Selling Your Business: 5 Keys to Maximizing Value and Minimizing Hassle
If you’ve reached the point where you’re thinking about selling your business, you’ve probably done more than a few things right. Starting a small business and getting it ready to be sold is an achievement itself — but now the challenge is how to maximize the value you’ll get from selling it.
What matters in a sale is often quite different than what matters in a growing company.
Let’s take a look at 5 steps you should follow before you sell your business.
1. Get Your Business Appraised
Before you sell your business, you should have a crystal clear idea of how much it’s worth. This will help you set the asking price and assess offers.
You can get a valuation from many sources including local CPA firms or fractional CFO firms. These appraisals should be based on a deep analysis of your financial statements and should include a comparison to other similar sold businesses. This comparison is available from national sales databases like PeerComps.com and is crucial to performing an accurate valuation.
Not all appraisals are the same, however. A certified appraisal, performed by a Certified Business Appraiser is the gold standard… but generally comes with a higher price.
If the business has a great deal of hard assets — machinery, fleet vehicles, even inventory — an appraisal from a Certified Business Appraiser is probably necessary. This does two things: it provides a rock solid starting point for your price, and it also gives the buyer a better borrowing base. (A buyers’ loan may rely on the value of the business assets as collateral — and that value can only be set by an independent appraisal.)
Do you need a certified appraisal? Maybe not. A business broker is going to offer you a “broker’s opinion of value” (BOV) before you start the sale process, which is usually good enough. In some cases, however, a certified appraiser can add significant value to your sale process.
2. Meet With Your Financial Advisers
Selling your company may be the largest single transaction you do in your life — and will likely result in the largest single tax bill of your life! So before discussing any offer with any perspective buyer, you better know what the best after-tax outcome is for you, and how to structure the deal appropriately.
Meet with your personal financial adviser and CPA well in advance to avoid financial surprises once the sale is complete.
And if your current advisers are not giving you hard hitting advice, keep asking. New laws are creating new strategies for sellers. Be sure your tax adviser explores Opportunity Zone investments, Installment Sales, 1031 Exchanges and other tax-advantaged structures for your transaction.
Only when you know the best deal structure for you will you be able to judge offers from buyers.
3. Get Your Books in Order
Perhaps the most important step to take before selling your business is to have bullet-proof accounting records. Buyers are more likely to buy if your books are clean, logical and well presented. Three years of previous financial data is typically required by any buyer (and by the buyer’s bank).
Too many sellers let their tax adviser or CPA review the books and believe that is “good enough”. In fact, a discriminating buyer will look much more deeply at your statements than most tax-focused CPAs care to do. So if your accounting records have not been reviewed by a CFO or corporate finance expert, start there.
Remember that you want to show the maximum profit but that your internal books must also match the tax returns. Putting together books that do both may require you to comb through your records and pull out personal or “one time” expenses that you had previously included in the company’s income statement.
And don’t forget about your balance sheet. Even if you are anticipating a asset sale, a diligent buyer will want to know that you accounted for your balance sheet items accurately and truthfully. They will also want to see the listing of assets, and probably even bank statements (which will prove whether you’ve been making profits or not)!
4. Plan for New Management
One of the hardest things about buying a business is merging and transitioning management teams. Not everybody likes to go through that much change, and managers who are sticking around may not be motivated to help you exit the business.
As a seller, you can make things much easier on the buyer (and yourself) by creating a clear and obvious plan for new ownership. Remember to avoid causing alarm to current employees — keep the deal completely confidential and do not inform them about the transition until the deal is complete. This will help create a seamless transition experience by reducing the amount of employee exits and diminishing concern.
How else can you make the transition smooth? Plan to stick around for a while — many buyers ask for your help for 3 months or more. And share the wealth — be prepared to bonus key employees for helping you get through the sale.
5. Understand Your Own Reasons for Selling
Buyers want to know why you are selling your business, especially if everything appears to have been going smoothly for you. By clearly articulating your reasons for selling, you can put any concerns that potential buyers may have about unforeseen problems to rest. This step reduces the likelihood of your buyer backing out at the last minute. Help them understand your real reasons and they won’t dream up their own!
Being clear about your personal reasons for exiting a business is not just for the buyer. If you are not 110% certain of your desire to exit the business, be prepared for a bad case of sellers remorse — or worse. Once a sale is complete, sellers often go from being the boss to being bored. Giving up your business has been described as losing a limb, or grieving the death of a loved one. Be sure you are prepared for life-after-business well before you start contemplating the sale.
Invest in the Pre-Selling Process to Get the Most Out of Your Business
By following the steps listed above and taking the time and effort to properly carry out your pre-selling checklist, you can not only make the sale of your business a nearly painless endeavor, but you can also obtain as much value for it as possible.
Marla DiCarlo is an accomplished business consultant with more than 28 years of professional accounting experience. As co-owner and CEO of Raincatcher, she helps business owners learn how to sell a business quickly so they can get paid the maximum value for their company.
