5 Things You Need To Know Before Selling Your Business
Selling your business is one of the most important decisions you will make in your life. The process isn’t always easy, but it can be incredibly rewarding.
As in all things in life, fortune favours the bold—and the well-prepared.
This resource will help you understand both the psychological and practical realities of selling a business and the things you’ll need to prepare yourself for:
Good things come to those who wait
You can sell your business quickly—but if you do, you might not get what it’s worth.
Business deals take time. First, you need to determine the value of your business. Some things, like inventory, are fairly easy to calculate. Other things, like intellectual property and goodwill, are harder to put a number on.
Once you’ve assessed the value of your business, you’ll need to find potential buyers. From there, all parties involved will need to do their due diligence—the buyer will look into the details of your business, while you and your business broker will ensure that the buyer is the right fit.
Once you’ve found a buyer, there’s the matter of negotiation—and negotiations can take a while. Above and beyond negotiations, there are the little things that business owners might not expect. Do you and the buyer get along? What forms of financing does the buyer have access to? Can a price be agreed upon, and if not, are you open to a portion of seller-financing and/or earn-outs?
These things take time—but good things come to those who wait. With a skilled team, including an accountant, a business broker, and a lawyer, you can speed up the process some. In our firm’s experience, a typical business sale in the Vancouver area takes about 9 months on average. Don’t expect to sell right away—your patience will be paid in kind.
Trust the process—and your business broker
Before you get to selling your business, get to know your business broker.
Seriously. Go for coffee. Go for a jog together. Play cards. Find a way to spend time together, if necessary, until you really trust them. (This may happen quickly if you are referred to your business broker from a past client who sold their business successfully.)
Your business broker is a crucial partner in one of the most important business decisions you’ll ever make—and what could be one of the biggest financial decisions in your life.
The process of selling a business is tumultuous, to put it mildly. There’s constant change—highs, lows, lulls, and everything in between. Selling a business is a lot like starting a business—the main thing you can expect is the unexpected. “Certainty” is not on the menu.
Your business broker will be vetting clients and negotiating on your behalf. You’ll need to trust them through all of the peaks and valleys of the sales process. That’s why we highly recommend getting to know and trust your broker before the actual process of selling your business begins.
Stay cool, calm, and collected
Here’s what you need to remember before you even begin the process of selling your business:
Things may go wrong
Negative emotions may bubble up
Negotiations won’t always go as planned
The process may be stressful at times
You may not get exactly what you want
Many business owners have deep emotional ties to their businesses. You might have built your business from the ground up. That’s one of the reasons that it’s so important to have a business broker on your team. They’re less emotionally involved and have your best interests in mind.
By letting your broker handle negotiations, business valuation, and more, you’re more likely to get a favourable outcome. You may not get exactly your asking price, but there are other ways of turning a greater profit, like earn-outs or other deal elements that can put more money in your pocket beyond just the purchase price. You may even get more than what you thought your business was worth. It all depends on market conditions—something your broker will know intimately. Don’t get stressed when things seem to be taking a downturn. Listen to the advice of your broker, lawyer, accountant, and other trusted parties, and you’ll be fine.
You won’t leave your business right away
Anyone who buys your business will ask you to stay on—likely for at least a few months. This is to ensure a smooth transition. Your salary for these months of work will be factored into the purchase price.
Want to leave as soon as possible once your business is sold? Take steps to reduce your own workload by delegating tasks to key employees. By selling someone a business that “runs itself”—one where key employees can handle most tasks—you’re doing yourself two favours: You’ll limit the amount of time you’ll need to stay on during the transition period, and you make your business more attractive to prospective buyers.
Get your ducks in a row before going to market
Selling a business is an involved process. Your buyers will want to do due diligence, and that means looking through financial statements, reviewing your business structure, understanding your business model, learning how you’re positioned in the market, and so much more.
A great business broker can help you prepare the documents that are most often requested in due diligence.
It’s not just the documents you’ll need to prepare for due diligence that you should be concerned about. You’ll also want to think about what you’ll do once your business is sold. There are significant tax implications when you sell a business. You’ll need to talk to your accountant about capital gains tax and how to reduce your tax burden. Further, you’ll want to think about what your plans are once the business is sold. Try to get something concrete down on paper.
There are a number of things you’ll need to prepare before actively seeking out buyers. Don’t worry—your business broker can help you through it all.