By Leonard Gambino
Many business owners decide that the right time to sell their business is when they are ready to retire or when they face personal events such as health issues or a need for liquidity. But successfully selling your business, whatever the reason, requires planning that begins well before you are ready to move on. The decision to sell should be based on a careful examination of the industry, your company’s recent performance, and its prospects for future growth. Personal needs and desires should not be the only factor in deciding when to sell.
Prepare Your Company for Sale. The first step in selling your business is to get your house in order. Look at the aging of your receivables and write-off or put out for collection those over a certain age. Check to see how much of your inventory is saleable. Understand who are the key stakeholders in your business, whether they are employees, vendors or customers. These people and businesses impact the value of your company. Do you understand both your company’s strengths and weaknesses? You will need to emphasize your company’s strengths, but you should disclose problems up front while they can still be resolved. Potential buyers surprised with bad news at the last minute may head for the door.
How Much is Your Business Really Worth? Our experience is that most, but not all, business owners have a pretty good idea of what their business is worth. However, many sellers feel that just because they are selling their business doesn’t mean that they must give up all the benefits of ownership. You should not expect that the buyer will want to pay a large premium for your business, nor is it likely to pay for your health insurance, a company car, or your country club dues, or keep your relatives on the payroll.
Finding the Right Buyer. Finding the right buyer is crucial to a successful transaction. For service businesses or professional practices, the right buyer is often a key employee or group of employees who have the necessary relationships, or who can quickly develop the necessary relationships, with customers, clients, or key vendors. Manufacturers can usually locate financial or strategic buyers. Distributors may find that the best buyer is a key vendor who is looking to acquire authorized dealers.
Are You Willing to Work for the Buyer? If you are selling a service business, your continued participation in the business post-closing may be crucial to the success of the transaction. Do you want or need to continue working? Will the buyer require you to continue working? If you are accustomed to always making all of the decisions, how well can you work in a large bureaucracy or with someone else in charge? You may find that it is an uncomfortable fit.
Hire Capable Professional Advisors. Even sophisticated business owners do not have experience in buying or selling a business, and therefore it is imperative to get advice from experienced and capable professionals. A business broker or investment banker who knows your industry can help you find potential buyers and maximize the sale price for your business. You will also need a lawyer experienced in handling business sales, mergers and acquisitions. A qualified accountant is another important part of the business sale team.
Hire Capable Professional Advisors. Even sophisticated business owners do not have experience in buying or selling a business, and therefore it is imperative to get advice from experienced and capable professionals. A business broker or investment banker who knows your industry can help you find potential buyers and maximize the sale price for your business. You will also need a lawyer experienced in handling business sales, mergers and acquisitions. A qualified accountant is another important part of the business sale team.
Leonard Gambino is a partner at Schoenfeld Finkel Newman and Roseberg LLC in Chicago.
