There's an old saying that the two best days of owning a boat are when you buy it and when you sell it. The same expression applies to your business.
As The New York Times points out, you only sell your business once. Even if you currently have no intentions of selling, it's best to be prepared for the day when it's time to do so. The more prepared you are, the less likely the process will cause you any great stress; and the greater chance you'll get a reasonable price that rewards you for all your years of hard work.
Here are some key considerations.
Who Will Want to Buy Your Business?
It could be a competitor, a larger company or some like-minded person looking to escape the corporate rat race. Whoever the buyer may be, you don't want to waste time in negotiations with someone who isn't serious. Compile a short list of people or companies with the financial resources and cultural compatibilities you'd prefer to assume stewardship of your business.
If you have any direct dealings with any of these entities, put out feelers to assess potential interest when you are ready to sell. This could not only expedite the sales process, but increase the likelihood of a smooth and satisfactory transition for both parties.
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Why Would Someone Want to Buy Your Business?
Due diligence for any sale requires a close examination of your books. The better records you keep, the better your chances of selling your business and getting the price you want. The worth of your business is determined by whether it demonstrates both good performance historically and future potential for:
- Competitive advantages
- Customer loyalty and growth
- Strategic assets (e.g., location, intellectual property, supplier contracts)
- Complementary product/service offerings
- An experienced workforce
What is Your Business Worth?
As Wealth Pilgrim notes, if you can't sell your business, all you really have is a job. A high-paying job, perhaps, but just a job nonetheless, because what makes it your business is that you cash in on what you've created. That adds up to more than just the market value of your assets and your accounts receivables. Perhaps more importantly, there's goodwill, the "sweat equity" your business has built up over the years. Examples of goodwill, as noted by BizBen include:
- Customer lists
- Trademarks, brand identity
- Vendor relationships
These are intangibles that, unlike an inventory spreadsheet, have value that is open to interpretation. Generally speaking, the seller tends to place that value higher than the purchaser. In some cases, you could retain certain aspects of the business. For example, you might sell your business, but retain certain patents that you hold under your name, even though they were created as part of your business.
You might be thinking you should have your lawyer negotiate all this. That's certainly a good idea, but also consider using a business broker. While business brokers in some way operate similarly to real estate agencies, and in many states, must be certified by a real estate commission, their practice is limited to business entities. There is also additional certification provided by such groups as The American Business Brokers Association. Brokers can represent either sellers or buyers, and in, some cases, both if all parties agree to that arrangement.
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Can You Document What Your Business is Worth?
The best basis to establish the value of your business is documentation. This includes such records as:
- Current profit and loss statement plus those from at least the last three years
- Current balance sheet plus those from at least the last three years
- Current tax return plus those from last three years
- Inventory list
- Asset list
- Commercial property and/or equipment appraisals or lease agreements