We hope we got you with the headline, but we have to put all our cards on the table: If there were a truly all-encompassing guide on how to sell your business, mergers & acquisitions advisors like us would have a lot less work.
This is more of an all-encompassing overview of the things you should think about when you want to sell your business; the overview covers everything from why you might want to sell and how to prepare for the sale. We don’t cover things like how the sale will be financed (you’ll want to know about things like seller financing) or the exact industry multipliers that will affect the business value - covering everything would be impossible, because no two sales are the same.
You should still keep reading, though; we provide a number of tips and strategies that will help you get the most out of the sales process. Once you’re done reading, if you want to sell your business in Winnipeg, call us; our team will help you sell your business for more.
Core Takeaways
- Reasons for selling a business range from wanting to retire to dealing with health problems; everyone has their own reasons to sell, and those reasons can affect how the business is sold.
- Getting ready to sell your business involves doing a deep dive into your finances and operations; it’s not a deep dive you should do alone, because you’re biased.
- The best way to find a buyer is to work with professionals like Catchfire; the challenge of using your own network is that you then lose the protection of anonymity in the process, which can create unwanted problems in the sales process.
- Selling a business isn’t free, but you get what you pay for, and a good team can help you sell your business for much more than you pay them, with fewer liabilities to worry about.
- A change of ownership means communicating with key stakeholders, dealing with capital gains tax, and in many cases, working for a while to smooth over the transition. Make a plan.
- Preparing to sell your business years in advance can pay dividends; you should start thinking about selling your business before you even open it. Haven’t started thinking about selling yet? Start today.
Reasons To Sell Your Business
There Are New Opportunities On The Horizons
We have met a lot of entrepreneurs over the years, and there’s a pretty generous number of us who would charitably describe as restless. Most of us have our fingers in more than one pie, and sometimes one of those pies gets hot enough that you just need to take a bigger slice.
When that happens, it can make sense to sell your existing business in order to reallocate resources; your time and money can both contribute to the growth of that new enterprise. When you start a new enterprise, planning to sell your old one well in advance can give you the flexibility to sell as soon as your new business grows large enough to be your full-time commitment.
You Want To Retire
You poured your blood, sweat, and tears into your business, and now you want to spend six months of the year in Mexico. Retirement is the single biggest driver for people to sell their businesses when they’re successful.
I encourage people to look into selling their business years before they actually plan on retiring; it gives you the time you need to make your business more attractive for prospective buyers, and it gives you a broader window to sell when it’s a seller’s market.
You’re Dealing With Health Issues
Out of all of the reasons people sell their business, declining health is the one I hate to see the most. Health problems can make people want to sell their businesses quickly in order to help with medical costs. Our healthcare system offers free treatments, but experimental treatments can sometimes drain cash, and some people prefer to fly overseas to be treated more quickly.
We can help you sell your business if your health is declining; it’s all about honestly assessing what you need, the consequences of selling early, and the consequences of waiting.
Your Business Is Not Performing Well
I’ll be frank with you; underperforming businesses are not our typical market. At Catchfire, we typically take businesses that are performing well, help them look even more attractive to prospective buyers, and then sell them. Businesses that are not profitable are businesses that we usually send to business brokers.
With that being said, we’ll happily evaluate your underperforming business; we might be able to help you make it through the fallow period with executive coaching or fractional services, and things might not be as dire as they look. worst-case scenario: we’re not the right fit, and we recommend you to a broker.
Your Business Is Performing Very Well
If your business is firing on all cylinders and the market conditions seem right, you may decide to take advantage of the situation, and sell at maximum value.
The Market Is Changing
Market changes can make a business a lot more attractive to investors - if you don’t expect those changes to last, you might decide that it’s time to sell and make your money while you can.
Ideally, you’ll see the winds of change blowing well in advance and give yourself a couple of years to prepare your business for sale. Even with a year of advance notice, we may be able to shore up the weak points of your business to increase its sale value; the sooner you know it’s going to be a good time to sell, the more you’ll be able to get out of the sale.
Preparing For The Sale
Assess Your Business (But Not Alone)
Here’s how most people assess their own business: “It’s great! I love my business! The people are great. The clients are great.”
That’s great - but it’s probably not the full picture. Every business has warts and blemishes; you’re less likely to see them because you love your business. That’s where we come in. We can assess your business for you, tell you what those warts and blemishes are, and how which ones are worth correcting to make your business more attractive to investors.
This assessment is why I always recommend people come to us years in advance of the day they actually plan on selling their business; when we start working on assessing and clearing up blemishes two years in advance, your business is going to look incredible the day it sells.
Get Your Financial Documents Ready
Financial statements and business sales go hand in hand. You need to understand your finances in order to get a full picture of:
- What your business is worth
- What might scare off potential buyers
- How you can make your business more attractive to those buyers
The financial records you might need include:
- P&L statements
- Balance sheets
- Bank statements
- Tax returns
- Projections
- Cash flow statements
Evaluating your debt-to-equity ratio can also help give you a more complete picture of your business finances. These are all documents and realities that will come to light during the due diligence process, so you’re killing two birds with one stone: Understanding your financial realities and preparing for due diligence.
Prepare Legal Documents & Contracts
We’re killing another two birds here - hopefully, Ducks Unlimited doesn’t catch wind of our spree.
Preparing legal documents and contracts helps get you ready for due diligence; it also gives you insights into the potential blemishes your business has. By reviewing contracts and legal documents, you can:
- Ensure your legal records are current and complete
- Determine if you have legal liabilities that will dissuade buyers
- Get a better understanding of customer concentration and vendor concentration
- Review the responsibilities and compensation of key employees
Finding A Buyer
Use A Business Broker?
The question mark here is doing a lot of work because we are not business brokers - we are a mergers & acquisitions firm.
Like any market, the M & A world is broken into segments from the low-service/high volume brokers - they are a matchmaking service and well-suited to small businesses - to the full-service, high fee model. With the brokers, the level of support is minimal beyond bringing together a buyer and seller, but so are the fees. The full-service firms (large accounting and consulting firms) typically have high fees, and are retainer-based with a success-bonus if/when the business is sold. They are well-positioned for large businesses with complex organizational structures and operating in multiple jurisdictions. But they are not well-positioned to service the mid-market.
Catchfire provides a very high level of service with a fee schedule that aligns our interests with our clients’ interests. We handle the entire process in this incredibly complex undertaking, from prospecting, to negotiating the purchase agreement, to getting the deal done. Our fees are success-based; we get paid when our clients get paid. We have an extensive global network, curate custom prospect lists for our clients, and de-risk the entire process for our clients.
Industry Contacts - Work Your Network
We discourage this approach. It’s risky.
First, your competitors will now know you’re for sale. Will they spread rumours to customers? Try and poach some of your best people?
Second, determining a fair value for your business is not always straight forward. Many owners vastly over-estimate the value and a few seriously underestimate it.
Finally, purchase agreements are typically lengthy detailed documents. If you haven’t been through the process before it’s easy to miss important details or agree to conditions that are not in your best interest.
Online Platforms
Business selling is not something you should do on Kijiji or Facebook Marketplace. I don’t want to say that Flippa or Acquire are exactly like those two websites, but to me, they’re not so different. You might be able to sell your business fast, but you’ll probably sell it for less, and there’s a lot more room for error.
Unless you are a small business, and unless you are prepared to manage the entire process on your own, I recommend staying off online marketplaces to sell your business. They can be a huge confidentiality risk, too; you don’t want your employees or competitors to find out your business is getting sold online.
Expect Expenses
Selling a business isn’t free; you might have to pay:
- Capital gains tax
- Closing costs
- Fees for professionals like accountants, lawyers, realtors, and consultants
All of these fees might make you leery about paying professional costs; don’t be. M&A specialists like Catchfire get paid because we help business owners make a lot more money on the sale of their business; if you make 10% more than you would have otherwise by working with a team, then the total cost of all of these fees is practically negligible.
You’ll make more money on the sale, and you’ll be less exposed to legal and financial liabilities because you know the sale was handled the right way.
Change Of Ownership Tips
Make & Communicate A Transition Plan
You’re happy, the buyer is happy, and the deal is closed. There are a lot of other people to keep happy, including:
- Your employees
- Your suppliers
- Your customers
Make a plan to communicate the sale of the business to all stakeholders; this plan should include a timeline of when the sale is going to be communicated and how it will be conveyed.
Your transition plan should also include details about how you’ll retain these stakeholders, as well as how you’ll transfer responsibilities and key information over to the new owner.
Post-Sale Transition
Many business owners agree to stay on for a time once their business is sold; when selling a business (especially if your plan is to retire), remember that you’ll probably be able to sell for more if you agree to hang around and help the new owner run the place for a bit.
There are also tax implications when selling a business - chiefly, the capital gains tax. I am not a tax professional, so I won’t tell you about all of the tools and techniques you can use to lower your tax burden. The good news is that I know a lot of tax professionals, so if you want to sell your business with Catchfire and you need a good accountant, I can connect you with one.
Final Ideas For Selling Your Business
The last ideas for selling your business that I want to leave you with are all about preparing your business to be sold. I cannot stress enough that proper planning will help you get the most out of your business, and the sooner you start planning, the better prepared you’ll be. With that in mind, remember this piece of wisdom:
You should start planning to sell your business before you even open your business.
For a lot of you, that’s impossible; you’re reading this because you’re thinking about selling. Ideally, though, you should always have a list of conditions in mind - conditions that would make you sell your business.
You should also always be working with the sale of your business in mind. By remembering that one day, someone is going to go through all of your financials and operations to determine if you’re worth buying, you’ll encourage yourself to:
- Keep better records
- Review contracts more regularly
- Diversify your customer base
- Diversify your supplier base
- Create some redundancy in employee knowledge and reduce silos
These are all great practices for the due diligence process - but they’re also great practices for all business owners to keep in mind in general. Doing all of the above will help you keep your business profitable even if you don’t plan to sell for another 20 years.
Finally - and I know this is self-promotion - work with professionals who have sold a business before. Call me, even years in advance! I’ll help you determine how much your business might sell for in today’s market, and what you can do to make it sell for more in tomorrow’s market.
Talk With An Expert Today
The selling process is complex; much more complex than I have time to illustrate in an article of this length (or any length). You’re thinking about selling your business, or you wouldn’t be reading this; if you want to sell your business successfully, in a way that’s aligned with your goals, Catchfire can help.
Call us today for a business assessment. I hope you’re reading this years in advance of the day that you want to sell, so we can do the most for your business, but even if you want to sell as quickly as possible, we can figure out what’s best for your needs and goals through the assessment.