Are you ready to sell your business? If so, there are a few questions you need to ask yourself. What will you do after the sale? Understand it is not what you will do with the money you get from the sale but also think about how you would spend your time. There are many business owners who are depressed once they sell their business. Here are a few pointers which will help you decide whether it is time to make an exit gracefully and move on:
Not Passionate about your Business Anymore – Once you begin to feel that going to your office each day is more of a burden than fun, then it is time to move on. It is a sure sign of burnout.
Not Interested in Further Investment – If you show no inclination to take your business to the next level, by making capital expenditures, consider it a legitimate reason to sell your business.
Lacks the Skill Set to Enhance Business Growth – There are many small business owners who feel that they do not have the right skill set to take their business further ahead. If you feel that you are falling short of the required skill set, then it’s an ideal time to sell your business.
How to Sell your Business
Once you have made the decision to sell your business, there are a number of documents that you need to put together. This is necessary and very much mandatory because it will not only simplify the process but also create an impression on the buyer. Let’s go through the checklist of what you need to do before advertising the sale.
Get a professional appraiser – The first and foremost thing that you need to do once you have decided to sell your business is to do a business evaluation. You should know the worth of your business. Evaluating your business with the help of an external source will give you an idea about the value of your business and also help you gauge the price offered by the buyers. Business evaluations give a detailed report of the market position of your business, financial situation and also the strength and weakness of the business. Investment banking firms, business brokers and local accounting firms are the ones who can help evaluate your business. However, ensure that the firm which performs the evaluation has experience in selling firms similar to yours.
Ensure that your books are in order – Once you have decided on your professional appraiser, next thing to do is to get your accountant to prepare the adjusted balance sheet and a “statement of seller’s discretionary income.” The statement of seller’s discretionary income shows the figures of tax returns of the last three years as well as the depreciation deductions, any contributions, interest expense, interest income and also any other income/expense that are not part of your business. Ask your accountant to prepare an adjusted balance sheet that will display the assets of your firm to fair market value and it will remove the assets and liabilities such as leased equipment which the buyer does not have to acquire. These documents will help the appraiser give a professional opinion about your firm’s market value.
Consult your tax advisor – It is always wise to talk to a tax advisor regarding how to handle your finances before you pursue your sale. This will help you get an insight into the structure of your deal and also the type of personal and corporate tax situation you would be encountering.
Get the help of a good brokerage firm – When choosing a business broker, ensure that he is either a member of the International Business Brokers Association or someone who is a certified Business Intermediary who is proficient in dealing with small businesses. The primary job of the broker is to prepare a contract called “offering memorandum.” It contains an in-depth description of your business, the tax returns, the balance sheet and the statement of the discretionary income of the seller.
Confidentiality agreement – Your business broker will also make an agreement with the buyer before you hand over the documents containing the information about your company. This is done so that the buyer does not leak any sales information which could be detrimental to the current operations.
Check the financial credibility of the buyer – Do not assume that the potential buyer has the financial ability to buy your firm. Get a background check done on him before you make any commitments. This can be done through an affluent business attorney. They will carefully analyze the financial document signed by the buyer before sending it to you.
Last but not the least, once you have signed the deal for the business exit; be precise about each step of the sale, starting from signing of the deal through the closing of the deal. Also, ensure to file the paper work of the sale with the IRS by filling out Form 8594. This should be done jointly by the seller and buyer.
You are welcome to add more points, if you feel anything important has been missed out.