A business sale is a great way to protect your legacy while cashing in on the years of labor, risk, and investment. Successful business owners proactively plan for the future of their families and employees for generations to come.
A business sale requires planning, management, execution, and follow through from optimal profitability and long-term success.
Planning the Business Sale
First, like any major endeavor, selling a business requires extensive planning. It’s not like you can wake up one day and decide you are going to sell and be free of it in a few days. No, it’s never quite that easy. The good news is, however, YOU CAN sell efficiently and effectively if you have certain key things in place beforehand.
Here’s the must have list:
- Accurate breakdown of all equipment, fixtures, and vehicles necessary to operate the business
- Detailed list of employees, their wages, duration with the company, and level of skill
- Minimum 3 year’s profit and loss statements, with supporting tax returns
- Updated balance sheet
- List of any loans or liabilities of the company
- Copy of the property lease agreement
- Records of any company licenses, service agreements, vendor contracts, etc.
- Business records such as contract rights, intellectual property, profiles and ID’s
Putting this list together with painstaking detail is EXTREMELY important. It absolutely must be accurate, up to date, and organized. Doing it right will require some time – sometimes a lot of time. But the rewards of taking this on before you are ready to sell are significant.
Managing the Business Sale
Like running a business, the management of a sale is a necessary and important part. For one thing, when you sell a business you can’t slow it down to accommodate the additional work of selling. A business on the market must operate as good or even better than before it went on the market. Why?
Put simply, the last thing a buyer of a business wants to see is the business he is buying winding down as the sale approaches. On the contrary, the buyer needs to see the business booming, and THAT is how a seller justifies the price she is asking. So while the process of business selling takes a chunk of additional time, that workload cannot interfere with the present obligation of running the business.
This can be a hard truth for some sellers. While most do not intend to slow or stop their business, many think that since they are relinquishing their business anyway, they might as well begin the exit early on. But sellers just can’t do that without consequences.
Sellers need to remember that they must manage the business sale just as they manage the business. It might involve meeting with buyers after-hours when all staff have gone home. It might mean taking inventory of stock more frequently than normally would be necessary. It might mean more deliberation before buying equipment for the continuation of operations.
Managing the business sale efficiently and affectively as managing the business operations ensures a smooth process that makes everything go easier and ultimately more profitable.
Executing the Business Sale
The execution of the sale is similar to executing a trust in that for both, you need a professional consultant. Just as a lawyer is a much needed professional in certain events of life, so is a business broker to certain events, and in particular, the sale of your business.
Business brokers and Intermediaries do exactly that: they broker businesses. A business broker or intermediary is not a real estate agent who sells houses or apartments. Though they probably have all the skills needed to sell residences, their specialty (and often their sole work) is to sell businesses and companies. There is a vast difference between selling real estate people live in and selling revenue-generating businesses. Business brokering requires much, much more specialized knowledge and a far greater level of time and resource investment. Business brokers are unique and comparatively rare professionals who know how to value, market, negotiate, and close the sale of a business and they are VITAL to the sale of most businesses.
And here’s the main reasons:
- A business broker acts as a liaison between sellers and buyers
- A business broker can substantially reduce the risk of legal liability
- A business broker works with other professionals who are a key element of properly selling your business
- A business broker has access to marketing and networking that bring more buyers to the table
- A business broker qualifies buyers beforehand to eliminate time wasters
A qualified business broker is a key element to the success of your business sale.
Rhett Kniep is a certified business broker and can assist you in planning the sale of your company. He is more than happy to meet and discuss your particular needs.
Following Through on the Business Sale
Once a business sale has closed, there may be more work for the seller. Some common examples include:
- The seller will likely have agreed to training the buyer for a period of time
- The seller may still have accounts to sever or relationships to pass on the buyer
- The seller may have carried a note for all or part of the sale
Even if the buyer is skilled in the business she is buying, she probably still has some things to learn. The business might have some peculiarities about it, perhaps some unique procedures that the buyer needs time to accommodate. The buyer will need to get this from the seller. Often, buyers have very little experience in the business they are buying (they might be good business managers but don’t know that particular business very well) and need a period of training from the seller. Sellers need to be okay with this…it’s all part of the process.
Industry dictates the average time needed, but in most is seems to be about 30 to 45 days of training that sellers will commit to buyers after the close of the sale. Some of the training can begin (and often does) before the business sale closes.
Sellers have relationships with all different kinds of people and companies for the proper running of their businesses. This could be an accountant, vendors, key subcontractors, major clients, or related companies. The seller of a business will be compelled to introduce these contacts to the buyer; after all, he is selling the business and that means everything (relationships included). This is normally done in the follow through stage, after a closing is complete but the seller is still engaged to help transition the buyer into the business.
Most business sales are financed with some percentage of seller financing involved. When there is seller financing, the seller is, in a sense, “investing” into his own company. As an investor, he is involved still, albeit on a financial basis only. Of course all sellers are wishing their buyer to be as successful as possible, and as a financial partner, the seller is a part of that success.