In the past few months, I have been asked by numerous business owners if they should sell their company. In most cases they have reached a point of “overload syndrome” and running the company is no longer fun. The downturn in the economy has caused them to work harder and take home less money.
They are facing even greater government regulations and scrutiny and the joy of owning the business is fading. The prospects for higher taxes and an even greater drop in the return on investment (of time, money and energy) is weighing them down. They probably have some business broker or synergistic buyer inquiring if they are interested in selling.
When they finally ask me, they have often spent countless hours laying awake at night thinking about what it would be like to not own the company. The business is often their identity. I wonder if they hope I talk them out of “these crazy thoughts.” My standard response is to ask them why they are thinking about selling the business. I want to hear their reasoning and then I can usually help them process their thoughts.
Of course, there is no correct answer to this difficult question, but certain things need to be considered. Here are several key things to consider before you decide to sell your business (several from The Business Sale System Book):
· Are you really ready to sell, or do you just need a break? Have you considered other options, such as bringing in outside management.
· Why are you selling? Buyers will want to know the answer to this question so prepare a truthful answer that will not jeopardize the success of the sale.
· Will my family support the decision to sell? If this is a family owned business, what are the desires of the next generation? Do they dream of one day owning the business?
· Do you have an idea of what you want to do with your life after you sell the business? Do you plan to travel, serve a nonprofit, start a new business…?? Many business owners realize that they don’t have an exit plan until late in the selling process and then back out after spending a lot of time and money.
· Are you willing to accept a note payable on a sale transaction (i.e. hold paper) for several years? An all up-front cash deal is rare and usually the seller needs to wait to get paid in full.
· Does your business have impending tax or legal problems? If your business has significant legal or tax problems a potential buyer will find out about them, and you will be opening yourself up to even bigger problems if you manage to hide them until after the sale. These problems probably won't scare the right kind of buyers away, but they may lower the selling price.
· Do you have all the relationships with customers? If the business is heavily dependent upon you and special abilities or relationships you have, the business will be more difficult to sell.
· Are sales and/or profits declining? Declining sales or profits could be an indication of trouble. Again, these problems probably won't scare the right kind of buyers away, but they may lower the selling price.
· Do you have an specific minimum price that you are willing to accept? It may be wise to have a valuation performed on your business as a reality check on the selling price.
· Are you comfortable giving out a lot of financial details about the business? If you decide to put your business on the market, every aspect of your financial statements and business operations will be examined in microscopic detail. It’s important that you feel OK about giving out this information to qualified buyers. Hesitancy to release information is often interpreted by buyers as trying to hide something.
· Are your reasons for selling due to new competitors moving in or pending law changes? Selling is probably not the answer to this problem since buyers generally investigate very carefully and will probably figure out any major problems.
· Is the timing right? Could the market and sale price be better if you waited? As a general rule, the best time to sell is when the business and your sales are peaking and the industry is likely to attract great interest.
· Have you thought about your employees? How will they be affected by the sale? When the business is sold you may have obligations to pay entitlements which could include severance pay and leave entitlements.
· What are the tax implications if you sell your business? There are many tax issues to consider when selling your business.
· Do you have obligations under your lease if you sell the business? If you operate your business from leased commercial premises, your obligations under the lease do not automatically transfer to the new owner upon sale of the business. You will still be legally liable for the rent and all other obligations under the lease unless you arrange to have the lease assigned to the new owner of your business who will then become the new tenant.
If you are wrestling with this issue and would like to confidentially talk through these thoughts, please contact me. Also please contact me for a checklist on how to prepare your business for sale and also a Business Valuation Rule of Thumb.
Although the most aspect important aspect of selling is actually state of your business which need plans, but before sale a business a business owner should pay attention at the weak areas of the business and tries to improve them before to go for a sale.
Posted by: business valuation | July 19, 2011 at 01:51 AM