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Business Owners Who Are Thinking About Selling

5 Questions for Business Owners Who Are Thinking About Selling

For business owners who are thinking of exiting their business, this is a big decision, filled with emotion, which must be thought through entirely. It’s important to make sure you are fully prepared to part with your business and that the timing is right. Here at Green & Co. one of the main factors that we look for in a potential seller, before we take on a new listing is, “Are they ready and motivated to sell?” We as business brokers do not want anyone to list their business before they are truly ready to sell. We always tell people that we will be here when they are ready, and the last thing we ever want to do is to rush someone into selling. We know how difficult the business sale process can be, and we want to make sure our sellers are 100% ready to pull the trigger. So, we thought we would offer 5 questions for business owners to ask themselves when they are thinking of selling. Hopefully they will help you figure out if the time is right to sell. 


What are you going to do next?

In order to feel comfortable and confident passing the reins of your business along to a new owner, a seller should have a strong desire to move on to whatever is next in their life. That might be retirement, coupled with travel and spending time with family. It might be a complete relocation to another state. It might just mean moving forward with a new business venture that excites you more than your current business. Whatever your answer is, it doesn’t matter unless it’s “I don’t know” or “I want to start the same kind of business down the street.” Either of those answers are a red flag that you need to consider carefully. If you aren’t sure what you would want to do if you sold your business, you need to be certain that you are seriously ready to walk away from it. Leaving behind a sure thing before you have a plan for what’s next can be a risky move. Selling your business or not could be a hard decision to make if you don’t have something lined up already. The second answer would make your current business virtually unsellable, as the majority of buyers will insist on a non-compete agreement as part of the Purchase Contract. So, if you want to replicate this business in the same area, maybe it’s time to think about an expansion rather than a sale. 


What have you done to replace yourself in the business?

This is an important question to ask yourself, which will signify if the timing is right. If you walked away from this business today, would it keep running? You want that answer to be yes, because a buyer will definitely be looking to see how efficiently the business will run without you at its helm. Have you trained key employees to be able to carry out your responsibilities? Have you taken the time to detail a written company manual that outlines all of the key positions and how to fulfill each of their responsibilities? That document would eventually be a road map for a new owner to follow so they could run the business or train new employees. If the business absolutely depends on you to operate, you might need to get some of these things in place before you are ready to list it for sale. If you would like to list your business soon, it shouldn’t take more than a few months to get these things accomplished. If employees are trained to fulfill your responsibilities and/or you have a document that outlines all the processes and procedures of the business, then your business will be much more salable and the handover to the buyer will be much easier as well. 


Do you know what your business is worth?

Businesses aren’t like houses. You can’t look up the “Zestimate” of your business online, so how would you know what it’s worth? How do you know you want to sell if you aren’t even sure of what it’s really worth? If you are thinking of selling your business, the best place to get the most accurate number of what your business is worth to a qualified buyer would be to consult with a professional business broker. They will need your business’s financial information to perform the valuation. The last 3 years of business tax returns, the last 12 months rolling Profit & Loss statement, the inventory amount (if goods are held for resale), and the approximate value of all fixtures, fittings, and equipment. Your business broker will work with you to get to the true “owner benefit” or seller’s discretionary earnings number, by performing a financial recast (adding back in any large personal expenses coming out of the business that are not essential to the operation of the business). Be aware that sometimes CPAs and accountants give their clients an estimate of what their business “should” be worth or might be worth for tax purposes, but those numbers never seem to accurately line up when compared to a valuation by a qualified business broker. Often CPAs and accountants don’t understand how businesses are valued for the open market, so they are unfortunately unable to give a realistic number.


Will this price be enough for you to sell?

Once you know how much your business would be worth on the open market, then you need to decide if this number is enough to make you pull the trigger at this point in time. Is it enough to retire on? Is it enough to fund your next business venture? Is it enough to pay back the capital investment you made to start or buy the business originally? If it’s not, talk to your business broker and ask him or her where your owner benefit needs to be to get the number you desire. They will be able to work backwards from your number to give you an idea of where your business needs to be performing consistently. Then you will need to create a new business plan and put it into action in order to get you there. If the value you are given on your business is enough for you to move forward, or if you don’t really have any other choice and need to sell now, then you can start the process of getting your business listed with your business broker. 


Are you willing to stay on for a period of time post-closing?

This is another good question to answer that will help sellers get clarification on this topic, before they go to market. In most business sales, the seller will agree to help the new owner with the transition after closing at no cost to the buyer. This is called the “familiarization” period. It is negotiated in the Purchase Contract, but often your Listing Agreement will detail how much time you are willing to offer for this. It is customary in Florida for sellers to offer 2 weeks of their time at no cost to the buyer, but familiarization is completely negotiable. In many instances, sellers will often stay on longer after the familiarization period as a paid employee or consultant. It’s important to know how you feel about this before you decide to list your business for sale. Some buyers (especially buyers of larger companies) will want to negotiate an employment contract with the seller as part of the deal. So have an idea in mind of how long you would be willing to do this and for how much money. If you are selling because you want to retire and travel, then this might not be an option you would entertain, and that’s ok too. You might want to take on an “advisory” role or just tell the buyer that you will be open to phone calls for 6 months. Everything is negotiable, but we just want you to know how you feel about staying on after the sale, so you are ready with your thoughts when the topic does come up.