Starting and growing a business is like having that extra child-it’s a lot of work and you pour yourself into it; if you’re lucky you create something that can thrive on its own without you. Just like letting go of the reins with your kids, opportunities present themselves to do that with your business.
Entrepreneurs sell their businesses for a lot of different reasons. Sometimes getting to that next level requires working capital you just can’t obtain on your own. Economic fluctuations can also drive your decision to sell your business. For example, you may have cornered the market with a particular product or service such that it makes sense to sell it with that dominant market position. Or you may learn about a competitor with a new technology who may erode your business’s market share. Maybe you just want to spend more time with family or pursuing other hobbies. Whatever the reason, when deciding to sell your business, there are a lot of strategic considerations to make sure you recover the value you have built. There are significant risks when selling and numerous options. Here are some things to consider when you’re thinking about selling your business:
Determine if You Want to Sell All or Part of the Business
Just because you’re interested in taking someone up on the offer to buy your business, doesn’t mean that you have to hand over everything. As you talk through the offer and negotiate what you’re willing to do, consider selling some of the ownership while retaining some ownership. If you’re still interested in being part of the business but in a reduced capacity, this might be the perfect option.
Get a Business Valuation
With certain types of businesses there are some common values that are assumed based on sales, and some basic research can give you a general idea of a business’s value. The best way to determine the value of your business is by using a business valuation expert. Business valuation experts primarily use three models to value businesses then pick the one that is best able to capture the value. Even so, there are additional considerations such as whether you have a unique patented technology or another competitive edge that can increase the value. Anyone wanting to buy your business will be evaluating what they think they can change or build on to increase the value of what they purchase.
If you get to a point of wanting to scale back your role, don’t do it by scaling back business. Owners who let business taper off while they look to sell the company, lose immediate and significant value. Selling your business when sales are strong are will yield the greatest value.
Everything is Negotiable
If you don’t ask for it, you won’t get it. Just because you feel you are getting a fair price, don’t be reluctant to negotiate for additional items. Some owners negotiate a consulting contract with the buyer, so there is an additional stream of income. Others negotiate continuing health insurance and other perks, like retaining an office.
Consider the Tax Implications
Most everything we mention in this post has tax implications. Whether the deal is structured as a stock or asset sale will likely have significant tax implications. Your experienced business attorney, working in conjunction with your CPA, can negotiate a deal structure and specific deal points to ensure the minimization of your tax liability.
Research the Buyer
While you can be sure the buyer will be performing its due diligence, too many sellers don’t scrutinize the potential buyer. If the buyer will be making payments over time after the sale, you need to be confident that the buyer will be able to perform the contract. The last thing you want is to have a buyer default, then take back a business that has been damaged by a buyer’s incompetence or worse. Look at the buyer’s financials, history of lawsuits or litigation, past conflicts with federal, state, and local agencies or regulators, and the like.
Get Strategic and Smart Legal Counsel
The bottom line is that there is a lot to consider when buying a business, and there is a lot at stake. Make sure you put in the time and get the help you need to make sure the sale of your business works out for your best interests. A strong business attorney can help you spot danger areas and opportunities so that you capture the best deal terms and price. If you are considering buying or selling a business, call Chenoweth Law Group at 503.446.6261.