There are many things to consider before you decide to sell your business. Some of them are financial, some are emotional, and some involve the business sales process. Having worked with sellers for almost 20 years, we have a lot of insights into this area and can give you some factors to consider before you decide to sell your company. This can help you to minimize regrets and help you to have a more productive sales process and a more effective handoff of your business to the buyer.
The first step in selling a business is the decision of whether to sell your business or not. This itself is a complicated process that can be filled with emotion and a lot of factors to consider, such as:
Let’s go into some more detail about each one of these questions.
What is compelling you to consider selling your business? There are a lot of reasons that people consider selling their company. If the only reason is that someone contacted you and said they were interested in buying your business, then that’s not reason enough to sell on its own.
If you have a business that isn’t making any money, that’s a common reason to sell. However, if you have a profitable business and money is the only reason you want to sell, then that’s usually not a stron
g enough reason to cause you to sell your company. Typically, you need to have a compelling reason or reasons to sell, such as you:
Money is certainly a factor in deciding to keep your business. If you own a profitable company, then you may rely on the income that it generates to support you. Unless you own a tech company, most businesses sell for 2 to 4 times the annual net earnings of a business. So if you enjoy working at your business and don’t have another compelling reason to sell mentioned above, then it usually makes sense to continue to hold onto the company.
However, you may enjoy the business itself but may have problems with a partner or other issues that are contributing to your lack of desire to work at the company. If this is a major problem, it can be a factor in deciding to sell your business.
We have spoken with a number of business owners that do have a compelling reason to sell their business. However, some of them are not emotionally prepared to sell their company. Before you consider selling, you need to really think about whether you are ready to sell. The last thing you want to do is spend time preparing your business for sale, talking to buyers, and then backing out and wasting your time and the buyer’s time.
Unfortunately, this does happen sometimes. Most sellers do find it challenging to let go of their business. That’s normal. But you need to think about whether or not your reasons for selling outweigh your emotions for keeping the company. If so, then you are probably ready to sell.
One thing that helps sellers adjust to the idea of selling is to find a buyer that they are comfortable with taking over their business, one that will treat their customers and employees well. An experienced business broker can help you find the right buyer for your business.
If you are experiencing health problems, this can be a deciding factor in an owner selling their business. You may decide that the stress of running your business may be contributing to your health problems, and its time to focus your primary efforts on resting and getting well.
Keep in mind that buyers will need to find out more about the company to finalize a purchase. Business Brokers can help to greatly reduce the amount of work that you will need to do. However, an owner or someone with knowledge of the company will need to provide information on the business to allow buyers to be informed enough to purchase a business.
We have sold businesses where the owner has a major health issue or even passed away. We worked with a family member, accountant, and attorney in providing information to the buyer. This is one of the least desirable reasons to sell a business, but it is part of life and is a compelling reason to sell.
A lot of business owners do this, and it can work out well. It is important to think carefully about this because sometimes the children have other careers and don’t want to own the business. In other cases, they may not have the skills to operate the company. Ideally, before having your children take over the company, you would want to have them work in the business and get some confidence that they have the skills and desire to run the company when you are no longer working there. For more on this, you can read our article on deciding whether to pass your business on to your children.
If your children aren’t a consideration, you can also decide to sell your business to an employee. This can be a good option; however, the employee may not have the funds or experience to purchase your business. If that’s the case, then you can consider the opportunity to have a business broker find a well funded and experienced buyer
This can fit in with the decision on whether to provide your business to your children or sell to an employee. In some cases financially, you may be better off selling to a third party. Whether or not you are considering your children for the business or not, you still need to have an idea of how much money you will need from the sale of the company to retire, buy another business or make whatever life change you want to make.
A business broker can give you an idea of how much you can expect to get from the sale of your business. Once you have this information, you can decide on whether or not it will be enough to meet your needs. You need to factor in paying taxes on the sale of the business, your lifestyle, and more. If it’s not enough, then you may want to work some more and try to build up the net income of the company to sell the company for a more substantial amount.
Keep in mind that it typically takes 6 to 10 months to sell a business so that you will have income during that time. You also want to allow some time to do a transition with the buyer. In some cases, you may be with the buyer for a while and collecting a salary during the transition period. There are many different options when selling a business, and a business broker can talk through some of the potential scenarios and advice you on the right time for you to begin the process of selling your company.
Having a manager run your business might be a good option for some people. If you have a manager working in the company that can handle the role that you play in the business, then this may work out well for you. If you don’t have a manager internally, then you can consider hiring and/or training someone to handle the roles that you do.
However, there are risks involved in each of these strategies. If the business doesn’t perform as well, this will not only decrease your income but will also reduce the value of the sale of your business. Even if the manager is skilled, there may be changes in the marketplace that cause your business to decline. Some business owners prefer to sell the company so that they can move on to the next phase of their life without having to worry about the business that someone else is managing, but they still own.
No plans are cast in concrete, but it is wise to have a general idea for what you are going to do. For example, are you planning on retiring and pursuing other activities or spending more time with friends and family? Perhaps you want to travel, or you have another business opportunity that you are going to spend time on. Another common reason for selling a business is the desire or need to relocate.
Of course, it’s fine just to take some time off and do less. That’s one of the freedoms that come with selling your company. Its just good to have an idea of things you can do if you get bored or your plans don’t work out the way you envision them.
After you have considered the factors involved in selling your business, it is good to take a holistic approach and digest all the information to see if you are ready to sell taking into account the finances, emotions, and plans for the future. You can discuss the decision with your family and friends and talk over the options with a business broker and see if you are prepared to start the process.
We are the #1 Rated Business Broker nationwide in a couple of categories. We have been in business for 18 years and during that time have developed contacts with over 40,000 potential buyers. We’re not the right business broker for everyone. We only focus on selling companies in construction, technology, manufacturing, healthcare, services, distribution, engineering, education, and transportation. Within these industries, we represent profitable companies that have annual revenue of $700,000 to $70 Million.
If you own a company that fits these criteria, we would be happy to discuss your options with you and see if the timing might be right for you to start the business sale process. Fill out our online form or call (888) 750-5950. One of our Senior M&A Brokers in NY, NJ, CT, MA, PA, TX, NM, looks forward to connecting with you. We sell businesses throughout the East, South, and Midwest. Our potential buyers come from all 50 states and dozens of different countries. You can listen to some of our clients and Brokers in the following video.
