As any successful entrepreneur knows, building a profitable business often involves a lot of personal sacrifices in order to reap uncertain rewards. There may come a time in the life of any business when you consider the possibility of selling the business. This thought may arise for a number of reasons, not the least of which is a desire to reclaim some time for yourself and perhaps take that vacation you have been putting off for years.
Selling your business is a major decision, both financially and personally. Before pursuing this exit strategy, you should carefully consider these four questions:
What are my objectives as the owner of the business? For example, do you want to recoup some of the money you have put into the business to fund another project or your retirement?
What are my objectives as the manager of the business? For example, do you want to retire or remain actively involved in the business?
What are my objectives for the business itself? For example, the business may be at a point where it has to grow in order to survive.
Who else will be affected and what will they want? For example, employees, key customers, suppliers, and/or other shareholders.
Figuring out your objectives will help you to decide if a sale is right for you, and if so, what the best way to structure the sale may be. If going ahead with the sale, consider the following:
When to sell your business
Selling at the right time can have a significant impact on the price you receive. Generally, you should plan ahead so that you have time to make your business as attractive as possible (see below), but considerations such as the general state of the economy – and your industry in particular – are important.
Choosing the right advisers
Unless you have experience in selling a business, you might want to consider hiring a financial advisor to provide assistance. At the very least, you should have an accountant provide a valuation for the business, and obtain legal assistance for such things as drafting the sales agreement.
Show strong financial performance
While your finances should always be in good order, they will receive intense scrutiny by prospective buyers. You should explore ways in which you can cut costs or improve efficiency in order to show better financial performance. Good sales forecasts with realistic, supported assumptions are extremely beneficial.
Streamline your business operations
You are likely to receive a better price for your business if potential buyers are more confident in its prospects for success. A clearly outline strategy and objectives in your business plan is key to communicating this. You may also want to clearly show that the business is not too dependent on you that it will suffer once you are gone. For example, it is important to show that you have a strong management team in place or that the business’s customer base is not dependent on your personal relationships.
Keeping it confidential
Confidentiality can be critical to the selling process. Perceived uncertainty may cause employees to quit, customers to switch, or creditors to get nervous. If your business is known to be for sale for too long, prospective buyers may wonder why, driving the price down or even making your business impossible to sell. ‘Blind ads’, use of a broker, and the use of non-disclosure agreements are all considerations to ensure that confidentiality is maintained.
As with all aspects of running a successful business, proper planning goes a long way in ensuring that you get the results you are looking for. Proper preparation and careful consideration of your alternatives will help you to ensure the successful sale of your business – if this option is right for you.
Dr. Dax Basdeo has several years’ experience as an economist in the civil service, and is currently the Executive Director of the Cayman Islands Investment Bureau, a Government agency that focuses on issues relating to business development and inward investment. He holds a B.Sc. in economics from the Wharton School of Business, a MBA from Manchester Business School, and a Ph.D. in Strategic Management from the R.H. Smith School of Business. A published author, his research focuses on the actions that firms take to impact performance and the discovery of innovative business opportunities.