Preparing your business for sale

Unlike selling a car or even a home, it’s not possible to make your business look beer by sprucing it up or adding window dressing. Years of planning should go into selling your business. Before you prepare your business for sale, ask yourself: Who is most likely to buy my business? What do I hope to achieve in the sale – an immediate exit or a buy out? What value do I believe my business has? Is that value based on an appraisal or just my own belief?

Any buyer has the right to perform due diligence to determine the value. This is similar to staging an open house for selling your home but it’s much more invasive. A buyer of a business has the right to full disclosure of all financial matters, litigation, employment issues, customer lists, marketing strategies etc. If a competitor shows interest in your business, be sure the buyer is not on a fishing expedition. While potential buyers do sign non-disclosure agreements, if all they want is a better way to compete with you a non-disclosure agreement does nothing to protect you.

 To protect yourself and get the most for your business:
■ Have a formal appraisal/valuation done immediately. This will give you a good idea of the sales price you might expect and how an outside expert views your business. This expert can give you great insight into how you can improve your financial statements to create more value.
■ Meet with your attorney and review forms of protection from someone who is not sincerely interested in buying your business.
■ Consider selling your business to your employees. While they may not have the money readily available, an employee stock ownership plan could allow you to sell for full value and potentially defer or avoid tax on the entire sale.
■ Be realistic in your sales price and be sure you know if you are looking for an immediate exit or a buy out. Your decision can affect the price by millions of dollars.
■ Be aware of tax consequences. Have your CPA explain why buyers buy assets (which may result in more tax) rather than corporate stock (which has unlimited liability).

 If you have any desire to sell your business, inform your attorney and CPA. Sometimes it takes years to get a business into the best position for sale.