Sell. Selling. Sold!
A three-part series on business transition from Ovisto™ Wealth Management
For many entrepreneurs, selling your business is a dream fulfilled. It signifies years of hard work, dedication, and, ultimately, a successful exit strategy.
But selling a business requires careful planning, preparation, and a dash of finesse. What are the keys to a successful sale? How can you get the most for your business? And how can you ensure you leave a lasting legacy?
Preparation is Everything
Selling your business isn’t a spur-of-the-moment decision. Ideally, you should begin prepping years in advance. Here’s what you need to understand before you even begin considering a buyer:
- Is Now the Time? If you’re like many entrepreneurs, your business is more than just an entity or a job; it represents your life’s work and passion. Selling your business can be a profoundly personal and emotional experience. This is especially true for family-owned businesses, where the impact can extend beyond the owner to other family members who are also involved. Addressing the emotional aspect is crucial for a smooth transition.
- A Step Ahead: To help minimize tax implications associated with selling a business, planning ahead is everything. How is your business currently structured – as a sole proprietorship, an LLC, or a corporation? Your business entity type could significantly impact your tax strategy when the time comes to sell.
- Know Your Numbers: A business is only as valuable as its financial health. Solid financials, with consistent profitability and growth, showcase a thriving entity. Streamline your bookkeeping and financial reporting, ensuring transparency for potential buyers.
- Optimize Operations: A well-oiled machine is more attractive than a rusty one. Streamline your operations to minimize reliance on you, the owner. This includes building strong teams, documenting processes, and creating a systemized approach to day-to-day activities.
- Value Accelerated? Get a professional valuation of your business both before and after you’ve optimized to determine how much it is worth and how much it could be valued at with the right strategy.
Lights! Camera! Masterpiece!
Once your business shines, it’s time to showcase it! Here’s how to attract the right buyers:
- Identify Your Ideal Buyer: Who is the perfect match for your business? Understanding your ideal buyer profile helps tailor your marketing strategy and attract the right kind of interest.
- Consider Partnering with a Broker or an Investment Banker: When selling a business, the broker acts as an expert intermediary between the seller and the potential buyer. For M&A deals with $20 million of enterprise value or approximately $2 million of recasted EBITDA, an investment banker is typically engaged.
- Craft an Offering Memorandum: This document acts as your business’s resume, highlighting its strengths, financials, and future potential.
- Confidentiality is Key: Maintain confidentiality throughout the process. A non-disclosure agreement (NDA) protects sensitive financial information from falling into the wrong hands.
The Negotiation
Negotiations are inevitable, and being prepared is essential. Here are some keys to successfully navigating negotiations:
- Set Realistic Expectations: Have a clear understanding of your business’s fair market value based on financials, industry benchmarks, and professional valuations.
- Be Flexible but Firm: Be prepared to negotiate, but don’t undervalue your hard work.
- Focus on the Win-Win: A successful negotiation benefits both parties. Highlight how your business will thrive under the buyer’s leadership.
Closing the Deal
After successful negotiations, it’s time to finalize the sale. Here’s how to close:
- Due Diligence: Buckle up for due diligence, where the buyer scrutinizes your financials and legal documents. This is standard practice, so be prepared with accurate information.
- Finalize the Sale Agreement: This legally binding document outlines the terms and conditions of the sale. Ensure it is thoroughly reviewed by your legal counsel before signing.
Beyond the Sale: A Lasting Legacy
The sale of your business doesn’t have to be the end of your entrepreneurial journey. Here are some things to consider:
- Consulting Agreements: Perhaps you can offer consulting services to the new owner, ensuring a smooth transition and leveraging your expertise.
- New Ventures: With the capital from your sale, you can pursue a new entrepreneurial adventure.
Selling your business is a significant milestone, and with careful planning and a strategic approach, you can ensure a successful outcome. That said, we understand that all of this can feel overwhelming, especially if you try to tackle it alone. If you’d like a co-pilot on the journey, our team of exit planning specialists at Ovisto™ Wealth Management can help guide you to your destination.