So, you’ve given your heart and soul to your small business for decades. For a thousand reasons (exhaustion, boredom, greener pastures), you’ve decided it’s time to move on. Selling your products and services may have come easy for you all these years, but selling your business is another thing altogether. Selling your business isn’t as straightforward as selling your house. The many factors for success must be considered and maximized to achieve your ideal result. 

Here are some things to consider:

• Prep for your sale well in advance. Your buyer wants 3-5 years of Profit & Loss statements to review. Given the instability of the COVID years, maybe even more. Review your docs and make sure everything is in order, and don’t be caught off guard with questions you don’t know the answer to. In a perfect world, have a trusted advisor look at them too (just to get fresh eyes on them)

• One of the issues facing a business sale is determining the price/value. If you’ve watched “Shark Tank” and are expecting the same valuation protocol, you may be in for a surprise. Here are the factors: What is your EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)? Basically, what’s the profit? You’ll need this number for the past five years. Also, how much inventory do you have; what’s the wholesale and retail value of the inventory; how desirable is the inventory; what do you owe on the inventory? One additional factor is how have you, the owner, been compensated. Do you have any additional non-taxable benefits from owning this business that a new owner would enjoy?
• How will you advertise this opportunity? There could be unintended consequences for announcing this sale in your local market. Long-time employees may feel betrayed. Long-time customers may lose faith in your service. Vendors may not extend credit or cooperate with your plans. This announcement needs to be done appropriately, given your unique situation. 
• Unless you are extremely lucky, this will take longer than you expect. Oh sure, you think this business is the greatest thing in the world (it is, after all, your world), but not everyone sees it the same way. In our experience, it’s not uncommon for a small business sale to take months or years to connect the perfect buyer and seller. We don’t have any experience with a business sale taking any less than six months. Expect it to be longer than that. 
• Agreeing on a valuation method is your first hurdle. Agreeing on a price is the second. However, if your buyer needs to borrow money (SBA, Traditional bank, Family member) for the purchase, the primary factor will be what the lender thinks the business is worth. I’ve seen many buyers and sellers agree on a price twice what the lender is willing to lend. Do your homework here and get a reasonable business valuation in advance. As in: what will your bank loan on this company?
• Finally, some buyers will approach you for “owner-finance.” (Dramatic pause). Be cautious here. As well-intentioned as this is, there are a host of problems with this approach:
  • You still own the business if the buyer defaults.
  • You’ll be very concerned about any changes they may make.
  • Count on hearing from current employees and customers for the foreseeable future. 
  • You still don’t have your money.

While this is a decent option in a family transaction, it can be dangerous with friends, employees, or casual acquaintances. It can work, but write an airtight contract!

Add to all of this the emotions you’re managing while saying goodbye to “your baby,” it’s a minefield for mistakes. Be disciplined, do your homework, get some quality advisors on your team, and you can navigate these uncharted waters. 

Next week: ESOP!