Selling a business? Planning ahead is key

Trust me, you’ll regret putting things off

Patrick Byrnes

Selling a business requires careful consideration of many different factors. Whether you are looking to retire or move on to a new opportunity, selling your business can be a significant financial and emotional decision.

In this article, we discuss some of the key considerations.

1. Timing

Timing is everything, as they say. You want to ensure that you are selling your business when it is performing at its best. Timing your sale during a period of growth and success can help maximize the value of your business and increase the number of potential buyers. It is also important to consider external factors such as market conditions, economic trends and competition when timing your sale.

2.

Valuation

Determining the value of your business is a crucial step in the sales process. Valuation is typically based on a variety of factors, including revenue, cash flow, assets, liabilities and growth potential. Working with a professional can help you accurately assess the value of your business. This will help ensure that you receive fair market value and avoid leaving money on the table.

3. Documentation

Proper documentation is essential when selling your business. This includes financial statements, tax returns, contracts, leases, licenses and any other legal documents related to your business. Buyers will want to review this documentation thoroughly before making an offer, so it is essential to have all the necessary paperwork organized and readily available. This is often a time-consuming component of selling a business, and sellers should work on identifying and obtaining the required documents and contracts well in advance of a potential sale.

4. Confidentiality

Maintaining confidentiality throughout the sales process is critical to ensure that your business continues to operate smoothly and that your employees, customers and suppliers are not adversely affected. You should consider working with a business broker or intermediary who can help you maintain confidentiality while marketing your business to potential buyers.

5. Marketing

Marketing your business is essential to attract potential buyers. You can use a variety of marketing channels, including online listings, industry publications and networking events. It is important to present your business in the best possible light and highlight its unique selling points to potential buyers.

6. Financing

Consider carefully how your potential buyer will pay for the business. A buyer who requires you to finance a significant part of the purchase is significantly less attractive than a buyer who can obtain bank financing or pay cash. If you finance part of the sale and the buyer experiences issues with the business after closing, the buyer may renege on payment obligations to you, resulting in potentially costly and lengthy litigation at a time when you would rather be enjoying the fruits of your sale.

7. Tax implications

Selling a business can have significant tax implications. It’s important to work with a tax professional to help you understand the tax consequences of selling your business and plan accordingly. Depending on the structure of your business and how you sell it, you may be subject to ordinary income, capital gains, state and other taxes. Good planning can help minimize the tax burden.

8. Transition planning

Transition planning is an often-overlooked aspect of selling a business that can make or break the ultimate success of a deal. You need to have a plan in place to ensure a smooth transition of ownership and operations. This includes training the new owner; transferring licenses, software and contracts; and ensuring that all employees are properly informed and prepared for the transition.

9. Selling to employees

Selling or transferring ownership to employees can be a great way to ensure that the buyer possesses the knowledge and experience needed to run the business. Licensing requirements in some professional fields (medical, dental and legal, for example) might prevent employees from owning those businesses, but in many fields, this can be a great option, provided that there are employees who are willing and able to take the reins.

Selling a business requires careful consideration of many different factors. By working with experienced professionals and carefully planning each step of the sales process, you can ensure that you receive a fair price for your business and that the transition to new ownership is as smooth as possible.

Patrick Byrnes advises clients on business, real estate and litigation matters. He joined Faber Fairchild McCurdy LLP (formerly Adelstein, Sharpe & Serka) in 2018 after practicing at two Seattle law firms. He is a graduate of the University of California, Berkeley, School of Law.