For most entrepreneurs, the decision to sell a company they have been building for years is one of the most challenging ones they’ll make in a lifetime. After all, business sellers are essentially passing on the results of their life’s work to a stranger. Everyone wants this transaction to go as smoothly as possible, but it’s not uncommon for issues that seem like minor problems to cause business sales to be delayed or even to fall through.
Read on to find out about a few of the key dos and don’ts of selling a business, and keep them in mind when it’s time to start looking for buyers.
Do: Start Planning Well in Advance
Deciding it’s time to sell your company is hard enough, but business owners can’t just expect to make this difficult choice and then see the proceeds within a matter of months. They should start the planning process two to three years in advance to make sure that all potential deal breakers are eliminated, financial statements are up-to-date, and the company is in the best shape possible financially. Planning well in advance is the best way to maximize profits from the sale of a business, so unless there are extreme extenuating circumstances, it’s never a good idea to dive right in.
Don’t: Try to Hide Problems
Transparency is important in any transaction, but that’s particularly true in the sale of a business. A qualified buyer will do their due diligence before signing on the dotted line, so any skeletons left in the business’s closets will be unearthed. Being upfront and honest is always the better solution. Even if it means that a buyer loses interest in the business, it’s better to get that out of the way from the beginning than to wait until the deal is about to go through and have them back out.
Do: Hire a Seasoned Business Broker
Selling a business is not a job for amateurs. Even small to mid-sized businesses need to be sold through business brokers if sellers want to get their money’s worth. These industry experts have ties to bankers, attorneys, CPAs, and others who can help with everything from valuing the business to drawing up contracts. They can answer questions about the process, find qualified buyers, and allow business owners to focus on continuing to run their companies so that they remain profitable up until the closing date.
Don’t: Get Greedy
There’s a reason that business owners get valuations before they put their companies up for sale, and it’s to have a realistic idea of what the company is worth. Waiting around for a qualified buyer willing to pay higher than market price for even a well-established small to mid-sized business is a losing game.
Sellers should also avoid looking greedy by pulling out too much working capital right before the sale. Instead, take the two to three years leading up to it to start collecting receivables, taking advantage of trade credit, managing inventory efficiently, and identifying issues that are costing the company money so that it can be run effectively on less working capital.
Is It Time to Sell?
Business owners who are contemplating selling soon should contact a reputable broker to discuss options. Remember, it takes time to find a qualified buyer and prepare the company for sale. Sellers should take that time to shore up their business’s financial status, ensure that everything is on the level, and start managing their emotional attachments so they can make a smooth exit.