As an entrepreneur, one of your primary goals is probably business success. That success can take a lot of different forms — whether you achieve it through implementing an excellent growth business strategy or fostering a strong company culture. These are great accomplishments, but did you know that some business owners measure their success by how easily they can sell their business for a substantial profit?
Selling one’s business can be a bittersweet decision, but depending on your company’s situation, it may be the smartest move in the long run. Selling your business could ultimately be a great way to reap the financial rewards of your hard work as well as explore new and exciting opportunities for long-term growth. We’ll go into more detail regarding the benefits of selling your business below and delve into some potential pitfalls to be aware of before you make this decision.
Understand the benefits of selling a business
Business development is a framework for nurturing continual growth, and as a business owner, you ideally adhere to this framework throughout the lifespan of your business. Ultimately, growth never stops, and for a business to remain profitable, it must continue to expand its operations and increase its revenue — no matter what it takes.
When you recapitalize your company, you’ll earn cash — and in the future, you could earn even more when you and your partners decide to sell the entire business. If you and your partners can manage your business effectively, you’ll likely see its value increase significantly from when you originally sold your majority stake.
Selling your business is a big decision, and you will want to consider many factors as you go through this intricate process. As a business owner, you may be initially hesitant to sell your business because you’ve put a lot of work into building it. Thankfully, if you sell your business, you’ll likely have the opportunity to maintain your involvement in one way or another. It should also allow you to diversify your personal finances more effectively, which is always a plus.
How to sell your business to foster long-term growth
So, you’ve decided to sell your business — which is great because it’s ultimately a great way to foster growth over the long term. Let’s take a closer look at the action steps you’ll need to take to work your way through this complex process effectively.
- Assess your current financial situation
Before you make any major decisions, put some time aside to assess your current financial situation. Make sure you have a solid grasp of your assets, cash flow, and liabilities. You’ll want to spend some time analyzing your financial statements, as this will be a good way to ensure that your business is both financially stable and attractive to potential buyers. You may also be able to spot areas that have fallen through the cracks regarding profitability and cash flow.
- Consider the tax implications of selling
The tax implications of selling a business can be complicated. You may want to work with a tax professional while navigating through this part of the selling process. Understanding the tax implications of selling your business will help you make an informed decision about the sale when the time comes. By working with a tax professional, you’ll have a much easier time taking advantage of certain tax strategies, so it’s well worth it.
- Identify potential buyers and valuation strategies
Do whatever you can to make sure that you’re selling your business to the best buyer possible. Consider who the most likely buyers will be, and think about how you want to value your company. Depending on who the buyer is, they will likely have their own particular priorities and reasons for wanting to buy your business. For this reason, you will want to make sure you understand where they’re coming from and what they’re willing to pay. If you’re unsure how to value your company, work with a business valuation expert. After going over all the details, they should be able to help you come up with a fair price.
- Prepare to negotiate an agreement with buyers
Once you’ve figured out who your potential buyers are, you’ll need to prepare to negotiate the terms of the sale. These negotiations may involve going over the price, as well as any contingencies that should ideally be a part of the agreement. Ultimately, the goal here is to reach an agreement that’s fair and beneficial to both you and the buyer. This agreement should also set your business up for long-term growth and success. Negotiating can be difficult, so be sure to take some time to properly prepare. We can’t stress this enough!
Pitfalls to avoid when selling a business
As you can see, selling a business can be a complicated and time-consuming process — especially if you haven’t considered all that making a smooth, successful sale entails. As a business owner, you’re going to want to be aware of the following pitfalls before you make a final selling decision. It’s very easy to get caught up in the excitement of selling your business, but it’s ultimately better to be safe than sorry.
Not being properly prepared
You wouldn’t put your house on the market without cleaning it up and making repairs first, and the same line of thinking applies to selling your business. Before selling your business, you’re going to want to make sure that you have all of your affairs in order. This usually means taking a close look at your books and records and reviewing your tax deductions to ensure that they’re defensible and legitimate. By taking the time to properly prepare your business for selling, you’ll be doing yourself a favor, so don’t skip this step!
Not taking advantage of professional help
Another major pitfall you’ll want to watch out for when selling your business is neglecting to take advantage of professional help. Just because you’re an expert at running your company doesn’t mean you’ll be able to navigate this process on your own. When selling your business, you’re going to need to consider a lot of different negotiation tactics and legal considerations — which is too much for one person to deal with. You’ll have a much easier time selling your business for the best price possible if you have someone helping you out with the logistics along the way.
Misrepresenting your business during the selling process
For most business owners, their business is like their baby. Your subjective perspective might inadvertently lead you to misrepresent it during the selling process. When negotiating with buyers, you need to make sure that you’re portraying your business in an accurate light. Try to avoid embellishing the truth or making any false promises, as this could cause the buyer to lose trust in you. Misrepresenting your business during the selling process could even lead to legal issues down the line, so you’re going to want to avoid doing this at all costs.
Not qualifying buyers beforehand
Once again, your business is like your baby. You’re going to want to make sure that the next person taking care of it will treat it right. If you don’t take the time to properly qualify your buyers beforehand, you run the risk of potentially harming your business as you’ll be disclosing information to people who either don’t know what they’re doing or have no intention of buying in the first place. This could potentially be a big waste of time and resources, which is another reason why vetting your potential buyers is so incredibly necessary.
Pricing incorrectly when selling your business
As stated before, it may be a good idea to seek help from a business valuation expert or consultant when it comes to determining what your business is worth. You should also look into the market and the industry your business is in and figure out what similar businesses are selling for. Too many business owners end up pricing their businesses incorrectly simply because they don’t know the right way to go about it. The best thing you can do for yourself is to take this process slowly. Ultimately, you’ll need to find a good balance between getting the most value for your business and setting a price that buyers will find reasonable.
Prepare for life after the sale
You’re probably going to be emotional after selling your business. Just know that this is perfectly normal, and you’re not alone in feeling like this. Selling your business is a serious life change, and it’s going to take some getting used to. There are also certain challenges you’re going to have to overcome, such as the financial aspects of the sale and the way that this sale is going to psychologically impact you. Since you’ve dedicated years of your life to running this business, you might be at a loss for what to do with your newfound freedom. Again, this is normal! You’ll need to take some time to reevaluate your life after selling your business, which may involve creating an entirely new or altered sense of purpose for yourself.
It’s highly recommended that you come up with a solid plan for what you will do after selling your business. As always, don’t be afraid to seek help, and don’t forget to give yourself grace as you go through this process as well. If you’ve decided that selling your business is the right choice for you, you may want to take a look at what else Project Newport has to say about business strategies, downsizing, and more.