Written by Steve Canole, SVP & Business Lender at 1st State Bank
You’ve worked diligently to establish your business, you’ve spent years developing your employees, products and services. You may be starting to consider what comes next for you and your company. As you approach retirement or simply another life direction, it’s time to think through the sale of your business and determine how to best reward yourself for the years that you have spent building your business.
Before any decisions are made regarding the sale of your business, it is important to surround yourself with a strong team of professionals, poised with expertise to guide your decision making. This team should include, among others, a certified public accountant (CPA), attorney, insurance agent, and a business banker. Each of these professionals will be able to assist you through the process of selling your business. Once you have your team of professionals, you can determine your goals around the sale of your business.
You will want to consider the options you have in selling your business. You may be planning to sell to your child or another member of your family. Maybe you have a key employee that has shown interest in ownership, or you would like to create an Employee Stock Ownership Plan, to spread the ownership of your company amongst your employees. You may also choose to sell to a non-related party. Making this decision will give you a clearer picture of how to move forward with the sale of your business.
Your CPA will complete a valuation of your business, based on past financial performance. This information will be used to determine the sales price of your business. If the buyer is solely purchasing your physical assets, you will base the sale price on those assets, such as your equipment and property. In contrast, you can also sell your business as a stock purchase, which will encompass the entire business entity, including your business name, intellectual property, and customer database. This approach includes your “Blue Sky” Value, which represents the intangible benefits the buyer will receive from purchasing your established business and future revenue.
A financial institution may not finance 100% of a business purchase. If you intend to sell your business to a family member or key employee who may not be financially prepared to purchase the company, you can consider Seller Financing. With this approach, you as the seller would finance the portion of the sale not covered by the buyer’s financial institution.
You have many considerations and options if thinking of selling your business. The earlier you begin planning, the better chance you accomplish the outcome you are seeking.
Tips to better prepare for the sale of your business
- – Use consistent accounting practices to ease the buyer financing process
- – Engage with your team of professionals well before your sale timeline
- – Consider how best to maximize profit well ahead of business sale, which will elevate sale value.
- – Take off a few hats and begin delegating critical responsibilities.
- – Choose a buyer with the qualifications, financial wherewithal and industry experience, to successfully run your business.
