I love a (metaphorical) rollercoaster. The lows can be extreme, but the views from up high make it all worth it. The work it takes to get a business ready to sell, the challenges that come up during negotiations and due diligence, and, finally, the unbridled joy of getting the deal done. The end of the ride - until the next rollercoaster.
When you’re selling your business, you probably want to get off the rollercoaster. The team at Catchfire is here to help; we can’t take the rollercoaster ride for you, but we’ve been on a few, so we get you ready for the ride. Here’s how to sell your business:
Key Takeaways
- Hire an advisor before doing anything else.
- Figure out why you want to sell your business.
- Get your business ready to sell.
- Find buyers - anonymously!
- Have a plan for your money when the sale goes through.
- Prepare for obstacles like emotional attachment during negotiation, and prospective buyers uncovering warts during due diligence.
- Ask yourself a few key questions to prepare yourself for the sale process.
Potential Reasons For Selling A Business
In our experience, most people sell their businesses because they want to retire. That’s as good a reason as we can imagine; you’ve poured your blood, sweat, and tears into a business, and now it’s time to enjoy the fruits of your labour.
Of course, not everyone sells their business because they want to relax. Some business owners sell because another profitable opportunity has presented itself, and they want to dedicate their time and energy to that business venture. Others sell because they’re losing money, and they can’t see a way to make their business profitable - we hope that’s not your case.
No matter why you want to sell your business, the process is rarely ever clean or simple. This article should help, but if you want the best advice right away, call us. We can get your business ready to sell, and then sell it for you.
Common Objectives
Business owners may have several different objectives when selling, but most of these objectives boil down to three categories:
- They want to make as much money as possible.
- They want to leave a lasting legacy.
- They want to get out quickly.
These objectives can compete with each other. Leaving the business as quickly as possible often means you get less of a payout and that you have less opportunity to cement your legacy. Legacy building, on the other hand, can mean less money if you insist on retaining some financial control over the business (selling most of your shares but not all of them).
Before you start to sell your business, it’s important to understand where your priorities lie to avoid getting caught up in competing objectives.
Who You Should Consult
Start by consulting with us. We are full-service mergers and acquisitions advisors, working primarily with businesses that are worth $3 million or more. We want to sell successful businesses because we’ve created a fee structure that incentivizes us to sell your business for as much as possible. We get paid a percentage of the total sale value, so we’ve got a very good reason to maximize your returns.
You should also consult with your legal team and accounting team. Some business owners will also consult with their family members. We recommend consulting with as few people as possible, because anonymity is essential when selling a business.
The Steps To Selling Your Business
1. Hire An Advisor
As soon as the thought “I might want to sell my business” comes into your head, call us. The earlier you hire an advisor, the better off you’ll be. Ideally, we want our clients to call us 3 years in advance so we can help them maximize the value of their business. We handle everything from getting your business ready to sell to finding buyers anonymously. You’re reading this article; that means you’re thinking about selling your business. Call us!
2. Figuring Out Your Reasons For Selling
You might think your primary reason for selling is that you want to retire as quickly as possible, but when you start seeing offers below what you know your business is worth, you might change your mind pretty quickly. Understanding why you’re selling your business is the key to positioning yourself to succeed during negotiations.
3. Prepare Your Business For Sale
We could write a whole article on this point alone. You need your business to look good to buyers; that’s why. In an ideal world, you’ll start working with us years before you actually sell. You want to be profitable, you want a diverse customer base, and you want loyal team members who will stick with the company even after you’ve sold.
You also want to get your business ready for due diligence, a lengthy process in which buyers dig up as much dirt on your business as possible. You’ll want to have any lawsuits settled, your taxes paid up, and a reasonable amount of debt. That might all seem daunting, but it’s usually worth having as clean a slate as possible before buyers start rooting around.
You won’t be surprised to learn that we can help you with all of this; as advisors, we’ll help you find the warts and give you advice on how to deal with them before buyers see them. You can sell a business with some warts, of course, but the fewer the better.
4. Assess Your Readiness To Sell
You could spend days, weeks, months, or years getting your business ready to sell, But it’s really only worth what a buyer is willing to pay. We offer a ready-to-sell assessment where we give you a picture of how buyers would view your business - its strengths and weaknesses, and provide a sense of how much you might expect if your business were sold on the market today.
These third-party assessments are important because every single one of us thinks our babies are beautiful; no one has the heart to say “Your baby is ugly!” That’s what you pay us for; your business is your baby, and we’re here to tell you what’s cute and what’s not. We don’t pull punches because we want you to be ready for the market.
5. Prepare All Relevant Documents
Potential buyers will want to look through all your financial statements and historical financial records: Profit and loss (P&L) statements, tax returns, projections, and more. Work with your accounting team to get all of these statements in order - and work with us to make sure you know exactly what potential buyers are looking for.
You want these documents ready to go because the due diligence process is long and tedious; the more work you can get done upfront, the faster and smoother the process will be.
6. Search For A Buyer
The best way to search for a buyer is carefully. You don’t want to tell all of your competitors and employees that you’re selling your business until the ink is dry on the contract. Giving too much away too early can dramatically lower the value of your business; you don’t want to have a fire sale on something you’ve poured your life into.
We take great pains to keep everything anonymous when we advertise your business to potential buyers. It’s the best way to sell your business for as much as possible: Keep it secret.
7. Have a Plan for Your Money
Once your business is sold, you should have a lot of money (if you’re working with us, anyway). What do you do with it? You can use it to buy or invest in another business. You can use it to retire. You can talk to a financial advisor about using your cash to create a legacy, start a charity, or enjoy life to the fullest.
We can give you our own life experience - we’ve bought and sold businesses of our own - but a wealth management expert is probably going to give you better advice. After all, we’re still in business; the game keeps pulling us back in.
Potential Obstacles And Hurdles You'll Encounter
There is no end to the number of obstacles you might encounter when trying to sell your business. Some are generic (like the ones we’re going to list here), and some are hyper-specific to your business and niche. Here are a few potential pitfalls:
- The market is slow, so it takes longer for the right buyer to come along than you’d like.
- Your business valuation is predicated on a few customers, making it a riskier proposition for a new owner to acquire you.
- You’ve been facing financial difficulties, which makes it tempting to sell quickly, but for less money.
- You’re too attached to your business, and negotiating the purchase price becomes too personal.
- Word leaks, and you lose the anonymity that’s so crucial to a successful business sale.
- You failed to address legal issues, and these issues turn a prospective buyer off from the sale during due diligence.
- You didn’t correctly assess the tax implications of the sale, and once you make your profits, you realize the government is going to take a bigger cut than you expected.
All of these pitfalls can be avoided through the use of our business advisory services, coupled with other professional services like wealth management, accounting, and legal reviews. Even a slow market and financial difficulties can be countered by properly preparing your business for sale and by accessing networks of potential buyers.
Important Questions You'll Need To Answer
How Did The Business Perform Financially?
Historical profitability is important to prospective buyers (though current profitability tends to be even more important). When your business has a history of poor financial performance, it might be prudent to wait a year or two to show a strong history of profitability before you sell.
Do You Have A Strategy Or Plan For The Business?
Everything from your business structure to your projections for profitability will impact the sale price of your business. A prospective buyer will want to see a clear plan, based on these projections, for business growth. At times, the new owner might want you to stay on to help steer the ship toward growth.
Interested buyers will ask you about where you see the business in 5 years, and what your plans are to get it there. They might disagree with your plans, but showing them that there are paths for the business to continue to grow will help assuage their fears.
Staying on during the transition process can assist in ensuring a smooth transition and help the buyer feel at ease about your plans for the business. Another way to reassure them is the use of seller financing; if you’ve got some skin in the game, they’re more likely to believe in your plans for the business.
How Is The Business Doing Currently?
This is the most important factor when it comes to both the market value of your business and how quickly you’ll be able to sell it. A business that’s profitable and well-managed with a diverse customer base and longstanding employees is going to be fairly easy to sell.
Having a profitable, well-run business with a good debt-to-equity ratio is a recipe for success. You don’t need to be completely squeaky clean - no business is perfect - but the closer you are to perfection, the easier it’s going to be to sell. We recommend working with us years in advance because it can take a bit of time to right a ship.
Are There Any Outstanding Legal Or Regulatory Issues To Be Addressed?
During due diligence, your potential buyers will take a very close look at all kinds of legal documents - and if they uncover that your business is being sued for millions of dollars, interest may drop off very quickly.
The same holds true for any investigations being conducted by regulatory bodies. No one wants to buy a business that’s under investigation by the CRA for tax fraud. These are the kinds of issues that you want to deal with well before you sell your business.
When To Speak To An Expert
Right now. We’re not kidding; you’ve just read a 2000-word article on how to sell your business. There’s no doubt that you’re thinking about it, so contact us. The earlier you do, the more we can help you before it comes time to sell. As M&A Advisors with a wealth of experience, we handle everything: Getting your business ready to sell, finding buyers, negotiating the sale, structuring the deal, and even connecting you with professionals like accountants and lawyers.
Maximize the value of your business before you get on the rollercoaster. Call us today!