Important Steps to Take when Selling a Business
Selling a business is a complicated and detailed process. Business sales involve months of careful planning and preparation, and there are numerous steps that must be taken in order to guide the process toward a successful conclusion. Here are some of the most important steps owners need to take as they execute their exit strategy:
- Decide who You are Selling the Business To
Business sales can take many forms. Maybe you are thinking about selling the company to a group of employees or some members of your own family. Or maybe you are looking to sell to a larger competitor, an outside investment group, or an outside individual buyer. There are numerous possibilities, and there are countless ways a sale can be structured. It is important to decide well ahead of time which type of buyer you are looking to attract, how you want the sale to be structured, and what your level of involvement will be in the company (if any) after the sale is completed.
- Determine an Acceptable Price
Once you know what type of transaction you are focusing on, you need to decide how much you are willing to accept to sell your business. This should be within a reasonable valuation range that is set based on an independent valuation. An evaluation specialist can help you determine a realistic value for your company using various methodologies; which may include the liquidation value of your assets, a multiple of your net earnings, the purchase price of comparable businesses in your area (if available), or a combination of these. The valuation method that is used will depend largely on the type of business you have and the industry you are in.
- Organize your Financial Information and Other Important Records
Organize your financial records in a way that makes it easy for prospective buyers to find the information they are looking for. Namely, buyers will want to know the business’s previous earnings from recent years and their current trajectory – whether earnings are trending up or down. This will give buyers a good idea of the company’s future earning capabilities.
Along these same lines, you’ll want to make it as easy as possible for buyers to do their due diligence. Be sure all of the company’s documents and records are properly organized and filed in a way that is easy to access. You should also have all of your documentation reviewed by an experienced business lawyer to help ensure that everything is in order and nothing is missing or out of place.
- Take Steps to Enhance the Value of your Business
As you prepare to put the business up for sale, look for opportunities to enhance its value and make it more attractive for prospective buyers. Some ways this could be accomplished may include reducing expenses, streamlining processes, upgrading technology to increase efficiency, and implementing more effective marketing strategies.
- Target and Qualify your Prospective Buyers
You will need to develop a strategy to locate the largest possible pool of qualified potential buyers. This strategy will vary depending on who your target market is. For example, if this is employee buyout or a sale to other family members, you will not need to do any additional marketing. On the other hand, if you are looking for an outside buyer or investment group, you will need to figure out the most effective and cost-efficient way to locate these prospects. This may require the assistance of an outside professional if you are not comfortable doing this on your own.
Once you have begun marketing your business for sale, you will need to have a process in place to qualify potential buyers, filter out those that are not a good fit, and move forward with those who might be a good fit. To accomplish this, you will need a comprehensive list of appropriate questions to ask prospects during the screening process. Over time, you should end up with some qualified buyers. Some will want to move on to the next steps in the process, while others will decide to drop out. This should eventually culminate with at least one prospect who wants to buy your business.
- Negotiate and Close the Deal
When you and a buyer (or group of buyers) have moved to the final stage, it is time to negotiate and close the deal. This is where step two will prove to be very helpful as you will know exactly what bottom-line price you are willing to ultimately settle for. During the negotiation and closing processes, your business attorney will handle most of the heavy lifting. Your attorney will negotiate with the buyer’s legal counsel, draft all of the pertinent documents, and take other important steps to help ensure that the sale closes smoothly and seamlessly.
Selling a Business in Southern California? Contact the Skilled and Knowledgeable Attorneys at Garmo and Garmo, LLP
The business sales process is complicated, and it can be very confusing – especially for owners who have never been through it before. There are many potential pitfalls that could trip you up, and it is important to have strong legal counsel by your side to help ensure that your best interests are fully protected throughout the process. If your business is located in San Diego or anywhere in Southern California, contact Garmo and Garmo, LLP for legal assistance. Call our office today at 619-441-2500 or message us online to schedule a free initial consultation with one of our attorneys.