Preparing Your Business For Sale

Understanding the Sale Process:

Selling a business is not like selling a home. You can’t just paint and stage it and slap on a for-sale sign, hope for the best, and just wait for a buyer to stumble in. It takes about 10 to 12 months, on average, to sell and close escrow on your business. This time frame can vary depending on the industry’s market, your Industry type, your asking price compared to other companies available, your specific business location, and the proposed terms you offer your prospective buyer.

To be successful in the sale of your business it involves a structured process. Whether you are planning a few years in advance or just beginning to explore the possibilities, understanding and knowing the process puts you in full control.

To be prepared to Sell your Business, follow the steps below:

1. Determine Your Goals for the Life Transition for the Sale

List your goals in priority order. This may be difficult, but you must define what is important to you. In future negotiations, you may not be able to achieve all of your Goals, but clearly outlining your priorities will help enable you to achieve the Goals that are most important to you.

Common goals tend to be:

1. Why I want to Sell My Business?

2. What am I going to do after the sale is closed?

3. How do I maximize profit?

4. How do I make sure my loyal employees are well cared for?

5. How do I make sure my customers / clients continue to be taken care of?

6. How do I ensure that the sale will be quick and smooth?

7. How to ensure that I secure a legacy for my Business?

2. Valuing Your Business:

Before you can start receiving offers for your business, you need to understand what you business is actually and realistically worth. You will also have to have a clear understanding of its financial situation, strengths and weaknesses, and its market position.

Valuing your Business can be achieved from a few different objective sources.

1. Local Accounting Firms

2. Business Brokers, such as Established Business Opportunities

3. ​​​​​​​Valuation Companies, which only value businesses

​​Make sure that whoever is performing the valuation has access to the current National Data.
The most common and unproductive thing you can do is to value your business too high.
​​​​​​​Sellers with unrealistic expectations cannot be successful in the Sale of their Business.

3. ​​​​​​​Organizing Your Books and Records:

Prospective Buyers almost always ask for a least three years’ worth of your financial information, to review in depth, before making an offer. Put on your buyer’s hat and be sure all your business books, records, and paperwork are well organized, accurate, and easy to understand when reviewed by a prospective buyer. The more formal and thorough your financial statements are, the easier it is for prospective buyers to review them and the more likely you are to receive a fair offer price from them. As Crystall Stranger, CEO of Optic Tax, says, “Financials are not something to rush; Tax Regulations, including state tax risks, can come back to bite you when selling a company.”

As Sidharth Ramsinghaney, Director of Strategy and Operations at Twilio. Said, “Successful transactions require professional preparation, transparent documentation, and structured transition planning. The days of handshake deals based on simple multiples are long gone.”

The essential Elements you will want to prepare to attract prospective buyers are:

1. Normalized EBITA (Earnings Before Interest, Taxes, Depreciation, and Amortization) so that clear “Add Backs” can be determined

2. Detailed Customer Retention Analysis

3. Documented Growth Initiatives

4. Review and Understand Your Tax Obligations and History:

The importance of having correct tax paperwork cannot be more important or clear. Without it you could face legal risks you are not prepared for, including hefty penalties and fines, especially if your tax liabilities hit you, unknowingly after the sale is closed. You can also delay the sale of your business if you have incomplete or inaccurate tax records. This can also lead to a much lower sales price costing you hundreds of thousands of dollars.

In many cases, supplying three years’ of prior tax returns may be sufficient to the buyer to review.

The key to the highest sales price and the quickest sale, is to always have more financial information than less.

5. Building a Support Team:

While your Accountant and Lawyer, no doubt, hold invaluable knowledge about your business, you may also need to bring in other experts to assist you with the actual sale of your company, by guiding you through the process. Established Business Opportunities can help you sell your company, and they may work with other transactional Lawyers and Accountants to ensure that every detail is in place for the successful sale of your business. Although it may seem that doing so might sound like an unnecessary expense, hiring professionals to handle the sale of your business can maximize the sales process and price by minimizing the chance of errors, cut down the annoyance and unexpected financial troubles after the sale is complete.

6. Tell Your Employees and Customers that You are Selling Your Business:

Even though “Confidentiality Agreements: often govern Business Sales, telling your Employees at the right time is a key factor in maintaining financial stability, morale, and their “buy-in” of the sale. Tell other partners, family members, and important stakeholders, including internal leadership and essential employees (when permitted by your agreement with the buyer). It is a good idea to also require NDAs before disclosing details.

Always be transparent about the sale and how it will impact everyone.

Inform all important customers and vendors, when appropriate, so they can understand and the transaction and what to expect moving forward. In doing so, put an emphasis on the success of the business and the minimal disruption that will occur when the new owner takes over.

7. Market Your Business to Find the Right Buyer:

Once everything internally is straightened out, it is time to market your business. There are several avenues you can seek to find them, but the best is utilizing the services of Established Business Opportunities. The method and the professionals you choose will depend on your industry, your location, as well as the size of your organization. Established Business Opportunities can best help you gauge the best way to market and how similar-sized businesses and structures were sold successfully, and how the buyers were identified.

8. Transfer Ownership with Sales Agreement:

After the right buyer is found and a sales price has been determined, work with Established Business Opportunities and with a lawyer to create a sales agreement that sets forth all the terms of the sale and ultimately transfers ownership of your business to the Buyer. This process will go back and forth many times, and will include many specific documents that will need to be carefully created and fully executed.

9. Managing the Ownership Transition:

Establish a Transition Strategy: A well-thought-out and structured transition plan ensures that the new owner will seamlessly take over by outlining business responsibilities, goals, and timelines. You should create a detailed 100-day plan that covers, at a minimum, employee retention, customer communication, and operational integrity.

Reassure employees and customers: Sudden changes can create uncertainty. Keeping lines of communication open and providing clear, well-laid-out expectations can help assure the maintenance of stability. Introducing the new owner and addressing employee, vendor, and customer concerns early really helps ease the transition.

Ensure knowledge is transferred: The new owner should have unlimited access to necessary business insights, operational procedures, and vendor relationships. Offering support (training sessions, and/or advisory periods) throughout the documentation period will help them transition smoothly.

​​​​​​​Hand Over Legal and Financial Responsibilities: Enlist legal and financial advisors to help finalize contracts, settle outstanding debts, and transfer necessary licenses. This will help ensure that the new owner takes over the business in good economic and legal standing, thus preventing disputes and/or litigation down the road.