How do I get started with the process of selling my business?
When you started your business, maybe you didn't have the end in mind. It was your hustle, you worked hard, you were young, and it's been a great ride. But now it's time to move on to the next thing. Maybe you're retiring, maybe you have another business opportunity, maybe you're just leaving the area and you just don't have time for the business anymore. All those adventures have given you a lot of experience in how to run a business. But oftentimes, entrepreneurs haven't spent the time to think about how they're going to sell their interest in the business.
This topic fills up books with all the different issues that you run into when you're selling your business. But we're going to talk briefly about a couple of things that you want to think about when you take that first step of "Okay, now it's time, I think I'm ready to sell my business. What do I do next?" There are two areas to help you start on the journey of selling your business,
- What are the ways you sell your business?
- How much is your business worth?
Ways to Sell Your Business
When it comes to how do you sell your business, there are three common ways we can do it
- Find a buyer who just buys your business takes it over and operates it.
- Find a buyer who's actually going to merge your company into their company.
- Selling your interest to a partner or to somebody else, and you're done with the business.
Now for each of these situations, you're going to want to think about what is your role with the business once your interest is gone. Depending upon the nature of the business, the buyer may want you to continue to be involved. So if that's not something you're willing to do, you need to factor that into what the process is that you're going to use to sell your business.
One of the easiest ways to get this process going and it's one that I advocate because I think it is very important, is that you work with professionals, talk to a business broker. There's a set of people out there called "Business Brokers" whose whole job is to match up businesses with buyers. Hopefully, you can find a business broker who has experience in your particular industry, who can then find you the right buyer for your business.
You can also make sure that you work with your accountant to get your books in order. If you're going to sell your business, nobody wants to buy a business that hasn't filed taxes in a decade and doesn't even have a spreadsheet of its assets and liabilities, they don't do P&L statements, it's just a wreck. Nobody wants to buy that business. Or if they are going to buy it, they're going to "lowball" their offer because they're gonna have to spend a lot of time and effort to get the business back up to speed when it comes to its documents.
If you're going to sell to your partners, this is usually the easiest way to do it. You can look to your operating agreement to see what the process is for selling your shares to other partners in the business.
What is Your Business Worth?
Even if you're selling to partners, how much is your individual interest worth? Or if you're selling to somebody else, what is the value of your company? Now I often get asked questions like,
- How do I figure out the value?
- What's the "rule of thumb" for a business valuation?
- What's the easy way to do it?
- Is it sales times three?
- Gross sales?
- What do I do?
And the answer is it all depends on your business. Each line of business has a different way of creating value. So a retail business is different than a professional services business. You need to have the right person to come in and work with you to figure out the valuation. Some things you need to consider when looking at the value of your business:
- Is your business profitable?
- If the business is not profitable, what is somebody actually buying? There may be something they're buying because they're interested in something the business owns, even if it's not profitable.
- Can the business survive without you? So have you been the main cog in this business for years and without you and it's just going to fall apart? Who's going to want to buy that business? Because if you're not going to stick around, what kind of value are they getting out of it?
- Do you have inventory or other assets that are able to be sold? This can be the kernel, this is the key. A lot of businesses will look at that when acquiring a business. They're not necessarily interested in your business, but actually want your customer list and data that comes with it. Maybe you have a type of software, something that they really need for their business, and that's why they're interested in buying your business.
- If there's a license, let's say a liquor license for a restaurant, can that license be transferred to the new owners? If the new owners are not eligible to get a liquor license, do they really want to buy your restaurant because once they go in, they won't be able to serve alcohol?
- Is there a demand for your business? I mean, you may run a business that you love with a hardcore small group of devoted customers. But is there a demand for that business outside of your realm that you're operating and going back to the idea that the business can't survive without you if you're gone, is that business really doesn't have a demand for it.
Working with professionals like accountants, attorneys, financial advisors, and business brokers, can help you create a plan so they can get the best value for you and your business. If you aren't sure where to start, let's set up a Legal Strategy Session where we can talk for 15 to 20 minutes and can go over the best options for you and some next steps for you and your business. Congratulations if it's time to sell your business. Let's make sure it's done correctly.