Six Things to Know When Selling Your Business

Do you know how much your business is worth? The process of selling your business can take several years of preparation and planning. Getting a proactive valuation enables you to determine how much your business is actually worth, which helps you develop a strategy to increase its value before you sell.

We asked Itamar Chalif, VP, Business Banking Officer at Rockland Trust, for tips on what to think about when owners want to sell their business. Here’s what he said:

1. Always have an exit strategy. When you start your business, you should think about your one-, five- and 10-year plans. It’s also a good idea to consider your exit strategy. If you’re taking over a business that has been in the family for generations, it’s entirely possible that no one has thought through what happens if the family decides to move on.

Thinking strategically about selling your business eliminates any last-minute scrambling and ensures that your business is in a good position for a sale.  For example, does the business have a line of credit? Not having one doesn’t mean a red flag as some businesses will self-fund. However, in some instances, having a line of credit can mean that a company may be in a position to take on bigger projects or hire staff that would normally exceed everyday cash flow. Basically, the company has the potential to expand or react to changes if needed.

2. Plan for your post-sale strategy. An important, and often forgotten, consideration is what you’re going to do after the sale. For example, creating a plan for the money you’ll receive from the sale will set you up for long-term success. Working with a financial planner can help you determine the right course of action to meet your personal financial goals, including paying off debt or investing those funds.

If you’re planning to retire after selling your business, it’s important to consider if it is financially feasible. Similarly, you may want to continue working at the company for a period of time after the sale to help with the transition process. This is something that the new owner will need to agree to as part of the sale. If this is the case, be sure to develop an exit plan for your last official day. You may also want to continue working at a different company or in a different industry.

3. Have a solid, specialized team. Selling a business is a big decision, and you should develop a team that will help you not only maximize your return, but minimize your risk and liability.

Your family lawyer is a great and trusted resource for your will and similar matters, but when it comes to buying or selling a business, you want to hire a merger and acquisitions lawyer. Similarly, you should consult a certified public accountant with experience in buying or selling businesses to help you plan and prepare.

4. Separate business and personal funds. Co-mingling business and personal funds can lead to problems. Some business owners will co-mingle their business and personal funds or run personal expenses through their business. This can be a mistake because it might make your business look less profitable and complicate financing on the buying side. Itamar advises business owners to address the co-mingling of funds at least three to five years before you want to sell, if not sooner.
5. Consider the long-term impact of current decisions. You should always have the sale of your company in the back of your mind when making critical business decisions. For example, it can go a long way when you’re trying to sell your business if you own the building as well as the business.
   
   

Itamar cautions against the enticing offers that may come along where selling your building can yield great short-term gains. When you think about selling your business, that’s one less asset you’d have at the bargaining table.

You may regret selling your building for that great offer a few years down the road because potential buyers may be apprehensive about buying your business because they could be asked to leave when your current lease ends and location is key to profitability in certain industries. Always be sure to consider long-term impacts before selling any real estate assets.

6. Involve your banker or lender early in the process. Aside from discussing what a sale could look like, your banker can help you with other common business planning activities, such as developing a succession plan, which is critically important when it comes to selling a business. If your kids or partner’s surviving spouse disagree about how much the business is worth, it can complicate the selling process. Open, ongoing discussions with your lender about your plans and loans can help you prepare for any scenario, both before and after a sale.