STOP!!! Do you have a plan to sell your business, either now or in the future? Then I advice you shelf that plan until you ask and answer the questions listed below.
Call this a follow-up to my previous article “How to Sell your Business” and you won’t be wrong. If you are that kind of person who doesn’t think twice before taking vital decisions, then you need to change that when planning to sell your business. Selling a business requires thinking twice and so should not be an impulsive decision. You need to consider many factors including your future after selling the business.
You need to ask yourself some important questions when selling your business. And only if you can provide satisfactory answers to this questions should you go ahead. Here are the 10 most important questions you need to answer:
Top 10 Questions to Ask Before Selling your Business
1. Is the time right?
You will always get more money for your business if you sell when the market trends are upward and improving. The rule of thumb is to sell on the way up. Once you start sensing a decline, and your revenue and earnings are heading downwards again, sell!
Many business owners time wrongly. They expect that the market will pick up again some other time that may never come. So, take your chances when you have them. If you don’t sell your business when the market is high (because you think you are making good money), then you may have to sell for much lower than it’s worth, as buyers won’t pay good prices for businesses that are going down.
2. Is my business ready to sell?
The decision to sell your business shouldn’t be a quick one. Experts recommend at least two years of preparation before putting up your business for sale. This is because you will need to produce at least 2 years of tax returns and other financial statements that are accurate and show maximum profitability to convince the buyer that you business is worth a good price.
3. Is the market right?
Before selling your business, you must consider the current market conditions for your industry. Do you foresee a general market decline? Or are there any factors indicating that the industry can grow further in the near future?
Certain businesses showed pretty good returns in the past few years but had now lost a huge chunk of their value. Some companies turned down huge offers in the recent past, but now, they couldn’t get even half of the price offered by interested buyers in the past.
Selling your business at a great price requires more than your own efforts. You will need to figure out other professionals whose involvement will help you get the best price for your business. Such individuals include accountants, appraisers, consultants, business brokers, and so on.
No doubt, the buyer would have a good team to scrutinize your business during the due diligence phase. So, you should have a good team to present your business to them.
5. Can I cope with the changes in the market?
Some business owners can find it very hard keeping with rapidly changing technology, increasing globalization, and other business trends. Picture your business three of four years down the road, and if you think you won’t be able to keep abreast of technology and other changes, then you should sell your business before your failure to adapt catches up with you.
Though selling your business may be a hard decision to take, being forced to sell due to being left behind is a harder pill to swallow.
6. Can the business thrive without my involvement?
If your business is such that it is too dependent on you or on a single customer, then buyers may take their offers elsewhere. Experts define a salable business as one that can operate when the owner is on vacation and has good revenue diversification, where no single customer represents more than five percent of the business. So, if this doesn’t describe your business, it’s not sellable.
7. Would I be willing to stay on if the buyer wants me to?
Sometimes, a buyer can request that you stay on in an advisory role for a period of six months. This is common when the buyer is interested in owning the business but lacks the skill and expertise required to run the business. If you are willing to stay, it might reduce the risk to the buyer and increase the value of the company.
A good example of this arrangement is AOL’s purchase of the Huffington Post blog from Arianna Huffington and her being retained as the manager of the blog. If you are not willing to stay on like Arianna Huffington did, you may end up losing buyers who request such.
8. What are the potential deal breakers?
Some ugly issues can crop up and interfere with the deal, especially in areas such as company ownership, intellectual property rights, and accounting. For example, a business owner may have outsourced the development of the company software to a third party contractor without requiring him to assign his rights to the company. Such an issue can scuttle any deal.
9. Would I consider alternatives to an outright sale?
If you think an outright sale isn’t right for you, you can consider other options. Can you sell a percentage of the company to a private equity fund? How about structuring a deal to pass on the ownership to employees through an employee stock ownership plan (ESOP)? A CPA or investment banker can help you uncover and weigh other available options.
10. Do I understand the sale process?
Selling a company is a process. Make sure you get professional advice and understand both the opportunities and the pitfalls. Never proceed to sell your business until you have in-depth knowledge of the sales process.