Treasure Hunt – A Map for Selling Your Business
In the current environment, industries are quickly consolidating, creating great opportunities for small business owners who are looking to cash in by selling their business. Just as in years prior, the journey is as vital as the destination. Selling your business is a momentous decision. It demands careful consideration and meticulous planning. Entrepreneurs often find themselves facing a myriad of unexpected challenges that can impede a successful sale. Your meticulous attention to detail in preparing for the sale will directly impact the return on investment for your years of hard work.
One key consideration is what you will do after the transition and how your key employees may be impacted. Are you still too young to sit on the porch and drink lemonade? Do you have family members that will be left out at sea after the sale? What does the post transaction world look like from your perspective and to others that are important to you? Mapping out multiple scenarios will ensure that you and your loved ones aren’t left high and dry or in a tight corner.
When the buyer looks at your business what will they see? You may underestimate the complexity of the process of selling your business or assume that the business’s value will speak for itself. However, prospective buyers are not naive, and banks need comprehensive information to support the selling price and the carrying costs of the investment. Details about your company’s financial health, operational processes, and growth potential are key. So are the key employees and repeatable and documented processes. And those are all for naught if the deal doesn’t have the right cash flow ratios. Failing to address all of these areas and prepare a thorough overview of the business can lead to unknowns which will lower the final value. Financial statements, tax records, customer contracts, scalability and a clear growth strategy are all essential components of a compelling proposition for the potential buyer.
Business transactions encompass more than just financial aspects; they encompass the transfer of a company’s values, operational approach, mindset, and workplace culture. Overlooking the importance of these intangibles can result in post-sale friction, employee dissatisfaction, and diminished business performance. Exiting owners must carefully assess potential buyers to determine if their organizational culture aligns with the existing one. If the potential buyer is not a fit, the result is a deal that dies on the table or soon after.
Navigating this without professional help is a recipe for disaster. You may believe that your industry expertise makes you the best representative for your business. But buyers assume the worst if not presented with full evidence, and that will negatively impact the sale price. Enlisting the aid of tax and accounting professionals, legal advisors, and business brokers offer valuable insights, conduct due diligence, and help structure deals that align with the goals of the buyer and seller and help get a transaction to closing and beyond.
Don’t chart your next course without a map of what lies ahead.