Most business owners plan on selling their business when they retire. For many of those owners, the proceeds from the sale will be a major part of their retirement fund. If you’re one of those people, and you’re nearing retirement age, now is the time to start planning if you want to sell your business for retirement.
There are several steps necessary to generate the greatest return on investment when selling a business. Some of those steps should be taken care of well before attempting to sell. Here are six steps an average business owner will normally take during the sales process.
1.) Build Value Before Selling
In the majority of cases, preparing to sell includes boosting your company’s value well before selling. Buyers look at the history of a company when deciding on a purchase. That means it’s important to demonstrate a strong record of profit, whenever possible.
At the same time, many sellers should invest, well ahead of a sale, in new equipment or renovating existing machinery and fixtures prior to putting a business on the market. Investors don’t generally want to spend a great deal of money immediately after a purchase to keep a company operating. Don’t defer needed maintenance or upgrades when you’re planning to sell. However, this needs to be carefully thought out, as significant capital expenditures right before a sale will generally favor the buyer, and not the seller. Tread carefully.
2.) Prepare Financial Statements and Other Records in Advance
No prospective purchaser will make an offer without understanding what they’re buying. That means they’ll expect to see comprehensive profit and loss statements as well as a complete list of equipment, fixtures, and real estate included in the sale.
In all cases, it’s important to put your best foot forward when putting together the materials you intend to provide to prospective purchasers. However, it’s vitally important not to “puff” too much, as savvy buyers will quickly spot inflated figures and exaggerated claims. It’s always a good idea to work with sales professionals when planning to sell your business in Texas, as they will have the expertise to help you determine how to put together the necessary documentation. If you want to sell your business for retirement, good financials are the “oxygen” of the deal. Too many personal expenses in your financials can significantly reduce your purchase price.
3.) Establish a Realistic Valuation
While it’s tempting to throw out an asking price you feel is fair when selling a business, that’s not the best way to determine the value of a company. Many business owners tend to overestimate the value of their company, but the reverse can also be true. To market a business successfully, and in a reasonable amount of time, it’s absolutely necessary to establish a realistic value before attempting to market the business.
So, how can an owner decide what price to put on their business? As a rule, your business broker will help you through the process. In most cases, the broker will have adequate information available to reach an appropriate asking price. In special cases, it may be a good idea to work with a valuation expert who specializes in evaluating the type of business you own, in addition to the business broker.
Seeking advice from an attorney and accountant may also make sense in a lot of cases. While those experts may not be the best option for setting the price, they can help you determine how and when to sell to garner the best return.
The appraiser or business broker may also be able to share insights in how to improve the value of your business. That can mean making minor improvements to increase the curb appeal of a business or when investing in updates to equipment or hires is appropriate.
If you want to sell your business for retirement anytime in the near future, industry experts routinely recommend contacting a business broker for advice well in advance to allow time for changes and improvements necessary to improve the odds of selling quickly and for the best price.
4.) Work Closely With the Business Broker Throughout the Sales Process
Sellers rarely have the experience needed to market a business effectively, which is why it’s crucial to work closely with a business broker during the sales process. Brokers understand the entire sales process and explain each step to the seller.
Business brokers also know the best ways to approach unique situations. They will recommend strategies to retain existing employees, generate leads, and develop ways to minimize the impact on day-to-day operations during the sale.
5.) Close the Sale
Once a buyer is found, an LOI is signed, banking is initiated, and a purchase agreement is created, the next step is to close the sale. At this point, it’s common for both the seller and purchaser to use the services of attorneys, bankers, third-party valuation experts, and accountants. Each expert provides advice to sellers or buyers to make sure all steps are properly followed and the sale closes smoothly.
In the event a problem develops, the experts are there to smooth the way and ensure the sale closes as planned. Remember that issues are common, so no one should be surprised when problems occur. As a rule, it’s relatively easy to resolve issues when it’s in everyone’s best interests to do so.
6.) Plan Early to Make the Ownership Transition Flow Smoothly
Sellers are always encouraged to negotiate the terms of a transition, as there are numerous elements involved that could prove costly to the seller or buyer. With proper planning, the process of transitioning from one owner to the next will be easier.
If, for example, the buyer wishes the seller to remain on to assist with the transition, that must be spelled out in advance. That’s vitally important, as some SBA regulations will dictate how and when a seller can assist with the process.
Again, the purchase agreement will stipulate what actions each party will take during the transition. Accountants and attorneys will assist with the planning process to eliminate, or at least significantly reduce, the odds of issues developing during the change of ownership.
Start Planning Now
Now is the time to start planning, if you want to sell your business for retirement. Since a sale may take some time to complete, it’s important to start discussing the procedure with a business broker as soon as possible. The broker will explain the process involved in the sale of a business and help sellers make crucial decisions. If you’re within a couple of years of retiring, it’s important to contact a business broker for help as soon as possible.