Essential Phases in Selling Your Business
Nov 21, 2024Selling a business can be one of the most significant decisions an entrepreneur will ever make. Whether you're driven by a lucrative offer or the desire for new ventures, understanding the steps involved is crucial. Today, Shannon breaks down the essential phases of selling a business, as informed by her personal experience helping her husband Jason sell his business.
Before any formal offers are made, it's critical to start with thorough market research. This involves understanding the market value of similar businesses, finding potential buyers, and possibly hiring a business broker. Shannon emphasizes the importance of working with professionals who understand these transactions well. According to her, "Much like any major transaction, things will take longer than expected," so initial groundwork can save a lot of headaches later on.
The first official phase of selling a business is receiving or making an offer. At this point, both buyer and seller discuss and negotiate the terms. It's not just about the price but also about the conditions under which the sale will occur. Shannon advises, "It's crucial to have a clear offer and terms. As a seller, you have to decide what you're willing to accept." This includes determining the sale price, payment timeline, any seller financing options, and what happens if the buyer defaults.
Due diligence is where both parties validate the claims made about the business. This stage is crucial for ensuring that all information is accurate and that both parties are operating in good faith. The buyer will likely review financial statements, tax returns, and other key documents. Shannon recounts that during Jason's business sale, "He had to provide a list of his top 10 customers, their spending, and his financial statements." This transparency, however, comes with risks. Confidentiality and non-compete agreements are essential to protect sensitive information during this time.
Even though valuation can be part of the due diligence phase, Shannon stresses its importance as a standalone step. She recommends getting a professional valuation from a Certified Valuation Analyst (CVA), like she's in the process of becoming. A professional valuation offers an objective measure of what your business is worth, considering both the internal "book value" and the external "market value." Shannon puts it succinctly, "The best measure of value is ultimately what someone is willing to pay for your business."
Transition planning is often the most time-consuming and stressful phase. It involves the intricate details of handing over the business to new owners. From changing titles and contact information to training new management, this phase ensures the smooth continuation of operations. For Jason, this phase involved multiple visits and meetings to discuss training, inventory counts, and vehicle conditions. Shannon describes it as akin to packing for a move, "Imagine you're being told to pack up because we're moving, but you're not told what day the moving day is." This uncertainty adds another layer of complexity.
Moreover, if you are heavily involved in the day-to-day operations, this phase can be particularly challenging. Documenting procedures, creating training manuals, and ensuring a smooth transition are essential. Shannon warns that "if you don't have these key things, it's going to be very hard to sell."
The process of selling a business involves more than just finding a buyer and signing a contract. Starting with thorough market research sets a solid foundation. Negotiating a clear and mutually agreeable offer is essential. Conducting due diligence ensures both parties are on the same page. A professional valuation provides an objective measure of your business's worth. Finally, detailed transition planning ensures the seamless continuation of the business.
Shannon offers one final piece of advice for those considering selling their business: "Start the process now... you should be in a better position come the time that you really do want to sell, where it won't feel as rushed."
Selling a business can be complex, lengthy, and emotionally taxing, but with proper planning and professional guidance, it can also be rewarding. For more insights like these, make sure to tune into "Keep What You Earn" and equip yourself with the knowledge to navigate the financial aspects of your entrepreneurial journey.
What you'll hear in this episode:
04:07 Plan for risks; consult lawyer; validate terms.
07:36 Due diligence and valuation crucial for selling.
10:23 Business transition planning involves intricate processes.
15:25 Partner with professionals, follow phases, plan transitions.
If you like this episode, check out:
The Best Way to Get Out of a Business Funk
What We Learned From "Un-Scaling" This Year
3 Ways to Become a Better Small Business Customer
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