If you are starting to think about preparing your business for sale, you should start looking a few years ahead. By taking a careful look at the different aspects involved in augmenting the value of your company, you can increase the likelihood of a sale and the perceived value of what you’ve built.
Are you going to sell the business or the assets? If you sell the business, the sale will include assetsand liabilities. How do you identify the liabilities for a prospective purchaser? It takes a fair amount of planning to pinpoint liabilities and decide which ones you will want to warrant. If you sell only the assets, the purchaser will also have less worry about liabilities, but there are a host of other issues you will need to discuss with your attorney.
Consider your future role. Will you be involved in the operations or will you want to compete with the buyer? Will you be prohibited from competing? If you are going to be involved for some period of time, how will compensation be handled? From a buyer’s perspective, it’s important that person is motived to perform so payment that is tied to benchmarks is an attractive way to structure a transitional arrangement. Not having good legal representation in a sale can hurt you as both buyer and seller. A buyer who purchases a business without a clear noncompete can have the seller opening up a new business in the same town and taking back clients who enjoyed working with the seller in the past.
How do you value the business and how do you substantiate your proposed value? Detailed and appropriate data is important. Annual sales don’t mean a great deal if you can’t show consistency over time. How you collect information and present it when you go to sell the business can make a big difference in what others see as your company’s worth.
Don’t overlook the things you consider basic. Prepare your team for the sale. Get instructional documents in place so when people leave, another can jump in to cover these jobs relatively easily without disrupting company operations.
Selling is a hard decision. It’s not just about the purchase price. Keeping trusted employees working and loyal customers happy can be equally important as retirement income is for an entrepreneur. Get the right team of advisors in place to ask the right questions, structure enforceable documents, and create a transaction that makes everyone happy in the end.
Here’s a post I wrote last year that addresses the above issues…
Increase your business’s goodwill through the use of strong noncompete agreements: