Lifelong entrepreneurs are often and understandably a little emotional when it comes time to move on from the small business life. Letting go is never easy, but there are many reasons one might do so – perhaps retirement is calling (see last week’s article) and you need to orchestrate a succession, or maybe you’re just suffering from a case of small business burnout. Whatever the reason, the transfer process can be emotionally, mentally, and if you aren’t careful, financially taxing. Here are some tips to keep in mind when it comes time to take the big step into post-ownership.
1. Plan now.
Transferring your business is a detailed transaction. There’s paperwork to assemble, experts to consult, numbers to look up, and buyers to entice. Successfully executed, it can take 2-5 years to prepare everything. Start by determining whether or not your business is in shape to be sold and how much it’s worth. You don’t want to undercut yourself, but asking too much will signal to potential buyers that you may not be serious about selling. Begin gathering the following documents from each of the 3 most recent fiscal years:
- Complete tax returns dating back three years
- Profit-and-loss statements
- Balance statements
You’ll also need:
- An inventory list
- A list of equipment and furnishings
- Your lease agreement
- All year-to-date financial statements
This list is by no means comprehensive. Your buyers may want to see more documentation and you’ll need to be ready to hand it over quickly.
2. Invest in experience.
There’s no substitute for it when it comes to buying and selling businesses. Work with an investment banker and consider hiring an exit-planning coach. Your coach will help you assemble the rest of your team: financial planners, an accountant and an attorney. Even if you have these professionals on your regular payroll, it’s best to recruit sales specialists. They will make sure the deal goes down in the most tax efficient way possible.
3. Time it right.
Sell when business is booming and there’s still opportunity for growth. Your business is your baby, so it’s hard to think of it this way but it’s also an investment – an asset with market value. If you’re burned out after the first 5 years or so and simply lack the will to take your business to the next level, don’t expect to achieve maximum value at sale, even more so if sales are taking a dive. Picture the situation from the buyer’s perspective – potential is attractive, but evidence of growth is something to stand on.
4. Keep two eyes on your buyer.
Don’t waste your time negotiating with someone who won’t be able to make good on a sale. Get a signed confidentiality agreement from all potential buyers before transmitting any detailed business information, as well as the buyers’ financial credentials, educational background, history of business ownership and employment, and of course all contact information.
5. Sell, sell, sell.
Don’t get sucked into quick deals – this is where your team of professional advisors comes in. Market the sale of your business by preparing a blind profile – a one-page, generalized overview that describes the business for sale without specifically mentioning any identifying details. It allows you to promote your sale without jeopardizing your business’ day-to-day operations in the mean time. You’ll also want to prepare a selling memorandum, or prospectus, which will describe your business’ financial offerings in more detail.