Top 10 Considerations Before Selling Your Business
- Are your company’s recent sales and earnings trends desirable? The ultimate purchase price is significantly increased if the sales and the earnings have been growing over the past several years.
- If your business lost its two largest customers what percentage of its overall revenue would be lost? If there is a concentration of business with a single or a few customers and they have other options it would be advantageous to dilute this before selling your business.
- If you, the owner, are involved in the business is there an interest in continuing in that capacity or even a reduced capacity after the normal 1-2 year post closing transition? Are there qualified management candidates within your company to take over once you, the owner, retire post-sale? If not, such a suggestion outside the company may be of importance.
- If there is significant value in the company’s real estate it may be advantageous to distribute it to the stockholders before selling the company and have the company lease it back at market rates.
- Understand that the purchase price takes into consideration that there will be no interest bearing debt to be assumed by the buyer.
- What is the corporate structure and which would be preferred, selling the assets or selling the corporate stock?
- Is the ownership willing to have their broker discuss the company with the company’s competitors? Often this is an easier sale and for more money but also there are additional risks (e.g. industry talk, customer information, product or service pricing) not found when selling within the unrelated private equity market. If a quiet sale is the goal then discussions with a competitor are usually not recommended.
- Make sure the broker that you select is paid only when the sale is complete and with a fee structure calculated to incentivize an increased sale price. Only success is rewarded. Determine who within the brokerage company will actually be working on the marketing and the negotiations of your company. Associates are not senior partners.
- Understand that for the time to complete a sale a reasonable target would be about 6 months. Is this a good time within your business’ seasonality or its industry cycle?
- Is there someone within your company who can confidentially assemble the required financial data without disrupting the company’s business and without exposing the process within the company?
“Selling a business is a once-in-a-lifetime and lifestyle change that often affects multiple generations. So, use a specialist with years of experience. While this can be done by the business owner in an attempt to be frugal, our 25 years of this specific focus tells us that often the owner is reducing the sale price in multiples over the money saved from not paying a consulting fee.”, says Emmett Barnes, President and Founder of The Montana Group.
