Mark W. Boslett
10 Questions To Ask Yourself To See If You’re Ready To Sell Your Business
It’s imperative that you sell your business when you’re ready and don’t rush the process. This will ensure you get the highest return and will be set for the rest of your life to meet your goals.
Here are ten important questions to ask yourself before deciding to sell your business.
1. Have you obtained a Certified Valuation stating how much your business is worth? Before you can begin the Exit Planning Process successfully, you must know how much your business is worth. If you don’t know how much you’ll likely get from the transfer of your business, how will you know if you’ll have sufficient monies to live the lifestyle you want in retirement?
You must know the value of your business no matter who you plan to sell or transfer to. In a third-party sale you need an accurate business valuation to determine if, after the business is sold and the taxes are paid, you’ll have enough money to achieve your lifetime financial goals. If a business valuation determines that the sale of your business doesn’t provide the money necessary to meet those goals; you may not want to even begin the expensive sales process.
You need a valuation based on reality; rather than an industry rule of thumb, or what the business down the street sold for. Without an objective business valuation, how can you make an informed decision?
2. Have you performed the due diligence necessary to determine that your corporate records are in order so that a timely transfer can be made to a new owner? Would you purchase a company without first learning everything you can about it? I think not. Neither will a buyer. This learning process is called due diligence.
During the due diligence process, a buyer and buyer’s advisers will examine all aspects of your business, including your contracts, procedures, systems, plans, agreements, leases, manuals, and financial records.
Put yourself in the shoes of the buyer. Begin the due diligence process as quickly as possible so you can remove all barriers to sale prior to the buyer entering your premises. Keeping the road to a successful close clear of impediments decreases the time between the buyer’s offer and the closing date. In a sale, time is not often good for a seller, so you want to decrease the time it takes to close.
That is why it is extremely important that you and your advisory team clean up all contracts, agreements, stock ledger books, corporate records, leases, or lawsuits before you enter the marketplace.
3. Do you have well-documented systems and automated processes in place so that the buyer can step in and immediately perform at a high level? A buyer won’t pay for anything that leaves with you; they don’t want to recreate the wheel so to speak. The buyer’s number one question is, “Can I rely on the systems and processes that are in place so that my success is repeatable and sustainable?” If they can’t, they may not be able to continue to make the cash flow necessary to pay you the monies owed you.
A business system that is repeatable and sustainable is one understood by employees and used to achieve the desired purpose. Some of those systems implemented include; human resources, marketing, organizational, administrative, financial, accounting, and sales systems. You must have effective systems to add value to your company.
4. Do you have a plan to grow your company to make it sell for the highest value possible? Each small business owner has the same goal of turning their small business into a successful, highly-valued enterprise. Unfortunately many of these same business owners are unable to take their seed of a business and transform it into huge tree of success. Fortunately, there are things that an owner can do in order to increase their business value and achieve top dollar when they’re ready to exit.
Whether you are interested in selling your business now, in ten years or not sell it at all, it is always important to aim to increase the value of your business.
5. Do you have a business continuity (buy-sell) agreement in place that directs the activity of your business in both a living and after death transfer of your company? Is your business able to continue if you, the owner (or co-owner), dies, becomes disabled, or otherwise are unable to work in the company, either voluntarily or involuntarily? Who will be your successor? How will you prepare for the significant financial interruption that will occur as well as how the loss will affect both the customers and the employees?
Business continuity arrangements must cover both life and death scenarios. Your challenge is to obtain a business valuation that is consistent for both events.
6. Do you have a compensation system in place so that your key employees will remain motivated to stay after the sale? Do you have non-compete agreements in place with your key-employees so that they can’t take your customers, trade secrets, etc.?
A true “key employee” has the following traits:
They have a direct and significant impact on the value of the business.
They have skills and experience that are very difficult to replace.
They have an important role in the strategic future of the company.
The loss of a “key employee” will have a direct financial loss to the company and will delay the “exit” of the business owner.
Once the key employees are identified then we can design incentive plans that will motivate them to stay with the company long into the future.
7. Do you have financial controls in place that help you obtain financial statements that accurately report your company net profits? Accurately reporting your net profits is important to properly valuing your business.
8. Do you have a written Exit Plan in place that holds your advisers accountable for specific activities in specific timetables? Almost 10 million business owners will reach the age of 50 within the next ten years, and begin to contemplate retirement; perhaps you are one of them. What have you done to prepare for that day?
Recent studies have concluded that most retirees live off 95% of their pre-retirement income. Isn’t that reason enough to create an Exit Plan that will help you to achieve your financial and lifestyle goals after you leave your business?
Leaving your business, in your time, on your terms, is not a mysterious process. It is, however, a means to help you obtain your financial and lifestyle goals.
9. Do you know when you plan to sell your business and to what type of buyer? Do you know what the tax effects will be for that sale? Whether a family member, inside employee or third party, having an idea of who may buy your company is important. Cash flow and taxes are also critical aspects to consider.
10. Do you know how much money you will need to live for the rest of your life? How much of that money will you need to obtain outside the sale of your business? Having a financial goal is important to seeing if it’s the right time to sell your business.
If you answered “yes” to all these questions, you may be ready to begin the process of selling your business. If you are like the vast majority of business owners: however, your answers will show you areas where you need to improve before you begin the sales process.
No matter what your answers, we can help you get started. Contact us for a free evaluation.