Opinions of contributing entrepreneurs are their own.
According to data from the Small Business Administration, more than half of small business owners in the US are over the age of 50. Because of this, many of us are starting to think about the future and possibly one day sell our businesses. Therefore research site BizBuySell reported that the business-for-sale marketplace grew nearly 5% last year, a 19% gain since 2020, and the first half of 2023 has already delivered “strong year-over-year gains.”
There are many reasons why I expect continued growth in the number of small business owners looking to leave their businesses in the coming years. Our population is aging and a large part of the boomer generation has reached retirement age. Capital gains and estate taxes remain – at least for now – at historic lows. The volatility of the stock market prompts some people to seek more stable, controllable returns for their money. And a growing number of millennials have now gained enough business experience to want to go on their own two feet, and buying an existing business rather than starting from scratch is an attractive option.
If some or all of these factors make you think it’s time to sell your business, know that it won’t happen overnight. You need to plan and take these six actions before dipping your toes in the market.
Take another look at your purchase-sale agreement
If you have other equity partners, I hope you have some sort of partnership or buy-sell agreement that spells out the process to follow if one or more partners leave a company – whether voluntarily or not. This agreement covers matters such as appraisal, insurance, taxes, transfer of shares and death or illness of a partner. If you and your partner(s) have agreed to sell your business at some point in the future, it is critical to update this agreement so that everyone on the same page knows how the transaction will go. No buyer wants to end up in a messy divorce.
Pay for an appraisal now
People always think we are more important than we really are. And entrepreneurs always think our companies are worth more than they really are. Before entering the buy/sell market, it is important to get a reality check. To do this, I recommend hiring an independent appraiser (ask your accountant or attorney or search online) and let a professional with no agenda tell you how much your business could be worth. Your appraiser must have a CBA (Certified Business Appraiser) or ASA (Accredited Senior Appraiser) qualification. Having an appraisal done sooner is a reality check and allows you to focus on the areas of your business that need to be resolved to increase the value of your business. This way you can enter the market with a price that you have confidence in.
Do a document check
Take the time now to scan every important (and current) document, contract, agreement, tax return (at least from the last three years), and written record your company has. This includes all paperwork that supports your employee, real estate, insurance, intellectual property, contractors, leases, loans, supplies, sales, and government obligations. Organize and store these documents online where they can be shared with permission, as you will definitely be asked to provide them. Don’t make it a last minute fire drill.
Hire a technology expert
Technology has become an important factor in selling a business. We live in a big data world and buyers are looking for information they can use. They also want to ensure that a target’s systems are up-to-date and secure so that major investments and post-sale changes can be minimized. To do this, you’ll need to engage a third-party technology company to evaluate your network, hardware, security, software, and databases and give you an honest report on how out of date you are and what investment is required to bring your system into (at least) the 19th century.
When you sell your company, you will be visited by many outsiders. Perception is important and if a potential buyer drives a car over potholes in your property, trips over cracks in your sidewalk and needs to wipe away drips from a leaky ceiling, it will affect what they think of you as an owner and how much they value you. apply to your company. Like any homeowner looking to sell their home privately, you need to spruce up your physical location to make it look attractive and up-to-date.
Finally, assemble your team
You are not going to successfully sell your business at the best price possible without team effort. Now is the time to think and assemble your advisory team to help you through this transaction. The most important thing in my opinion is having a great financial person – a certified public accountant or similar – working alongside you because at the end of the day this transaction is all about the numbers and you need someone with a financial mind and good communication skills to help you help drive it. You also need a good lawyer to review and make agreements. There may be other experts on the periphery, such as a specialist tax advisor or an insurance advisor. I also highly recommend using a corporate broker and having that broker be part of your team as well. Brokers perform a vital function – they have experience buying and selling businesses and can use that experience to move a transaction forward despite the inevitable obstacles they will encounter.
Here are the six things you need to do before you even list your business for sale. Do you notice something? How about this: We should all be doing these things whether or not we intend to sell our businesses, right? It is our job as business owners to maximize the value of our businesses so that they continue to grow and succeed. That’s what a potential buyer thinks. We should think the same.