10 Points to Consider
The COVID years have not been kind to small-business owners. Many people have closed their doors for good or sold their companies to larger competitors.
Selling might be the best course of action, but it’s vital to be 100% sure. Owners must consider several things before determining the best move is to unload their company. Here are 10 points to consider before selling a business.
1. Timing of the Sale
People thinking about selling a business because they’re losing money or tired of the work won’t get off that easily. Preparing to sell a company often takes years. Owners must organize their financial records, adjust their business model and build their customer base to make it an attractive target for buyers.
Selling means committing more time and money to the company during the final months of ownership, not less. People must be willing to work at least another year to build their business before reaching an opportune time to test the market. Selling a profitable operation is much easier than selling one that’s declining.
2. Industry-Specific Factors
Someone must also consider the current and future states of their industry before selling. Answering these questions will paint a good picture of whether it’s a good time to sell:
- Is the industry growing or shrinking?
- Are the big names getting bigger?
- What are competitors and colleagues doing?
- Can the owner keep up with upcoming changes in the sector?
Owners and competitors that believe the industry has great growth potential should hold out a little longer. If not, they can start laying the groundwork for a sale in the near future. There’s no point in someone staying in a market they lack confidence in.
3. Financial Security
Thanks to sky-high inflation and interest rates, running a profitable business doesn’t guarantee financial security. Bad money management can also cause a company to lose money, even if it has a consistent revenue stream.
Owners know better than anyone whether their business can withstand economic instability or a bad management decision. Someone who doesn’t have the resources to do damage control certainly can’t grow. In that case, they should consider selling and moving on to something else.
4. Personal Reasons
Aside from financial or industry-related reasons, many business owners ultimately choose to sell for personal reasons. Retirement might be on the horizon, ot they may want to pursue another career path or spend more time with family. Some people sell just because they’re tired of being in charge.
Any personal reason is more than valid enough to justify selling a business. Someone no longer emotionally invested in the company would be doing it a disservice by maintaining ownership. They should consider personal affairs carefully and determine if now is a good time to let go.
5. Tax Reasons
Small-business owners know that taxes play a role in most financial decisions. If they expect the industry to get a tax rate decrease or more incentives, holding onto a business to take advantage of those changes might be worthwhile.
Additionally, the sizable lump-sum payment from a sale would have an accompanying tax. This reason alone might give someone pause when considering whether to sell. They should maintain their tax returns and financial statements to get fair value for the business when the time comes.
6. Employee Evaluation
When a business gets sold, there’s no guarantee that all employees will retain their jobs under the new ownership structure. The current headcount also might be too high for prospective buyers. If such a buyer comes along, the owner will have to lay off some people to get the returns they desire from the sale.
Layoffs are never easy, no matter the circumstances, but they’re especially difficult when they’re not based on poor performance or financial struggles. Firing an employee right before selling is another way of saying they aren’t valuable enough to be part of the transaction. Business owners must be prepared to have this conversation with multiple team members if they’re intent on selling.
7. Risk Management
Running a business involves a lot of risk. Sometimes, people reach a point where it’s easier to end their investment than continue handling the high-risk, high-reward nature of owning a company. Many independent variables can influence the decision to hold or sell, including government regulations, workplace hazards and shoddy insurance coverage.
However, someone will have difficulty finding a buyer willing to assume responsibility for these risks. Instead of attempting to pass off the threats to someone else, people would be better off mitigating them and boosting the business’s value in the process.
8. Legal Complications
An unresolved legal issue is another risk buyers don’t like. Even the remote possibility of an problem is enough to turn most people away. Business owners must tie up all loose ends with the law before testing the market. Of course, some legal issues take years to resolve, so selling the company might be much further off than thought. In that case, it’s vital to take care of any complications for the sake of the company’s future.
9. Document Preparation
Selling a business involves a healthy amount of paperwork from both parties. That’s why maintaining tax returns and financial statements is so important. People never know when a good buyer will come along, so they must be prepared. They’re not going to wait around for someone to get their documents in order.
Business owners also need to compile a list of equipment, licenses, contracts, standard operating procedures and other key information that the new owners require. Hiring an attorney, accountant or financial adviser might be necessary if documentation is unorganized.
10. Finding a Buyer
Business owners must consider whether they can complete the ultimate task of selling a business: finding a buyer. They need to advertise online and meet with potential buyers in person at trade shows and networking events. Adding this work to existing business responsibilities can be a major challenge, especially if someone’s in a niche market or lives in a rural area.
Selling a Business Is More Complicated Than People Think
Selling a business isn’t a quick transaction. It’s a process that often takes years to complete, and it puts more responsibilities on owners’ shoulders as they get closer to a sale. They should consider all the internal and external factors before making a decision. It’s vital to keep documents in order and continue building the business as usual until the right buyer comes along.