Most entrepreneurs encounter a point in their careers when they decide to move on from their business. Whether it’s for retirement or to try something new, selling a business is a monumental moment in an entrepreneur's life and shouldn’t be taken lightly. Here are some key factors to consider when selling a business.
Timing of your sale
Good timing is crucial to the success of your business’s sale. To ensure you get the most for your money, research the market to determine whether now is a good time to sell. You could lose out financially by selling your business at a time when its valuation is lower, rather than waiting for the market to change in your favor.
Sellers should also be aware that the sale process could take longer than expected, and it may be about a year or more before you finalize the sale.
[Read more: 5 Qualities Successful Small Businesses Have in Common]
Reason for selling
Your goals should drive the sale of your business, whether you’re ready to advance to the next stage of your career or you want to settle down with your family in retirement. Determine your reason before deciding to sell the business and how it will impact you going forward; the decision should not be brash or impulsive due to an upset or dispute.
Additionally, your reason for selling might impact who you want to buy the business. If you’re looking for the business to carry on without you, finding the right buyer to continue running the business on your behalf and upholding its legacy and mission will take time and energy.
Your business’s value
To understand your business’s value, look at its profits, inventory, key customers, and good will, and determine how necessary your business is to its market/industry. If your business’s value is lower than expected, you may lose out by taking a lower offer than it’s worth. However, overvaluing can make your company less appealing to potential buyers and lead to a lack of bidders, prolonging the sales process.
Using an impartial third party to estimate the value of your business can ensure it's valued correctly. However, don’t rely on the business's potential growth when determining the price point you’ll sell at; buyers are purchasing the business in its present state and will care more about its current value than the value it could have down the road.
[Read more: What Is Your Business Worth? Here's How to Find Out]
The structure of the business and "what" you are selling becomes critical for tax purposes.
Karla Dennis, Founder and CEO of Karla Dennis and Associates, Inc.
Personal readiness
Some business owners choose to sell their company before they’re emotionally ready to let go; however, the sale shouldn’t proceed unless the owner is absolutely ready to transfer ownership. Don’t rush the process — after all, a lot of blood, sweat, and tears went into building the company from the ground up and forming relationships with team members and customers.
To avoid having regrets down the road, determine whether you feel accomplished in your goals with the company or if you still have unfinished business. If it’s the latter, you might want to wait to sell.
Structure of the sale
You can sell your businesses in many different ways, most commonly via an asset sale or share sale. The former, in which the entrepreneur retains ownership of the company, involves selling some or all of the company’s assets. The latter involves selling the entrepreneur’s shares in the company.
Each sale structure comes with tax implications, impacting how much you make from the deal. Karla Dennis, Founder and CEO of Karla Dennis and Associates, said that depending on your specific business entity, a stock or share sale may be the better option.
“The structure of the business and ‘what’ you are selling becomes critical for tax purposes,” Dennis told CO—. “A stock sale [means you] … receive long-term capital gains on the sale of your stock, [and you] may be able to receive some exclusions on the gain on sale if your business is in the right structure, i.e. a corporation.”
Your next steps
Once you complete the sale, do you plan to retire and enjoy your life, or do you intend to expand your portfolio by creating another business?
Entrepreneurs dedicate time and energy to their business, and with the sale of it, they can feel like they are missing something significant. Though you may not figure out all of the details before selling, determining your intended next steps beforehand can offer entrepreneurs something to look forward to and help make the decision easier to handle.
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
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