When it’s time to sell the business, the only option for small business owners is to do it right.
Selling a small-to-medium-sized business is unlike the mergers and acquisitions (M&A) process commonly involved with large corporations or public companies. After all, “Big tech companies and large corporations tend to steal the spotlight, however, small businesses are the backbone of the American economy,” according to Forbes.
Small business owners typically invest significantly more personal effort and resources to build their business from the ground up; the company embodies a culmination of their hard work, sacrifices, and realized dreams.
Deciding to sell often marks a once-in-a-lifetime moment that will secure their financial future. However, many find themselves at a crossroads, uncertain of the initial steps or path to navigate the complex company selling process.
This “selling a business checklist” has you covered. Continue reading to discover all the essential things to consider when planning your transition strategy.
1. Prepare the Business for Sale
Some business owners believe the process of sell-side M&A begins with the decision to sell. However, in reality, they should start preparing the company for sale years before deciding to step away.
Enhance your business by optimizing operations, boosting employee performance, expanding the customer base (if possible), and ensuring all financial and tax records are thorough and accurate. By doing so, you’ll be well-positioned to maximize the value of your business when it’s time to close the deal.
To get you started, here are the steps suggested by the CO, a publication run by the US Chamber of Commerce, to prepare your business for sale:
- Boost profitability
- Develop and document transparent processes
- Foster loyalty among employees
- Identify all tangible and intangible assets
- Put yourself in the buyer’s shoes
Additionally, a well-prepared business enables the buyer to swiftly evaluate its value, bringing them closer to making an offer. You want to avoid a drawn-out process that ends in either no offer or an unsatisfactory one — that’s just wasted time.
2. Identify Your Objectives
In a business sale, it’s crucial to understand your priorities. Have you considered how your decision will impact your family, employees, or partners? Assuming their well-being is a concern, have you weighed all their interests in your transition strategy?
For example, you may want to ensure the job security of loyal employees through the acquisition. Alternatively, retaining some shares for your family to secure your legacy and their financial future may be vital to you.
“List your goals and organize them by priority. Although it will be difficult, figure out which goal is the most important to you. When the time comes for negotiations, you may not be able to achieve all of your goals, but clearly outlining your priorities will help ensure you actually achieve the ones that are most important to you,” recommend Dan Casarella and Rachel Barton, contributors at CO.
Ultimately, knowing your objectives for the sale will serve as your guiding principle throughout the process, and help you structure the deal to your benefit.
3. Know the Benchmarks
As you prepare your company for sale, understanding your benchmarks is crucial. Have you seen any recent transactions in your industry closely related to your business? Educate yourself on industry trends, market performance, competition, and sale prices. This knowledge can help you assess where your company stands in the market.
However, be careful not to put too much weight on these benchmarks. Every business and every sale is unique, with numerous nuances involved. So, drawing parallels can be like comparing apples to oranges — potentially misleading.
4. Line Up Experts for Advice on Strategic Transactions
You might ask yourself, “should I use a broker to sell my business?” That’s a fair question.
“Selling the business yourself allows you to save money and avoid paying a broker’s commission. It’s also the best route when the sale is to a trusted family member or current employee. In other circumstances, a broker can help free up time for you to keep the business up and running, or keep the sale quiet and get the highest price,” according to Brigitte Yuille, a journalist at Investopedia.
You might want to lean on external expertise if selling to a third party. A successful M&A often involves a small, trusted circle. When owners try to do everything themselves, the proximity to the business can sometimes cloud their judgment. In such circumstances, relying on expert advice from an M&A advisory firm with years of experience in both sell-side and buy-side transactions is crucial.
These firms provide strategic advice and manage the entire sale process, from early preparations and valuation to negotiations and closing. M&A advisors, through their objective and knowledgeable lens, ensure you get the best deal for your company and years of hard work.
5. Sell at the Right Time
Before proceeding with the sale, consider the current market conditions.
Has the market heated up since you initiated the sale process, potentially increasing your company value? Or, if the economic conditions aren’t ideal, is this even the best time to sell your business? Weigh these considerations carefully.
While there’s no ideal time to sell your business, SCORE offers a few guidelines to help you make the decision:
- Hold off on selling if you’re still passionate about your business
- Don’t sell during a market slump, as the economic condition is intertwined with your business value
- Avoid selling to the wrong buyer not aligned with your vision; for instance, if the future of the business post-sale is a concern
However, your decision shouldn’t affect your transition strategy. Until a deal is closed, continue running operations as if an agreement isn’t on the horizon to maintain momentum.
6. Find the Right Buyer
As previously mentioned, selecting a buyer whose vision aligns with yours is essential; otherwise, you might have regrets post-sale. Remember, this decision affects you and your family, employees, customers, and other stakeholders.
If you’re not under financial pressure, avoid rushing the decision. At the same time, ensure the prospective buyer doesn’t prolong the sale process unnecessarily. According to SCORE, selling a business could take several months to years. As a business owner, it’s normal to prefer a swift process.
In these cases, Investopedia offers recommendations to speed up your search for potential buyers:
- Keep your options open and have backup buyers so you’re not in the lurch if the deal falls through with one
- Maintain regular communication with interested buyers
- Price-qualify buyers to avoid wasting time — yours and theirs
- If the sale will be financed, work out the agreement in writing with an attorney’s help
- Be flexible in negotiations, but don’t compromise on a fair, justifiable price
- Document everything to ensure confidentiality and safeguard business information
- Aim to get the signed purchase agreement into escrow
In general, waiting for the right buyer is preferable to selling to someone who doesn’t see your vision or doesn’t offer what the business deserves.
Don’t Go at It Alone
Selling a business is a significant, life-changing decision, and you want to ensure the deal’s structured in your favor. Paramax is an M&A advisory firm with years of experience in sell-side, buy-side, financing, valuation, and solvency services. If you’d like strategic, thoughtful support in planning and executing your exit strategy, contact Paramax today.