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5 questions to ask before selling your business

CourageCategory
5 min read
Deborah Sweeney

This content should not be construed as legal, financial or tax advice. Always consult an attorney, financial expert or tax professional regarding your specific legal or tax situation.

Selling your business is a big decision for small business owners. Entrepreneurs invest a great deal of time, energy and money into starting a small business. As they work on growing the business, they also consider its future. For many entrepreneurs, that means creating an exit strategy for selling the business.

How do you know if selling your business is right for you?

Should you decide to sell your business, it’s critical to understand what the sales process involves. If you understand the opportunities that come with selling your business and complete the process properly, you will be able to successfully run the company and sell it to the right buyer.

  1. Is my business ready to sell?
  2. How much is my business worth?
  3. Who can help sell my business?
  4. What are your deal breakers?
  5. Will you stay on after selling your business?

Let’s look at five key questions to ask prior to starting the sales process to sell your business.

1. Is my business ready to sell?

In a 2021 American Express article, Terry Monroe, author and president and founder of American Business Brokers & Advisors, stated that despite the pandemic’s impact on the economy, there is an emerging new market of buyers known as “ex-executives.” These are former executives looking to invest in new ventures. Your business may be of interest to them.

You can search for information online regarding the “right” time to sell and whether the current market is right for selling your business. But instead of focusing solely on these rapidly changing conditions, it’s better to begin preparing your business early on for a sale. If you know the “why” for selling your business, it’s time to determine why buyers would be interested in purchasing your business.

Some areas of due diligence to help you begin preparing include:

  • Gathering financial documents that detail how the business is increasing sales and forecasting ROI-positive financial opportunities.
  • Paying off any outstanding business debt.
  • Finding ways to add value to the business, such as developing a qualified management team that can assist in the transition to new ownership.
  • Updating corporate bylaws and/or operating agreements based on the entity formation your business was incorporated under.
  • Reviewing your personal savings, budget, and obligations. Ideally, you should be able to make enough money from selling your business to pay your bills and living expenses.

The average amount of time it takes to sell a business varies. Some cite between six to nine months; others estimate between nine to 12 months — at least a year out.

If you know you’ll need to complete the due diligence list above before selling your business, you may need to plan for at least two years of preparation before your business is ready to sell.

2. How much is my business worth?

Person counting money at desk

What is your business worth and what makes it worth that amount? These are questions potential buyers will ask, and your answer needs to be realistic.

It’s time to determine your business’s valuation.

You can do this on your own by compiling financial statements going back at least five years. Review the numbers and note how market and industry conditions factored in during this timeline.

Not certain that you’ll be able to properly determine what your business is worth? It may also be wise to work with a valuation professional or third-party service provider to create a rough business valuation.

3. Who can help sell my business?

Some business owners are capable of selling their business on their own. However, it’s usually beneficial to the seller to work with an intermediary throughout the sale. This can help expedite the sale of the business, create a paper trail to revisit as necessary, and take pressure off the owner by making them feel more confident about the process.

Some individuals who may be able to help when you’re selling your business include:

  • Business brokers. You may hire a broker if you need help finding potential buyers or are uncertain of your business valuation. While they can be expensive to hire, business brokers can assist you throughout the entire sales process.
  • Financial experts, like a financial planner, certified public accountant, or tax advisor, can assist with the business’s financial statements.
  • Attorneys can help with drafting legal contracts and agreements.

This content should not be construed as legal, financial or tax advice. Always consult an attorney, financial expert or tax professional regarding your specific legal or tax situation.

4. What are your deal breakers?

stop sign

Before selling your business, you will need to resolve any issues that could negatively interfere with the sale.

Some of the most common issues include clearing areas like the business’s intellectual property and ensuring the buyer may sell or lease business real estate.

You won’t want to close on a deal until you have been able to consider and resolve any “deal breakers.”

5. Will you stay on after selling your business?

Typically, buyers will close a deal on a business that can still thrive without its owner in the long run.

However, selling a business doesn’t always mean the owner is done with their job.

After selling your business, the new owners may ask you to stay on either as an employee or as an independent business consultant. Former leaders who choose to stay on can help new owners learn about the ins and outs of the business and ensure a smoother transition period.

Selling your business is a complex process that requires extensive consideration as a spur-of-the-moment decision can quickly lead to seller’s remorse.

Every entrepreneur must decide if selling their business is truly in their best interests. If you still have questions about the sales process or need more insight regarding what to do next, consider consulting a legal professional for additional guidance.