industry expertise is worth the expense.
7. Involve a Lawyer Through the Entire Process
Selling a business can be complicated, and a lawyer will help you navigate the legal considerations of selling a business. There are many legal documents required when you sell your business. A lawyer can prepare a purchase agreement for the sale of business assets, including physical and intellectual property. A purchase agreement outlines the terms of the deal and makes representations about the Company. Having a lawyer involved in the entire transaction helps the process move smoothly towards a successful closing.
Contact RKPT to Help Sell Your Business
Selling a business is an important and complicated undertaking that you should not attempt alone. At RKPT, our corporate attorneys are here to assist with the sale of your business. From our offices in Cincinnati, we handle corporate matters for clients throughout the U.S.
Learn more about our business and corporate law practice and contact us today to schedule a confidential meeting with one of our attorneys to get the help you need to sell your business.