An entrepreneur doesn’t make the decision to sell their business lightly. Building a business from the ground up requires a lot dedication and perseverance, and most business owners see their company as an extension of themselves. I doubt I need to tell you to think hard before you decide to sell your business – chances are you already have.
But beyond wondering “Should I or Shouldn’t I?” there’s a shortlist of important questions that you have to answer before taking the final plunge:
1. Why do I want out?
You might have finally decided that you want to sell, but have you given any real thought behind why you want to sell? Chances are good it’s not just about the money, unless you’re looking at an insanely generous offer. Are you just tired of working? Do you want to spend more time with your family? Do you think your market is drying up? Figuring out your reasons for selling boosts your confidence in that decision. It will also allow you to have a solid reason for selling to look back on.
Seller’s remorse is a very real problem for business owners after they unload their company.
It's natural for business owners to feel remorseful after they sell the enterprise into which they've poured their heart and soul. They wind up feeling despondent and lost without the entity that defined and drove them on for so many years. If you had a few good reasons to sell, though, that shouldn’t be a problem.
2. Do I know how much my business is worth?
Before an offer is made or a sale is agreed on, potential buyers are going to want to see financial statements going back at least five years. When you’re compiling that information, make sure you know what you’re handing over, and don’t expect a windfall if you’ve been steadily losing business for the last few years. You also need to consider market and industry conditions – if you did poorly the last few years, do you really think that you’d do better next year? Knowing what your business is worth, and why it is worth that much, will greatly aid negotiations.
3. Who is going to help me sell?
A study done back in 2011 found that 90 percent of sellers who used an intermediary felt more confident in the sale, and reported feeling the process was much less stressful that way. I understand that sometimes, you may not want to pay attorneys, accountants, and other intermediaries for their services, but they seriously expedite the sale, create a solid paper trail, and take a lot of the pressure off of you -- making it a win-win all around for everyone.
4. Am I in a good position to sell?
Take a good hard look at your savings, your budget, and your obligations. Are you making enough money from this sale to pay for your bills and lifestyle needs? The median sales price for a small business in Q1 of 2014 was $175,000 – that’s not much in the long run. Remember that you are probably selling your main source of revenue, and you could have to go back to work after a couple of years.
Once you have an offer, look at it in the context of your debt and future obligations. If you don’t think you can survive for very long with what’s being offered, then you may not want to sell, or you could want to re-negotiate.
5. What are the new owners asking of me?
The new owners are probably going to ask you to stay on for a few months to help make for a smoother transition. After all, no one knows your own business better than you. Just make sure you set the terms of the transition period so you know exactly what you have to do. The new owners could also ask that you sign a non-compete clause, so you may be looking at a few years before you can start another business. Sellers sometimes forget that there might be extra rules they have to abide by after they sell.
Know what the rules are well in advance and it can save you any possible headaches from arising later on down the road.
This article is not intended as legal or tax advice. If you have questions, please contact your legal or tax professional.