4 Important Steps to Take Before You Sell Your Business
The small business community in the Sarasota area is thriving. If you’re one of the entrepreneurs running a business in the area, you may have considered selling your business in the future — whether for retirement, profit, or the pursuit of other projects. The logistics of transferring business ownership are a huge undertaking and you may think you have plenty of time to prepare, but in reality you should start planning today.
Your business is most likely one of your biggest financial assets. If you wait until you’re ready to engage a buyer to maximize the value of your company, it will be too late to make a notable difference and you will leave a chunk of money on the table.
Take steps now to start planning for your future transaction, even if it’s years down the road.
1. Talk to estate and tax planners
You need to speak with two important people: an accountant experienced in transaction planning and an estate planning professional. Discuss your plans to sell the business in the next few years and ask them to spend some time reviewing your tax and estate plans — or drafting them, if you haven’t already done so. By using the tools and resources available, these professionals can help you mitigate some of your tax responsibility when you sell. Remember, paying less money in taxes is essentially the same as getting a higher purchase price for your business.
2. Make sure your financials speak the right language
GAAP is an important term in business sales. It stands for Generally Accepted Accounting Principles, and buyers will look for your company to be GAAP compliant. If you’re still using Quickbooks for your bookkeeping, it’s time to upgrade. Hire an accountant who understands the process and implications of a business sale so your books don’t trigger any red flags when it’s time to talk to buyers.
3. Give your business a sustainability check
So many entrepreneurs wear all (or many of) the hats in a business. If you’re functioning as company CEO, Marketing Director, customer service rep, and accountant, it’s time to hire out and delegate the responsibilities. Business buyers want a sustainable company: if your business can’t function upon your exit, they will back off. Invest in a few additional staff who will keep the company running so the buyer doesn’t have to shoulder the workload.
If you avoid this step, you may be forced to sell your business for a lower price. Your buyer will want you to stay on to facilitate the transition (read: prepare for your absence), which means you’ll still have to take the same steps but with a lower profit.
4. Minimize risk associated with your company
Would you purchase a car with safety issues and an oil leak? Probably not. Similarly, any buyer shopping for a business wants to make sure it’s a sound investment. Minimize the perceived risk around your transaction by maintaining positive relationships with vendors and clients; ensuring contracts, leases, and supplier arrangements will last far beyond the sale date; making sure employees are well-trained; and other similar considerations. Buyers will mainly want to make sure that everything about your business supports ongoing revenue and customer relationships.
Koontz & Associates advises on legal issues and considerations related to the sale or purchase of a business. To start planning for your business transaction, request a consultation today.