6 Key Considerations Before You Sell Your Business

April 30, 2019

Are you thinking about selling your business? Whether you own a new start-up or an established family-owned company, it’s critical to be strategic, thoughtful and intentional because the decisions you make now will affect your ability to protect and grow the proceeds from the sale for years to come.

Selling a business isn’t an overnight decision – it’s a complex, long-term process that requires serious planning. Make sure you do the due diligence necessary to identify the right buyer, get the best price and make strategic long-term financial plans.

Before you sell your company, here are few important steps to consider:

  1. Assemble the Right Team. Gather your most trusted advisors and the best experts to help you make smart decisions. Your team should include a capable advisor who can manage the sale process, which includes identifying buyers and negotiating the terms of the transaction. In addition, your team should include an attorney, a Certified Public Accountant and an investment advisor. Together, your team will help you develop a plan, protect your interests, make sure you’re aware of the tax implications of any decisions and invest the proceeds from the sale of your business in a way that will benefit you and your family long-term. It’s important that your team work together to draft a plan before you engage potential buyers so they can collectively advocate on your behalf.
  2. Calculate the Value of Your Business. Putting a dollar value on your business is a complex task. Make sure your financial records, reports and statements are up-to-date, including balance sheets and P&Ls. Be sure to separate your personal expenses from your business, so you get an accurate picture of what your business is really worth. It’s not unusual for business owners to “live through their business,” but those expenses should not be included in the baseline valuation of what the company is worth. Make sure all business contracts are reviewed by an attorney to avoid “ownership ambiguity” and to make sure there are no surprises that might sabotage your deal.
  3. Reflect Upon Your “Big Picture” Goals. Would you like to stay involved with your company as an employee or walk away? Do you want to get all the money from the sale up front or in ongoing payouts? Will you live off the proceeds from the sale of your business or do you have additional sources of income? What’s really important to you in the big picture? Answering these questions will help you make important decisions throughout the sale process and beyond.
  4. Create a Plan and Identify Prospective Buyers. Work with your team of experts to draft a strong plan that puts your interests first. Also, give serious thought about who might be interested in acquiring your company. Make a list of prospective buyers and work closely with your team to put the plan into action.
  5. Think About Tax Implications. You will likely get a windfall from the sale of your business, but you’ll also have to pay taxes and plan for the future. Make sure you’re realistic about the proceeds you will receive after the sale, considering the taxes you will be required to pay.
  6. Develop a Solid Post-Sale Financial Plan. Work with an experienced, trusted investment advisor to create a customized financial plan that will help you make the most of the proceeds from the sale of your business. How you invest the proceeds depends upon a number of factors, including your risk tolerance, your income needs and your assets. These factors will inform your investment strategy and help set you up for long-term success. Ultimately, the goal is to create a financial plan that meets your income needs and preserves the principal from the sale of your business for as long as possible.

Selling a company you’ve spent years building marks the end of one chapter in life and the beginning of another chapter. We’re here to help make that process as smooth as possible and to serve as a trusted member of your team.

Please reach out to us to get started.

AUTHOR:

JOEL GOODMAN, CFA