Selling your business is an important decision because of its potentially far-reaching effects on your family, staff, customers, employees and yourself. Sellers rarely decide to put their business on the market on the spur of the moment. A great deal of thought and analysis usually precedes such a decision.
Most owners have in mind one or more reasons for selling before they make the final decision, which include, but are not limited to:
- Creating an exit strategy for the shareholders because of failing health, burnout or a wish to retire.
- An unwillingness or inability to invest needed capital in the business.
- Cashing in by liquidating some or all of the value in the business.
- Lack of a suitable successor, but a desire to see the firm continue.
- Partnering with a larger firm to gain greater resources for growth and access to broader and more sophisticated programs and infrastructure.
- The opportunity to participate in managing a larger business, territory or sector.
Preparing For a Sale
So, if this sounds like your business, how can you prepare your company to avoid the possibility of a fire sale? Timing is essential. Consider both the external economy and your firm’s internal conditions when you are deciding whether to sell.
- A soft economy will have an adverse effect. It could be that it’s the best time at the stage of growth their company is in, but it may not be best in terms of the state of the economy.
- Ensure that your financials are clean and clear, preferably audited or reviewed and easy for potential buyers to read.
- Analyze the tax consequences of the sale. In a C corporation, if the owner sells the assets, money earned by the company is taxed twice: when it is earned and when it goes out to the shareholders. If an owner sells the stock of a C corporation, the money bypasses the company and goes directly to the owner; therefore, he only pay taxes once. In an S corporation, an LLC or an LLP, the owner can sell assets without any concern.
- Choose the correct method of valuing the business. Consult your M&A advisor.
- If your lease is up for renewal, make sure the new agreement is transferable in the event of the sale of your business.
- Limit your attorney’s participation to the legal aspects of the sale. The attorney’s job is to protect you legally, not run the deal.
- Strong, healthy companies will always be in high demand. If there is room for improvement in your firm, now is the time to make changes to preserve your future.