Succession Planning Series: Steps to Selling Your Business

In the last few weeks, we’ve explored a variety of ways to approach succession planning, from passing the business to a successor to transferring ownership through an employee or management buyout.

Another option to keeping the vision behind your hard entrepreneurial efforts alive and seeing your company’s continued growth and success is the option of listing and selling your business.

This possibility is often approached last minute as it can be such a hard decision for entrepreneurs. As with the other strategies, good planning takes time and is vitally important in order to receive the full value for the business. Let’s explore the steps involved to selling your business, laying a foundation for not only a successful transition but better ensuring the company continues to flourish in the years to follow.

Selling my business – am I ready?

The decision to sell your company can be one of the most difficult to make. However, knowing when the time is right and planning ahead will improve your chances of getting both the best sales price and conditions.

It’s tempting to make some quick changes in advance of listing your business. Without proper planning and lead-time, however, making last minute cosmetic changes to a company can easily result in disappointment.

Planning and preparing for the sale of your business can take months, if not years. Here are a few things to consider as you start preparations.

  1. Seek out advice: Choose an experienced outside adviser who can help you with the preparations for selling your business. Consult an accountant or lawyer regarding the tax and estate planning implications of sale. Find a lawyer or consultant who specializes in mergers and acquisitions to advise you all that is required to ensure you’ve dotted all the i’s and crossed all the t’s from a legal perspective, as you anticipate selling your business. This is one of the most important professional decisions you’ll make, so seek professional advice.
  2. Make sure you’re showing a profit: You can’t expect a reasonable, let alone high, offer if you’re only breaking even. Don’t take too much money out of the business. Good retained earnings on your balance sheet—the portion of the net income that hasn’t been distributed to the shareholders—indicate to buyers, and their financiers, that the business has been profitable over the long run and is healthy.
  3. Increase sales and lower expenses: Analyse your practices and how you work day to day to find ways to increase efficiency, cut costs and control inventory without affecting your operations. Revisit and reevaluate your marketing plan and see how you might expand your market and perhaps offer new products or services to boost sales.
  4. Continue to invest and improve: Just because you’ve decided you’re leaving doesn’t mean you scale back on work. Now is the time to amp up efforts and investment if you are to see a healthy return. Keep equipment and materials maintained, stock ample, employees happy and sales continuing, if not expanding.
  5. Develop a strategic plan: A formal plan that presents measurable goals and milestones for the coming years will give your business credibility as a growing concern with long-term potential.
  6. Develop repeatable processes and empower your people: Make sure that the practices you employ in the operations of your businesses can be repeatable and teachable. If you’re processes must be done by you, and you alone, it will be challenging to find a buyer. A low turnover rate for management and employees is a good sign, so ensure that internal conflicts are minimized and that your team – managers and employees – are stable and relatively content. A strong, professional team adds value to any business!
  7. Stand out from the crowd: Now is the time to showcase what is it that makes your product or service unique to that of your competition? Selling your business continues to rely on the marketing strategies you’ve utilized thus far in building a successful company.

What is the value of my business?

Regardless of to whom you might be handing the keys to your business, you will need a business valuation that establishes a realistic and fair dollar figure.
You need to know an accurate and fair valuation of your business as you prepare to exit and establishing that value isn’t easy. It is integral as you seek to exit your business.
Research shows that we tend to overestimate the worth of the things we value. As with other items we hold dear, such as our homes or vehicle, perhaps, it’s not unusual for entrepreneurs to have an unrealistic idea of the value of their business.

Even if it’s a family member to whom you’re turning over the ownership, it’s important to seek an objective valuation. A professional valuation can help to ease any potential family disputes, help plan your estate and optimize your tax treatment. A professional valuator will help you set a selling price and determine whether a buyer’s offer is reasonable.

Ultimately, a professional, outside evaluation will have more influence with potential buyers than numbers you’ve generated in-house.

Earnings are obviously key to establishing the value of your business and your assets may also play significantly. Your business may also be more valuable in pieces than as a whole. For example, a buyer may find your real estate holdings more attractive as an asset than the entire business.

The appraised market value may not be the be all end all. Your business may meet all the criteria of a potential buyer, making it a uniquely good fit in their vision, and they’re willing to pay a premium.

How do I find a buyer for my business?

You’ve navigated the process thus far, have consulted with professionals and know what the asking price is for your business. What’s next? Finding a buyer…

Potential buyers will be looking at your numbers! They’ll be wanting to see profitability, efficiency in your operations, the potential for growth and what constitutes your vision and business strategy.

Here are a few ideas to consider when ready to list your business:

  • using business brokers
  • canvassing competitors
  • contacting industry consolidators
  • presenting yourself as a potential acquisition target

To ensure a successful sale and transition, it is important to define, develop and implement a plan that guarantees the ongoing growth and success of your business. Timing is everything, of course and, to reiterate, if you are in a hurry you risk not realizing the return your after.

Consider yourself as a potential buyer of your business and try to see your company through their eyes. Recognize his or her needs and then shape your business to fit those needs. Typically, they’re concerned with the following:

  • Business valuation
  • Financing
  • Risk factors, which might include growth potential, industry conditions, operational problems and so on
  • Transitioning new ownership into existing business

It’s not unusual for the first step to be that of word of mouth: sharing through the circle of acquaintances within the industry as well as consulting accountants and lawyers, who often have their ear to the ground regarding businesses for sale. They also advise industry associations that they are interested in selling, and occasionally engage a business broker.

Imagine Kootenay can help you sell your Kootenays based business!

An established listing resource, where, within our pages you can find numerous well-established businesses for sale in the Kootenays. Connecting sellers to buyers, and vice verse, opportunities for success are broad and equally favourable for small, medium or large enterprises and the economy is both supportive and welcoming.

With the conditions so favourable – increasing population, highly educated and diverse workforce coupled with the supportive economic landscape – Imagine Kootenay can help you listen to your soul, and help you launch into your next chapter, whether that be buying or selling a business.