Five Tips to Follow When Selling Your Business
November 12, 2021
Five Tips to Follow When Selling Your Business
Selling your business is an exciting thought. Unfortunately, a lot of small business owners do not know where to start when thinking about how to sell their businesses. Instead of it being a mystical idea, we want to break down this concept of selling your business so that you can prepare yourself appropriately. If you need help selling your business or if you would like us to draft or review the necessary business legal documents, then contact Counxel Legal Firm at 480-536-6122 or at email@example.com.
With that, we discussed five tips with Mike Payne, CPA, JD, and Owner of BOSS Advisors, about selling a business.
1. Squeaky Clean Books! Clean books -> transparency -> trust
It is not uncommon for most small business owners to be a little sloppy with their financial record keeping. After all, the first step to any business is making money, not tracking money. However, after you have started to make money, it is critical to start really having clarity into your financials and what is being done with that money. The first place a potential buyer is going to look in your business is at your books.
2. What’s in that Closet? Take inventory of your assets and liabilities.
Getting ready to sell your business is like getting ready to sell your house. You have to go to places and clean up things that you have long forgotten about in the closets and attic. Sometimes that is things like getting vehicles titled in the name of the company rather than in your personal name, filing for a protected trademark for your product or service, or even just looking at how you have handled cash payments for invoices to make sure they can be tracked to provide an adequate valuation of the business.
3. Maximize Value. Know what the buyer wants and make adjustments now.
Figuring out who your potential buyers are is critical to understanding how to maximize your value at the time of sale. For example, is your buyer likely to be an individual owner-operator, or is it likely to be a private equity group? Are they going to look at valuing your company on gross revenue or net profits? Knowing this can help you better understand how to adjust your business now to maximize its value.
4. Stretch Goals. Be flexible in timing and structure.
Sometimes we have a fixed notion on how exactly we want a deal to look and how it should play out. Most of this comes from stories we have heard others tell us. For example, if someone hears that their competitor sold their business for $3 million, then they think they can get the same amount. What they do not know is that the $3 million their competitor received was really only $1 million with up to $2 million in earn-outs over the next five years if the company continued to hit sales and revenue goals. Every deal is different, so it is important to make sure the deal fits both party’s goals as well as risk tolerances and timing.
5. No Rush! Time is your friend.
We have all heard the words “fire sale” or “going out of business sale.” What this means is that everything is discounted to get rid of it now. Too often people do this when they’re selling their business. If you wait until the last moment to think about selling your business, then you are limiting your potential value based on many things that are outside of your control. Give yourself time when looking to sell your business.
Special Suggestion: Getting your legal structure straightened up with the right legal documents is a prerequisite to selling your business. There is no reason to wait to do this. These legal documents include partnership agreements, LLC formation documents, business contracts, employment agreements, and so forth. Having this done well in advance of when you want to sell can really help you maximize your value when you decide it’s time to sell.
Contact Counxel Legal Firm
If you need help selling your business, or if you would like us to get your business legal documents in order, then contact Counxel Legal Firm at 480-536-6122 or at firstname.lastname@example.org.
This article is intended for informational purposes only and does not constitute legal advice for your specific situation. Use of and access to this article does not create an attorney-client relationship between you and Counxel Legal Firm. Please contact email@example.com or 480-536-6122 to request specific information for your situation.
*Conveniently located off the 101 Freeway and the US 60 in the middle of Phoenix, Scottsdale, Tempe, Chandler, Gilbert, Mesa, and Queen Creek!