Selling a Business, Small Business

Top 5 Tips When Selling Your Business

February 04, 2021February 04, 2021
Top 5 Tips When Selling Your Business

We challenged two top legal researchers to give their top five tips when selling a business. They both brought back very good ideas, so we've included all of their tips below.

 

Amy G, an English scholar and attorney in the state of Ohio, says:  "when selling a business, maximizing the price you receive can help you succeed in your future endeavors. If you follow these five tips for how to sell a business, you can ensure you get top dollar.

Tip #1 — Prepare Your Strategy in Advance

An essential step toward a successful business sale is to avoid sudden, spur-of-the-moment decision-making. Without proper contingency planning in place, an unexpected illness, divorce, or death can force you to sell at an inopportune moment. Similarly, if you haven’t developed a strategy for handling market pressures like growing competitors or consumer demographic shifts, you may have no choice but to sell quickly (and for a less-than-optimum price).

Being prepared can help you avoid a hurried sale. Once you have established your business, it is best practice to consider what could force you to sell. An exit strategy that contemplates what price you will seek and how you will handle partners, investors, and clients can smooth any transition, and allow you to take the time you need to receive a fair offer. You should also conduct research on similar business acquisitions so you can seize on profitable market conditions and timing when selling.

Tip #2 — Get Your Affairs in Order

Every business has its weaknesses, and you probably already know what yours are. To secure a top-dollar offer, you’ll need to address the issues you’ve procrastinated fixing for years. Before selling your company, run a self-audit of your business and take steps to address any deficiencies.

For example, if you have lackluster accounting practices, clean up your records before presenting them to potential buyers. Similarly, if your business runs on handshake agreements with vendors or clients, formalize your relationship with a written contract. Just like you might add new windows or a fresh coat of paint before you sell a house, making similar investments before selling your business can boost your returns.

Tip #3 — Price Your Business Fairly

It’s normal to feel a sense of emotional investment in your company. You have put immeasurable amounts of time and effort into your business and sacrificed time with your family and friends to do so. That time and effort built something that potential buyers now value, but only if the price is right.

When setting a sale price for your company, you need to remove the emotional component from the calculation. Objectively evaluating your company as you would any other potential deal is challenging, but it is also vital to a successful sale. Asking for too high a price will cause your business to languish on the market. Conversely, pricing below market value can lead to a lifetime of remorse. Make sure you choose a fair price that reflects the actual value of your business.

Tip #4 — Consult Experts

When dealing with the complex machinations of selling a business, you should rely on expert advice. Here are a few essential professionals you should retain to support your sale:

 

  • An expert business broker can provide you with insights on a proper valuation and identification of a target market. A broker can also pre-screen potential buyers while ensuring that you have time to focus on maintaining operations.
  • You should also consult with an accounting firm to get your bookkeeping in order. Prospective buyers will appreciate professional, clear, and accurate records.
  • During negotiations, have lawyers protect your intellectual property through nondisclosure agreements. For the closing, your legal team can also draft a contract to sell a business and explain what your legal responsibilities are and when you must complete them.
  • You may also want to meet with a financial advisor to determine how to manage funds from the sale, both in the short and long term.

Tip #5 — Follow Through on Your Obligations

You should personally carry out all the final tasks as contemplated in the sale contract. Ensure that your company is current on all loan payments and that you are not in debt to any vendors. After the sale is completed at the closing, do not interfere with the business’ operations unless the deal explicitly reserved a role for you."

Then, Beverly T, a 30 year legal researcher and writer, offered the following:

"Setting up a business properly at the beginning is essential for the long-terms success of the enterprise. Making the right decisions when the time comes to sell the business is equally important. Foremost on every prospective seller’s mind, of course, is maximizing his profit – equally important, though, is making sure that the transfer is legal, efficient, and protects the seller from future liabilities. Here are five things to consider before selling a business:

1.Get an Accurate Valuation. 

Before taking out any ads, entertaining any offers, or even telling anyone the business is for sale, you should know exactly what your business is worth. Factors to consider in determining the value of a business include:

The value of the company’s assets, including real estate, inventory, cash on hand and accounts receivable.

The company’s annual sales.

Recent years’ profits.

Pending and long-term contracts.

Good will and reputation.

The value of any intellectual property.

 

2. Know What is Being Sold. 

Both sellers and prospective buyers need to know exactly what is being sold. If the business is a corporation, for example, is the corporation itself being sold, or only the assets and inventory? That may be important if leases, licenses, and other contracts are in the corporate name. If goodwill and reputation is an important factor, the buyer will probably want to purchase the right to use the company name, for example. If only the assets are purchased, the buyer may have to acquire new licenses and permits before being able to do business.

3. Documentation. 

Prospective buyers, valuators, and sales brokers will need access to the company’s books in order to make an informed decision about the financial health of the business. Documents regularly requested include:

Tax returns

Inventory lists

Contracts with customers

Leases

Licenses

Monthly and/or yearly sales reports

Profit /Loss statements

Business entity documents (articles of incorporation/organization, bylaws, annual reports)

 

4. Consult the Experts. 

 

The right expert advice can help sell a business faster, and can increase the seller’s profit. Before employing any expert, of course, a seller should do some research to make sure the person or firm is reputable, knowledgeable, and affordable.

 

If real estate is to be transferred, employ a real estate agent with specific experience in handling commercial property. Depending on the type of property transferred, certain requirements may need to be met prior to the transfer, such as environmental studies or safety inspections.

 

Business valuation software can be helpful if the value of the business is not overly dependent on goodwill or reputation. These things are harder to evaluate, and cannot be calculated accurately using software alone. It may be necessary or advisable to hire an accountant or professional valuation expert if intellectual property, goodwill, and reputation contribute significantly to the business’ value.

 

A business attorney can help draw up or review purchase contracts, and can assist in transferring or re-negotiating leases, employment contracts, and contracts with customers and vendors. A business attorney will also be able to make sure that proper regulatory and legal requirements are met when completing the purchase. The transfer of leases, licenses, and corporate ownership documents is necessary to ensure that liability for utilities, taxes, payroll, rent, and other expenses is transferred to the new owner. Proper transfer of ownership will also protect the prior owner from liability for accidents or injuries on the premises.

 

It is also advisable to consult an accountant about the tax consequences of selling a business. An accountant can advise you on the best way to structure the sale in order to minimize the tax consequences, and how to properly calculate your tax basis in order to accurately determine how much of the sales prices is actually taxable. 

 

5. What Happens After the Sale? 

It is common, especially when the goodwill and reputation of the business are essential to its value, for a buyer to request that the seller sign a non-compete agreement. If the seller intends to stay in the same field of enterprise after selling a business, he may be required to avoid working in the same field for a specified period of time, within a certain geographical area, or both. Any non-compete agreement should be reviewed by a business attorney to make sure the conditions are fair, and that the seller is not unduly hindered from making a living after the sale."

Thank you both, ladies!

Here’s the really good news.  If you worked with a dedicated attorney through the whole process, including at the point when you are even considering selling, you’re making sure your interests are protected, and that the transaction goes as smoothly as possible.

BizCounsel is a service with the goal of giving you 360 degree legal and compliance protection the whole year through, at a rate practically any business can afford.  With your dedicated attorney, you can make sure that the business that you built is being sold in the right way, so you can move onto what’s next.

See if BizCounsel can help you sell your business.