Ready to sell your business? You already know how important big-picture financials, like the valuation and market conditions, are to the final sale price. But what about the more nuanced details? Here is a quick list of lesser known but highly important factors that can impact the success of your personal exit strategy.
1. Outside Perspective
You know your business inside and out, but we still recommend hiring a business consultant or industry expert before you initiate the sale. An objective third party can provide an unbiased look into your operations and can verify the accuracy of your team’s efforts. Get an accountant to double-check the financials, an inventory team to look into the stockroom, and so on. These external checks and balances validate and even add to your business’s value.
2. Personal Expenses
Transitioning from being a business owner to a former business owner can throw a wrench in your lifestyle. Before selling, think about how you’ll adjust to the reduction in tax-friendly expenses and other pass-throughs. Most entrepreneurs expect to walk away with a large lump sum after selling their business, but it’s not a guarantee. Calculate how the sale will holistically impact your plans, so you can minimize the financial ripples.
3. Your Current Lease Agreement
If you lease your business space, read the contract carefully. Some agreements have clauses that restrict or prohibit the sale of a business without prior approval from the landlord. It’s imperative that you understand your lease terms and how they align with the business sale.
4. Culture and Brand
Your business is more than just its financials. It also has a unique culture and brand that reflects your vision, values, and personality. Selling your business means passing these elements to someone who may not share your ideals. This effect is even more pronounced if your brand revolves around your personal image. Will your employees, customers, and vendors trust the new ownership?
5. Family Involvement
Running a family business can be a dream—until you need to negotiate a sale. Depending on your structure, you might have to deal with prickly realities.
What if your children are invested in the business’s success, but you’re set to sell it? Will they stay on as employees or continue to run the company? Even selling the business to one of your children could inflame tensions if the others feel ignored. Defining their share in your will may not solve the problem, if they feel that it was a bad deal.
6. Family Dependency
Some families depend on a business’ income to survive, whether through ownership or employment. The impacts of a family business sale echo far beyond the boardroom. Think about how to provide support if necessary. If the new owners will carry on the business, you can try to negotiate employment contracts or royalty payments.
7. Legal Entities
Whether you have an LLC, a sole proprietorship, or a corporation, it’s important to pay attention to legal considerations and tax implications. For instance, selling a corporation’s shares is generally more straightforward than transferring assets in an LLC. The sale becomes trickier when you have multiple connected businesses. You might need to amend operating agreements or dissolve partnerships first.
8. Business Assets
It’s tempting to throw all of your assets into the sale, but it may not be feasible. Evaluate every asset’s useful life. If you’re keeping items that won’t be valuable to the new owner (like personal furniture or 20-year-old computers), remove them from the sale. And don’t forget about non-tangible assets like patents, trademarks, and proprietary technology. Make sure they are fully protected.
9. Definition of Success
Before selling your business, define what success means to you. Is it purely financial? Or are there intangible factors like preserving your legacy or ensuring employee stability? Your definition should inform your approach to negotiations and potential buyers. Know what you’re willing to compromise on and what is non-negotiable.
10. Your Next Chapter
Any time your mind is free from numbers and contracts, try to envision your life post-exit. This is a major life transition that will undoubtedly have emotional ties. Perhaps you want to retire and focus on your family and hobbies. Maybe you want to start a new business venture or shift to a different industry. Whatever you think your future should look like, have a plan in place to make it happen. After all, that’s what you’re known for as an entrepreneur—making things happen.
Selling your business can usher you into a new and better chapter. But it requires venturing into the nitty-gritty details if you want to preserve your legacy and secure your Win. We’re here to help.