by Sandi Rosner for Stitchcraft Marketing
Perhaps you’re getting a little restless. You’ve built your business into a successful enterprise, and now you find yourself thinking about new challenges. Maybe you daydream about retirement. Whatever your circumstances, the time will come when you’re ready to sell or close your business.
In this article, we’ll look at the pros and cons of selling vs. closing down. We’ll discuss some of the steps involved in selling your business. And we’ll talk about what you should do now to make sure you’re prepared for a smooth transition when the time comes.
Selling vs. Closing
You’ve spent years building your business. You deserve to reap the benefits of all the work when you leave. In most cases, selling your business will bring a better financial return than simply shutting down. The price at which you sell is based on the expectation of future revenues, as well as the value of your assets. When you close, you’ll simply be disposing of the assets at a steep discount.
But, if your priority is moving on as quickly as possible, closing down is the way to go. Selling your business will likely take a minimum of 6 months, and might take more than a year. What if you don’t find a buyer? You could find yourself closing down the business a year or two later than you initially wanted to.
Preparing to Sell Your Business
Get your financial house in order
A prospective buyer is going to spend a lot of time examining your books. To maximize the value of your business, work with your accountant to make sure your financials are clean.
You’ll need to have your business tax returns for at least the last 3 years. If you’ve delayed filing your taxes, get it done before you put the business on the market.
Pay off as much business debt as you can. Your buyer will likely ask that you clear outstanding debt with the proceeds of the sale, so you might as well take care of this in advance.
Be sure the business assets are separate from your personal assets. If your car is owned by the business, transfer the title.
Get an independent assessment of your company’s value
There are lots of formulas for estimating the value of your company – 3 to 6 times annual cash flow and 2.5 times annual profit are commonly quoted. But every business is different, and those variables can make a big difference in the value of your business.
Consider retaining an experienced business broker to produce a valuation of your company. For a fee, the broker will analyze your financials, along with the internal and external factors affecting your business value. They will use this information to determine the price you can expect your business to fetch.
When Beth Casey sold her hand-dyed yarn company, Lorna’s Laces, she didn’t need a broker to handle the sale. She had already agreed to sell the business to a long-time employee, Amanda Jarvis. Casey had a broker perform a business valuation. The price Casey and Jarvis had tossed around was right in the middle of the range given to them by the broker. Casey feels the broker’s fee was money well spent. It was reassuring to have an unbiased and independent source confirm that the business was being sold for a fair price.
Assemble your team
Talk to your accountant and your attorney. If they do not have experience in business transfers, you may want to ask if they can recommend a specialist.
Do you need a business broker? According to FitSmallBusiness.com, you should bring in a broker if:
- You need help finding potential buyers
- You don’t know what your business is worth
- Your business network isn’t very extensive
- You want to sell as quickly as you can
The broker’s fee will likely be about 10% of the selling price. In exchange, the broker will help you through every step of the process.
If your business is internet based, Quiet Light Brokerage is highly rated. For companies with revenues between $1 million and $50 million, BusinessExits is a popular broker. For smaller companies, BizBuySell.com is a great on-line option.
Clean up Your Marketing
One of the biggest assets of a modern business is the relationship with an existing audience. Any potential buyer is going to evaluate your website, your email list, and your social media activity. Will those customers and prospects stick with the business under new ownership?
If you are the public face of your company, begin to pull back a bit. Make sure your customers are familiar with your brand, not just your personality. Your social media following is not a valuable asset if it can’t be transferred seamlessly to the new owner of the company.
Identify Potential Buyers
In looking for a buyer, start close to home and work your way outward. Here are some possibilities to consider:
A family member: If you have children or other relatives already working in your company, are they interested in taking over the business?
An employee: Selling to a employee (or to a group of employees) can make for a remarkably smooth transition, since you won’t need to spend as much time bringing them up to speed on operations.
Your suppliers, distributors and customers: You may find that one of your suppliers or distributors would welcome the opportunity to bring more vertical integration to their business. Even if they don’t want to buy your company, they may know others who are interested. For retail businesses, do you have a customer who spends a lot of time in your shop? Ask if they are interested in buying the company!
Your competitors: Would your business represent a smart extension of product line or distribution network for one of your competitors?
Industry organizations: You’ve spent years developing relationships within the industry. Put that network to use. Every organization has a few members who seem to know everybody and everything. Arrange a conversation with that person and ask if they know anyone who might be interested in buying your company. Check the member benefits of the organizations to which you belong. Craft Industry Alliance has a classified section on their website where you can list your business for sale. Other organizations might have similar classified listings.
Of course, selling your business to a family member or somebody else close to you comes with a unique set of challenges. Any dysfunction in those relationships is likely to be magnified. Beth Casey offers this advice:
“Remember that at the end of they day, this is a business transaction. Whatever your relationship, make sure everyone walks away from the table feeling they got a fair deal. This isn’t a zero-sum game. Everybody can walk away a winner.”
According The Balance Small Business, one of the biggest mistakes potential business sellers make is waiting too long and failing to plan ahead. It’s a lot like keeping house: if you spend a little time each day keeping things tidy, you won’t need to spend the whole day cleaning before company arrives.
Talk to your accountant about keeping your books as if you intend to sell the business tomorrow. Keep your eye out for potential successors among the people you work with every day. As much as you love your company, you never know when that perfect buyer will walk in the door with an offer you can’t refuse!
Stitchcraft Marketing can help you create and execute a marketing plan that eases the transition to a new business owner We can also act as a relationship broker for certain sales. Contact Leanne at the agency to find out how we can help you build your business.