Tips to consider before selling a small business
The market for business sales has improved dramatically during recent years. Many business owners nearing retirement age view the modest economic improvements in the U.S. as an opportunity to get a better business valuation than has been seen since 2008.
We regularly advise clients in the process of selling their business. If you are considering selling, the best advice is to perform a self check on your business before moving forward. The considerations in a business purchased transaction have changed dramatically from the buyer’s side during the past several years. This is primarily a result of general economic uncertainty through and following the recession. What this practically means for a seller is that they should expect longer and more thorough due diligence from a buyer than ever before.
Regarless of the industry, a few practical tips for a business owner preparing to sell include the following:
(1) Consider all of the potential “skeletons” in your closet before beginning discussions with a potential buyer. These include any former disgruntled shareholders or employees, customer issues and any pending or threatened litigation or disputes.
(2) Consider the reasonableness of any projected revenues and profits for the future. The reality is that a buyer’s due diligence review is going to take longer than in the past, and the buyer will definitely have more reservations if those projections end up being materially inaccurate.
(3) Get a good idea of what your business is worth before talking to a buyer. From a negotiating standpoint a seller definitely should not “negotiate with himself”, but it is a good practice to engage your CPA or other financial advisor to run the numbers and consider what similar businesses may be selling for.
(4) Understand that the sale process can take A LONG TIME. The combination of an uncertain economy, longer due diligence review, and difficulty in financing many deals results in a significant time commitment from start to finish.